1. When an interest-only swap is established on an amortizing basis: (Points : 1) the debt service exchanges decrease periodically through time as the hypothetical notational principal is amortized. the debt service exchanges are the same each year, but the level of interest and principal changes as the loans amortize. there is no such thing as an amortizing interest-only swap. None of the above
Question 2. 2. Systematic risk: (Points : 1) is also known as non-diversifiable risk. is market risk. refers to the risk that remains even after investors fully diversify their portfolio holdings. All of the above.
Question 3. 3. The “reporting currency” is defined in FASB 52 as: (Points : 1) the currency of the primary economic environment in which the entity operates. the currency in which the MNC prepares its consolidated financial statements. a currency that is not the parent firm’s home country currency. a) and c)
Question 4. 4. Explanations for Home Bias include: (Points : 1) Domestic securities may provide investors with certain extra services, such as hedging against domestic inflation, that foreign securities do not. There may be barriers, formal or informal, to investing in foreign securities. Investors may face country-specific inflation in violation of PPP. All of the above
Question 5. 5. Correspondent bank relationships can be beneficial: (Points : 1) because a bank can service its MNC clients at a very low cost. because a bank can service its MNC clients without the need to have personnel in many different countries. because a bank can service its MNC clients without developing its own foreign facilities to service its clients. All of the above
Question 6. 6. International banks are different from domestic banks in what way(s)? (Points : 1) International banks can arrange trade financing. International banks can arrange for foreign exchange transactions. International banks can assist their clients in hedging exchange rate risk. All of the above
Question 7. 7. An “international” gold standard can be said to exist when: (Points : 1) gold alone is assured of unrestricted coinage. there is two-way convertibility between gold and national currencies at stable ratios. gold may be freely exported or imported. all of the above
Question 8. 8. What is the difference between accounting exposure and translation exposure? (Points : 1) Translation is about going from one language to another, accounting is just about the numbers. Accounting exposure and translation exposure are the same thing. Hedging one always involves increasing the other. Hedging one might involve increasing the other.
Question 9. 9. Purchasing Power Parity (PPP) theory states that: (Points : 1) the exchange rate between currencies of two countries should be equal to the ratio of the countries’ price levels. as the purchasing power of a currency sharply declines (due to hyperinflation), that currency will depreciate against stable currencies. the prices of standard commodity baskets in two countries are not related. a) and b).
Question 10. 10. Forward parity states that: (Points : 1) any forward premium or discount is equal to the expected change in the exchange rate. any forward premium or discount is equal to the actual change in the exchange rate. the nominal interest rate differential reflects the expected change in the exchange rate. an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country.
Question 11. 11. Systematic risk is: (Points : 1) nondiversifiable risk. the risk that remains even after investors fully diversify their portfolio holdings. a and b. none of the above.
Question 12. 12. A major risk faced by a swap dealer is sovereign risk. This is: (Points : 1) the probability that a sovereign counterparty will default. the probability that a country will impose exchange restrictions on a currency involved in an existing swap. the probability governments will intervene to support an exchange rate. None of the above
Question 13. 13. Nominal differences in currency swaps: (Points : 1) can be explained by the set of international parity relationships. can be explained by the credit risk differentials. can be explained by the quality spread differential. disappear when controlling for volatility.
Question 14. 14. The central bank of the United States is: (Points : 1) the New York Fed. the Federal Reserve System. the EXIM bank. None of the above—the U.S. does not have a central bank.
Question 15. 15. Since a corporation can hedge exchange rate exposure at low cost: (Points : 1) there is no benefit to the shareholders in an efficient market. shareholders would benefit from the risk reduction that hedging offers. the corporation’s banker would benefit from the risk reduction that hedging offers. None of the above
Question 16. 16. ADRs: (Points : 1) are American Depository Receipts. are denominated in U.S. dollars that trade on a U.S. stock exchange. are depository receipts for foreign stocks held by the U.S. depository’s custodian. all of the above
Question 17. 17. In which market does a clearinghouse serve as a third party to all transactions? (Points : 1) Futures Forwards Swaps None of the above
Question 18. 18. Privatization is often seen as a cure for bureaucratic inefficiency and waste; some economists estimate that privatization improves efficiency and reduces operating costs by as much as: (Points : 1) 5 percent 10 percent 15 percent 20 percent
Question 19. 19. The extent to which the firm’s operating cash flows would be affected by random changes in exchange rates is called: (Points : 1) asset exposure. operating exposure. a) and b) none of the above
Question 20. 20. With regard to operational hedging versus financial hedging: (Points : 1) operational hedging provides a more stable long-term approach than does financial hedging. financial hedging, when instituted on a rollover basis, is a superior long-term approach to operational hedging. since they both have the same goal, stabilizing the firm’s cash flows in domestic currency, they are fungible in use. None of the above statements are correct.
Question 21. 21. If a country is grappling with a major balance-of-payment difficulty, it may not be able to expand imports from the outside world. Instead, the country may be tempted to: (Points : 1) impose measures to restrict imports. impose measures to discourage capital outflows. Both a) and b) None of the above
Question 22. 22. The “world beta” measures the: (Points : 1) unsystematic risk. sensitivity of returns on a security to world market movements. risk-adjusted performance. risk of default and bankruptcy.
Question 23. 23. The bid price: (Points : 1) is the price that the dealer has just paid for something–his historical cost of the most recent trade. is the price that a dealer stands ready to pay. refers only to auctions like eBay, not over-the-counter transactions with dealers. is the price that a dealer stands ready to sell at.
Question 24. 24. The European Monetary System (EMS) has the following chief objectives: (Points : 1) to establish a “zone of monetary stability” in Europe. to coordinate exchange rate policies vis-à-vis the non-EMS currencies. to pave the way for the eventual European monetary union. all of the above
Question 25. 25. The most popular way for a U.S. bank to expand overseas is: (Points : 1) branch banks. representative offices. subsidiary banks. affiliate banks.
Question 26. 26. A representative office: (Points : 1) is a way for the parent bank to provide its MNC clients with a level of service greater than that provided through merely a correspondent relationship. is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in dealings with the bank’s correspondents. is a step up from a correspondent relationship, but below a foreign branch. All of the above
Question 27. 27. The ultimate guardians of shareholder interest in a corporation are the: (Points : 1) rank and file workers. senior management. boards of directors. all of the above
Question 28. 28. A “primary” stock market is: (Points : 1) a big, internationally important market like the NYSE. a market where corporations issue new shares to initial investors. where brokers and market makers trade. None of the above
Question 29. 29. The management of translation exposure is best described as: (Points : 1) selecting a mechanical means for handling the consolidation process for MNCs that logically deals with exchange rate changes. selecting a mechanical means for handling the consolidation process for MNCs that makes this quarter’s accounting numbers as attractive as possible. selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as LIFO on the income statement and FIFO on the balance sheet. selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as FIFO on the income statement and LIFO on the balance sheet.
Question 30. 30. Eurobonds are usually: (Points : 1) bearer bonds. registered bonds. bulldog bonds. foreign currency bonds.