FIN 435 ODU FINAL STUDY

World War I caused the suspension of the gold standard for fixed international exchange rates because the war

interrupted the free movement of gold

The increase in value of a currency pegged to gold or another currency is known as

revaluation

A speculative technique whereby the speculator sells an asset that he/she doesn't own, such as a currency, to another party for delivery at a fortune date is called

selling short

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars abd £4.2474 in britsh pounds. Therefore, the exchnage rate of the dollar under tgis fixed exchange regime was

£0.2055/$

Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. If Andrea's expectations are correct, then she could profit in the forward market by ________ and then ________.

B) buying yen for ¥128.53/$, selling yen at ¥128.00/$

The Corporate Wealth Maximization Model

B) combines the interests and inputs of shareholders, creditors, management, employees, and society.

Privatization is a term used to describe

B) government operations that are purchased by corporations and other investors.

The ________ of an option is the value if the option were to be exercised immediately. It is the options ________ value.

B) intrinsic value; minimum

A bank holiday

B) is a term used when a country's central government freezes (temporarily) all deposits in commercial banks.

The Board of Directors

B) is the legal body which is accountable for the governance of the corporation

In the Anglo-American model of corporate governance, the primary goal of management is to

B) maximize shareholder wealth.

As a general statement, it is safe to say that businesses generally use the ________ for foreign currency option contracts, and individuals and financial institutions typically use the ________.

B) over-the-counter; exchange markets

In January 2002, the Argentine Peso was officially valued at a rate of Peso1.40/USD. More recently the exchange rate is Peso 3.10/USD, thus, the Argentine Peso ________ against the U.S. dollar.

B) weakened

The post WWII international monetary agreement that was developed in 1944 is known as the

Bretton Wood Agreement

Refer to Table 7.1. The May call option on pounds with a strike price of 1440 means

C) $0.0088/£

Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. If Andrea buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$ she will earn a profit of ________.

C) $1460.94

When discussing the structure of corporate governance, the authors distinguish between internal and external factors. ________ is an example of an internal factor, and ________ is an example of an external factor.

C) Executive management; auditors

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

C) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.

According to the authors, what is the single most important mandate of the European Central Bank?

C) Promote price stability within the European Union.

Assume that a call option has an exercise price of $1.50/³. At a spot price of $1.45/³, the call option has ________.

C) an intrinsic value of $0.00

A speculator in the futures market wishing to lock in a price at which they could ________ a foreign currency will ________ a futures contract.

C) buy; buy

The Shareholder Wealth Maximization Model

C) clearly places shareholders as the primary stakeholder

All exchange-traded options are settled through a clearing house but over-the-counter options are not and are thus subject to greater ________ risk.

C) counterparty

Which of the following correctly identifies exchange rate regimes from less fixed to more fixed?

C) independent floating, crawling pegs, exchange arrangements with no separate legal tender

For at least two years from early 2006 to early 2008, the euro maintained a strong and steady rise in value against the U.S. dollar (USD). Which of the following were NOT a contributing factor in the assent of the euro and the decline in the dollar?

C) large U.S. balance of payment surpluses

The primary operational goal for the firm is to

C) maximize the consolidated after-tax profits of the firm.

A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

C) option

A call option whose exercise price exceeds the spot rate is said to be ________.

C) out-of-the-money

A speculator that has ________ a futures contract has taken a ________ position.

C) sold; short

According to a recent Forrester survey, which of the following categories is the single most important cause of losses of stock value?

C) strategic mistakes

The price at which an option can be exercised is called the ________.

C) strike price

Beginning in 1991 Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because

C) the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U.S. dollar.

A special Drawing Right is a unit of account established by

C) the International Monetary Fund.

Anglo-American is defined to mean

C) the United States, United Kingdom, Canada, Australia and New Zealand.

Systematic risk can be defined as

C) the added risk that a firm's shares bring to a diversified portfolio.

A call option on euros is written with a strike price of $1.30/euro. Which spot price maximizes your profit if you choose to exercise the option before maturity?

D) $1.35/euro

MultiProducts, Inc. has two classes of common stock. Class A has 1 million shares with 10 votes per share. Class B has 2 million shares with 1 vote per share. If the dividends per share are equal for both class A and B stock, then Class A shareholders have ________ of the votes and ________ of the dividends.

D) 83.33%; 33.33%

Which of the following is NOT a factor in determining the premium price of a currency option?

D) All of the above are factors in determining the premium price.

Which of the following is NOT an important concept when distinguishing between international and domestic financial management?

D) All of the above are important distinguishing concepts.

Which of the following is NOT a contract specification for currency futures trading on an organized exchange?

D) All of the above are specified.

Which of the following is NOT a difference between a currency futures contract and a forward contract?

D) All of the above are true.

Which of the following is NOT true for the writer of a put option?

D) All of the above are true.

Which of the following statements regarding currency futures contracts and forward contracts is NOT true?

D) All of the above are true.

Which of the following is NOT an example of a Eurocurrency deposit?

D) All of the above could be considered Eurocurrency deposits

Which of the following groups of countries have replaced their individual currencies with the Euro?

D) Germany, The Netherlands, and Italy

Which of the following is an operational process that can destroy firm value?

D) accounting irregularities

The amount that an investor pays to obtain an option may be described as the ________.

D) all of the above

The stakeholder capitalism model is characterized by the desire of controlling shareholders to maximize long-term return to equity just as in the shareholder wealth maximization model of corporate governance. However, stakeholder capitalism controlling shareholders are more constrained by which of the following groups than in the shareholder wealth maximization model?

D) all of the above

Which of the following is a reason why managers act to maximize shareholder wealth in Anglo-American markets?

D) all of the above

Which of the following is a way in which the euro affects markets?

D) all of the above

"Maximize corporate wealth"

D) all of the above.

The buyer of a long call option

D) all of the above.

The buyer of a long put option

D) all of the above.

The main advantage(s) of over-the-counter foreign currency options over exchange traded options is(are)

D) all of the above.

Under a fixed exchange rate regime, the government of the country is officially responsible for

D) all of the above.

Which of the following is not a form of direct foreign investment?

D) international trade

Under the Shareholder Wealth Maximization Goal of Corporate Governance, poor firm performance is likely to be faced with all but which of the following?

D) prison time for executive management

Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. If Andrea buys $100,000 worth of yen at today's spot price her potential gain is ________ and her potential loss is ________.

D) unlimited, $100,000

A put option on yen is written with a strike price of ¥105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

D) ¥115/$

Which of the following led to the eventual demise if the fixed currency exchange rate regime worked out at Bretton Woods?

D. All of the above

The______ as of DEC 2007 is the common currency if 13 of the countries that are members of the European Union

Euro

A United States firm had chosen ti depsoit money in a British bank and have it denominated in U.S. dollars. This is an example if a (an) ___ deposit

Eurodollar

A country that regulates the rate at which its currency is echanges for all ither currencies is considered t have a ________ exchange rate

Fixed or managed

The price of one country's currency in units of another currency or commodity is the

Foreign currency exchange rate

Which of the following inverstment startegies will allow me to make a profit if i inticipate that the value of the Euro, a currency that i do not own, is going yo fall over the next 90 days abd i am correct in my orediction?

Sell Euros short

______Currency is expected to devalue or depreciate relative to major currencies

Soft/weak

You check the yahoo.com currency webpage and find that the japanese yen is trading at a rate of 113 yen per dollar. This rate of exchange is typically refered to as the

Spot rate

Another name for the International Bank for Reconstruction and Development is

The World Bank

A currency that has increased in foreign exchange value relative to a floating rate currency has

appreciated

Which of the following is not an attribute of the "ideal" currency?

(A) monetary independence B) full financial integration C) exchange rate stability ) D) All are attributes of an ideal currency. (Write answer)

The International Monetary Fund

(In recent years has provided large loans to Russia, South Korea, and Brazil. Was created as a result of the Bretton Woods Agreement. Aids countries with balance of payments and exchange rate problems) D. is all of the above (Right answer)

Refer to Table 7.1. What was the closing price of the British pound on April 18, 2002?

A) $1.448/£

In London an investor can buy a U.S. dollar for £0.5356. In New York the £/$ exchange rate is the same as found in London. Given this information, what is the $/£ exchange rate in New York?

A) $1.8671/£

What was the annualized forward premium on the pound if the spot rate on January 20, 2005 was £0.5156$ and the 180 day forward rate was £0.5000/$?

A) 6.24%

Which of the following is the "signature" clause of the Sarbanes -Oxley Act?

A) CEOs and CFOs of publicly-traded firms must vouch for the veracity of the firm's financial statements.

A foreign currency ________ contract calls for the future delivery of a standard amount of foreign exchange at a fixed time, place, and price.

A) Futures

Peter Simpson thinks that the U.K. pound will cost $1.43/£ in six months. A 6-month currency futures contract is available today at a rate of $1.44/£. If Peter was to speculate in the currency futures market, and his expectations are correct, which of the following strategies would earn him a profit?

A) Sell a pound currency futures contract.

The tremendous international mobility of financial capital is forcing emerging market nations to adopt one of two polarized choices, free float or currency board, for their foreign currency exchange regimes. Which of the following would NOT be a reason for an emerging nation to choose to have their currency freely float?

A) The country desires to lose political influence on the valuation of their currency.

a currency that has decreased in foreign exchange value relative ti a floating rate currency has

depreciated

The drop in value of a currency pegged to gold or another currency is know as

devaluation

Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. Andrea should ________ at ________ to profit from changing currency values.

A) buy yen; at the forward rate

A foreign currency ________ option gives the holder the right to ________ a foreign currency whereas a foreign currency ________ option gives the holder the right to ________ an option.

A) call, buy, put, sell

The relationship among stakeholders used to determine and control the strategic direction and performance of an organization is termed ________.

A) corporate governance

The attempt by many countries to stimulate their domestic economies and to gain access to global financial markets, is causing more and more countries to choose a ________ or ________ exchange rate regime

A) floating; monetary union

A call option whose exercise price is less than the spot rate is said to be ________.

A) in-the-money

A currency is considered hard if

A) it is expected to be revalued or appreciate.

Which of the following is generally NOT considered to be a viable operational goal for a firm?

A) maintaining a strong local currency

A small economy country whose GDP is heavily dependent on trade with the United States could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.

A) pegged exchange rate with the United States

Unsystematic risk can be defined as

A) the total risk to the firm.

The maximum gain for the purchaser of a call option contract is ________ while the maximum loss is ________.

A) unlimited; the premium paid

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

B) $2.07/£

Jack Hemmings bought a 3-month British pound futures contract for $1.4400/£ only to see the dollar appreciate to a value of $1.4250 at which time he sold the pound futures. If each pound futures contract is for an amount of £62,500, how much money did Jack gain or lose from his speculation with pound futures?

B) $937.50 gain

If share price falls from $15 to $12 per share, and pays a dividend of $1 per share, what was the rate of return to shareholders

B) -13.33%

) Refer to Table 7.1. The exercise price of ________ giving the purchaser the right to sell pounds in June has a cost per pound of ________ for a total price of ________.

B) 1440, 1.06 cents, $662.50

About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller.

B) 5%

________ are domestic currencies of one country on deposit in a second country.

B) Eurocurrencies

Which of the following is NOT true for the writer of a call option?

B) The maximum gain is unlimited.

An option whose exercise price is equal to the spot rate is said to be ________.

B) at-the-money

The IMFs exchange rate regime classification identifies ____ as the most rigidly fixed, and ____ as the least fixed

exchange arrangements with no separate legal tender; independent floating

The United States currently uses a ________ exchange rate regime.

floating