FIN 4604 QUIZZES

What is an example/are examples of market imperfections? Select all that apply.

- Import restrictions - Immigration laws

What explains the existence of MNCs? Select all that apply.

- Market Imperfections - Product Life Cycle

Which of the following participants in the FX market accounts for the majority of the trading volume?

- Nonbank dealers - International Banks

An article that we read in an earlier module mentioned how banks in Turkey that had borrowed in US dollars were negative affected by depreciation of the lira against the US dollar because the cost in liras of the borrowed amount goes up when the lira depreciates? What type of exposure is this an example of? Select all that apply.

- asset exposure - economic exposure

Suppose that US company Texas Instruments (TI) will receive from a French client €10,400,000 in 90 days. What is the currency risk TI is facing? Select all that apply.

- dollar appreciation - euro depreciation

What are companies trying to achieve by internationalizing the cost of capital? Select all that apply

- increase shareholders wealth - lower cost of capital

What is /are strategies for managing operating exposure? Select all that apply

- product indifferentiation - research and development investment - flexible sourcing policy

What are some major similarities between forward and futures markets? Select all that apply.

- they are both today contracts to be met in the future - the available positions (long,short) are similar.

A British investor purchases shares of AT&T at $30 per share when the exchange rate is 1.19 dollars per pound. Assume that over the next year, AT&T pays a dividend of $0.50 per share and its stock price rises to $34 per share, and that the exchange rate in one year is 1.2 dollars per pound. What will be the rate of return for the investor in pounds? Do not round calculations (that is, keep at least six decimals) until the very end. Enter your final answer as a number with four decimals (i.e., enter 0.098473 as 0.0985)

0.1404 (see quiz 11) can chegg it

Company Z, a low-rated firm, desires a fixed-rate, long-term loan. Company Z currently has access to floating interest rate funds at LIBOR+1.25% and its direct borrowing cost is 10.25% in the fixed-rate bond market. In contrast, company A, which prefers a floating-rate loan, has access to fixed-rate funds in the Eurodollar bond market at 8.75% and floating-rate funds at LIBOR+0.50%. If the companies were to enter into an interest rate swap, what are the maximum possible savings (i.e. the Quality Spread Differential)?

0.75 % (see quiz 10) chegg - ish

What is the connection between the trade deficit and the fiscal deficit?

0/2 pts (see quiz 3) use internet

Harmony is a South African mining company that exports 22 ounces of gold to the US. Gold is priced in US dollars but Harmony's workers are paid in rand (the currency of South Africa). The current price of gold is 1,657 dollars per ounce. The current exchange rate is 17.97 rand (R) per $1. Harmony's current mining costs are R12,000 per ounce. Expected one-year inflation rates are 1 in the U.S. and 5 in South Africa (in%). If the exchange rate in one year is consistent with PPP, what is the gold price that would maintain Harmony's profits constant in real terms? Enter your answer with no decimals (so enter 9.8 as 10)

1,674 (see quiz 9) can chegg it

The spot exchange rate between the dollar and the euro is 1.18 dollars per euro (USD/EUR). The expected inflation rates are: 2% in year 1 and 3% in year 2 in the US; and 1% in year 1 and 1.5% in year 2 in the euro-area. What would be the forecast of the exchange rate USD/EUR in two years based on PPP? (Hint, use PPP from year zero to year 1 first, then from year 1 to year 2, using the given inflation rates)

1.2093 (see quiz 6 pt 2)

If a Starbucks coffee costs $3 in the US and EUR5 in France, what should be the exchange rate euros per dollar according to the absolute version of PPP theory?

1.67

Given the information below, what is the cross-rate of the pound in Singapore dollars (i.e., Singapore dollars / British pound)? Select the closest answer.

1.75 (SEE CHAPTER 5 QUIZ)

How is APV different from the typical NPV analysis of a domestic project?

1/2 pts (see quiz 12)

Capital controls are mentioned in the article and also in the presentation comparing fixed and flexible exchange rate regimes. Explain how capital controls would help Turkey. Be specific about describing what the capital controls are imposed on, and about the intended goal.

1/2 pts (see quiz 2)

What is the Balance of Payments connection between Japan's current account and Japan's becoming a net capital importer (mentioned in the article)?

1/2 pts (see quiz 3)

Given the following information, take advantage of the triangular arbitrage opportunity and calculate the US dollar profit for an investment of $1,000,000. Keep at least two decimals in your calculations and round at the very end to enter your answer with no decimals (i.e, if your final answer is 9.98, you will enter 10).

113,726 (CH 5 QUIZ)

What is the real (inflation-adjusted) exchange rate in 2018 (JPY/USD)? Enter your answer with two decimal places.

114.88 (see quiz 6 pt 2)

Why is the choice of optimal capital structure important for shareholders?

2/2 pts (see quiz 12)

The article mentions that "Last year, the current account managed to stay in the black despite the country's first trade deficit..." How can a country run a trade deficit but have a current account surplus?

2/2 pts (see quiz 3)

Briefly explain in your own words what is the source of diversification benefits when investing internationally. Provide an example. [Note: simply reproducing language from the textbook or online sources will get no credit. Note also the question is about "international" diversification, not about diversification in general, so answers along the line of not putting your eggs all in one basket will receive no credit]

2/3 pts (see quiz 11)

The article contains several mentions of "central bank intervention." Explain how the central bank intervention was implemented and what was the goal. Be specific in terms actors (who is intervening), currencies involved, and steps taken. Make sure your answer is specific to the article, but don't simply repeat the language in the article. Note this question is worth 4 points.

2/4 pts (see quiz 2)

Assume today's settlement price on a Chicago Mercantile Exchange futures contract is $1.3140 / EUR. You have a short position in two contracts. Your margin account currently has a balance of $1,400. The next three days' settlement prices are $1.3126, $1.3133, and $1.3049. Calculate the changes in the margin account from daily marking-to-market and enter the balance of account after the third day. The contract size of one EUR contract is EUR125,000.

3,675 (see quiz 7) can chegg this one

A speculator is considering the purchase of five three-month Japanese yen call options with an exercise price of $0.0096 per yen. Each option contract is for 1,000,000 yens. The option premium is $0.000135 per yen. The spot price is $0.009528 per yen and the 90-day forward rate is $0.009571 per yen. What will be the speculator's profit if the yen appreciates to $0.0098 per yen at option expiration?

325 (see quiz 7) can chegg this one

Use the information below to calculate the expected gain or loss on the carry trade strategy for an initial borrowed amount of 1,000,000 (you will have to determine the currency of borrowing). Keep at least two decimals in your calculations but round up or down at the end (enter the final answer without decimals).

35,944 (see quiz 6 pt 1) no idea.

The article mentions that Japan's trade balance "fell into an annual deficit for the first time since 1980." Answer the following two questions: What is a trade deficit? What factors drove Japan's deficit according to the article? You need to rephrase the article information. You will not earn full credit for simply reproducing words from the article.

4/4 pts (see quiz 3)

Harmony is a South African mining company that exports 23 ounces of gold to the US. Gold is priced in US dollars but Harmony's workers are paid in rand (the currency of South Africa). The current price of gold is 1,793 dollars per ounce. The current exchange rate is 17 rand (R) per $1. Harmony's current mining costs are R12,000 per ounce. Expected one-year inflation rates are 1 in the U.S. and 5 in South Africa (in%). What is Harmony's current level of profitability? (Enter your answer with no decimals)

425,063 (see quiz 9) can chegg this one

Assume you are a US exporter with an account receivable denominated in Singapore dollars to be paid to you in one year, in the amount of SGD 797,253. The current spot rate is 0.71 USD per SGD. You have decided to hedge using a put option, with an exercise price of 0.72 and a premium of 0.02. What would be the hedged US dollar amount of the receivable if in one year the spot rate is 0.73 USD per SGD? Enter your answer with no decimals.

566,050 (see quiz 8) can chegg this one

Assume you are a US exporter with an account receivable denominated in Singapore dollars to be paid to you in one year, in the amount of SGD 838,335. The current spot rate is 0.71 and the forward rate is 0.7, in number of USD for one SGD. What would be the US dollar amount of the hedged receivable using a forward market hedge? Enter your answer with no decimals.

586,835 (see quiz 8) can chegg this one

Assume you are a US exporter with an account receivable denominated in Singapore dollars to be paid to you in one year, in the amount of SGD 785,000. The current spot rate is 0.75 and the forward rate is 0.71, in number of USD for one SGD. Additionally, one-year interest rates are 7.1 in the US and 6.5 in Singapore, in %. What would be the US dollar amount of the hedged receivable using a money market hedge? Enter your answer with no decimals.

592,067 (see quiz 8) can chegg this one

speculator is considering the purchase of five three-month Japanese yen call options with an exercise price of $0.0096 per yen. Each option contract is for 1,000,000 yens. The option premium is $0.00015 per yen. The spot price is $0.009528 per yen and the 90-day forward rate is $0.009571 per yen. What will be the speculator's loss if the yen appreciates to $0.009571 per yen? Do not enter your answer as a negative amount (i.e., do not type a negative in front of your answer).

750 (see quiz 7) can chegg this one)

Calculate the dollar profit from the covered interest arbitrage strategy using the information below. Assume you can borrow $1,000,000. Do not round any intermediate calculations (keep at least two decimals). However, enter your final answer without decimals (i.e., 10 and not 9.8)

84,713 (see quiz 6 pt 1) or notes

[Note: read the question carefully and don't assume the setup is the same as the other quiz questions] Company A, a low-rated firm, desires a fixed-rate, long-term loan. Company A currently has access to floating interest rate funds at LIBOR+1.25% and its direct borrowing cost is 10.25% in the fixed-rate bond market. In contrast, company Z, which prefers a floating-rate loan, has access to fixed-rate funds in the Eurodollar bond market at 8.75% and floating-rate funds at LIBOR+0.75%. Assume the two companies enter into an interest rate swap and Company A gets 85 percent of the maximum savings. What would be the net cost or interest rate on the debt for Company A after the interest rate swap is completed? Enter your answer as a % and with two decimals (i.e., enter 9.80 to mean 9.80% or 0.098)

9.4 (see quiz 10) can chegg it 2nd option

Use the following information to answer the question below. CPI means Consumer Price Index. CPI changes (as a %) are used to calculate inflation rates. In 2017, what did PPP predict the spot exchange rate (JPY/USD) would be in 2018? Enter your answer with two decimal places.

97.49 (see quiz 6 pt 2)

What is an example of a Yankee stock offering?

A direct sale of new shares from a Mexican company to US investors

Which of the following is mentioned in the article and is also consistent with my presentation of exchange rate determinants ? [Remember: currency appreciation means the currency increases in value, and currency depreciation means the currency decreases in value, relative to other currencies]

An increase in interest rates results in currency appreciation

Company Z, a low-rated firm, desires a fixed-rate, long-term loan. Company Z currently has access to floating interest rate funds at LIBOR+1.25% and its direct borrowing cost is 10.25% in the fixed-rate bond market. In contrast, company A, which prefers a floating-rate loan, has access to fixed-rate funds in the Eurodollar bond market at 8.75% and floating-rate funds at LIBOR+0.50%. If the companies were to enter into an interest rate swap, what type of debt would each issue directly to investors?

Company A would issue fixed-rate; Z would issue floating-rate

The spot market involves entering into a contract today for the purchase or sale of foreign currency in the future.

False

Suppose that US company Texas Instruments (TI) will receive from a French client €10,400,000 in 90 days. What position should TI take in the forward market to hedge the associated currency risk?

Go short €10,400,000 against the US dollar

What are some possible reasons Nokia Corporation decided to cross-list on the Helsinki (Finland) and the New York stock exchanges? Select all that apply

Have access to the US market to raise capital

Given the information below, which currency is Dealer 3 overvaluing? Enter your answer as either GBP or SGD.

SGD (CH 5 QUIZ)_

Using the information below, what will be the spot rate of the Singapore dollar (USD/SGD) in two years based on the International Fisher Effect (=UIRP)? Show your work

SGD 0.81 see notes

Suppose that Texas Instruments (TI) will receive from a French client €20,400,000 in 90 days. The contractual size of one Chicago Mercantile Exchange Euro contract is €125,000. What is the futures market position TI should take to best hedge the promised cash flow?

Sell 163 futures contracts on the euro

The expected one-year inflation rate is 1% in the US and 3% in Egypt. According to PPP, what is expected to happen to the value of the Egyptian pound relative to the US dollar?

The Egyptian pound is expected to depreciate by approximately 2%

Based on IRP, if one-year interest rates are higher in the US than in Mexico, which currency should be selling at a forward premium or discount relative to the other one?

The Mexican peso should be selling at a forward premium to the US dollar

Based on the International Fisher Effect, if interest rates are higher in South Africa than in the US, which currency is expected to appreciate or depreciate relative to the other?

The South African rand is expected to depreciate relative to the US dollar

What tends to be true for a company when a change in exchange rate is exactly offset by the inflation differential?

The company's competitive position is not affected

If the Canadian dollar is expected to depreciate relative to the Mexican peso, what does PPP imply about the expected inflation rates in the two countries?

The expected inflation rate is higher in Canada than in Mexico

Which of the following is an example of privatization as a trend related to globalization?

The government divests of a state-run business

Under the theory of comparative advantage, multinational companies would not exist.

True

Which of the following is/are examples of Transfer Risk as a type of political risk? Select all that apply.

Unexpected imposition of outbound capital controls

What is the following an example of? A Spanish bank issuing dollar-denominated bonds to investors in the UK

a foreign bond

What type of international banking office operates like a local bank but it is legally part of the parent company?

a foreign branch

Assume you are a US importer with an account payable denominated in Singapore dollars to be paid in one year. You are considering hedging currency risk using a the options market. What type of option and position would you need to use?

buy a call option

What are some cash flows frequently encountered in international capital projects? Select all that apply

concessionary loans accumulated restricted funds

What is the major cost associated with stock cross-listing?

disclosure requirements

What type of instrument is a time deposit of dollars in an international bank located in a country outside of the US?

eurocurrency

A German product that is relatively price inelastic is likely to demonstrate a low degree of exchange-rate pass through.

false

Political risk generally favors parent company's direct financing rather than local financing by the subsidiary.

false

Assume you are a US importer with an account payable denominated in Singapore dollars to be paid in one year. You are considering hedging currency risk using a forward market hedge or a money market hedge. Answer the following two questions: - To hedge, would you go long or short the Singapore dollar in the forward market? - To hedge, would you need to borrow or invest in the money market in Singapore?

long and invest

Assume you are a US exporter with an account receivable denominated in New Zealand dollars due in six months. You are considering different approaches to hedge currency risk. Based on the table below showing US dollar hedged amounts, which approach is more appropriate?

money market hedge

Harmony is a South African mining company that exports 20,000 ounces of gold to the US. Gold exports are priced in dollars but Harmony's workers are paid in rand ("rand" is the South African currency). The current price of gold is $1,700 an ounce. The current exchange rate is 17.61 rand (R) per $1. Harmony's current mining costs are R14,000 per ounce. Expected one-year inflation rates are 1% in the U.S. and 5% in South Africa. Would Harmony's profits be positively or negatively affected by rand depreciation against the US dollar?

positively (can chegg this watch word play! see quiz 9)

What is a reason bearer bonds are more attractive to investors than registered bonds?

privacy

In the very first paragraph, it is mentioned "the lira hit its weakest level against the dollar in two months." If the initial exchange rate (two months ago based on the article) was 6 liras per US dollar, which of the following answers would be consistent with the weakening of the lira?

the current exchange rate is 8 liras per dollar

Does the regulation on bank capital adequacy associated with the most recent Basel agreements considers issues such as computer failure or poor documentation?

yes, it is part of operational risk