the ones in red are the incorrect ones
1. The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is: (Points : 1)
transaction exposure.
translation exposure.
economic exposure.
None of the above
2. 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).
3. During the period between World War I and World War II: (Points : 1)
the major European powers and the U.S. returned to the gold standard and fixed exchange rates.
while most countries abandoned the gold standard during World War I, international trade and investment flourished during the interwar period under a coherent international monetary system.
the U.S. dollar emerged as the dominant world currency, gradually replacing the British pound for the role.
None of the above
4. If one has agreed to buy foreign exchange forward: (Points : 1)
you have a short position in the forward contract.
you have a long position in the forward contract.
until the exchange rate moves, you haven't made money, so you're neither short nor long.
you have a long position in the spot market.
5. Amortizing currency swaps (Points : 1)
The debt service exchanges decrease periodically through time as the hypothetical notational principal is amortized
Incorporate an amortization feature in which periodically the amortized portions of the notational principals are re-exchanged.
a) and b)
None of the above
6. The main approaches to forecasting exchange rates are: (Points : 1)
efficient market, fundamental, and technical approaches.
efficient market and technical approaches.
efficient market and fundamental approaches.
fundamental and technical approaches.
7. A foreign branch bank: (Points : 1)
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.
operates like a local bank, but legally is a part of the parent bank.
is subject to domestic regulation only.
All of the above
8. The secondary stock markets: (Points : 1)
are the markets for "pre-owned" or "used" shares of stock.
provide marketability to shares.
provide price discovery or share valuation.
All of the above
9. With regard to the O.I.P.: (Points : 1)
the composition of the optimal international portfolio is identical for all investors, regardless of home country.
the O.I.P. has more return and less risk for all investors, regardless of home country.
the composition of the optimal international portfolio is identical for all investors, regardless of home country, if they hedge their risk with currency futures contracts.
None of the above
10. The link between a firm's future operating cash flows and exchange rate fluctuations is called: (Points : 1)
asset exposure.
operating exposure.
a) and b).
none of the above
11. An exchange-traded fund (ETF) is: (Points : 1)
the same thing as a mutual fund.
a portfolio of financial assets in which shares representing fractional ownership of the fund are sold and redeemed by the fund sponsor.
a portfolio of financial assets in which shares representing fractional ownership of the fund trade on an organized exchange.
None of the above.
12. If the interest rate rises in the U.S. while other variables remain constant: (Points : 1)
capital inflows into the U.S. will increase.
capital inflows into the U.S. may not materialize.
capital will flow out of the U.S.
None of the above
13. Publicly traded Yankee bonds must: (Points : 1)
meet the same regulations as U.S. domestic bonds.
meet the same regulations as Eurobonds if sold to Europeans.
meet the same regulations as Samurai bonds if sold to Japanese.
None of the above
14. A liquid stock market: (Points : 1)
is one in which prices reflect all relevant information quickly.
is one in which prices reflect all publicly available information quickly.
is one in which prices reflect price and volume information quickly.
is one in which investors can buy and sell stocks quickly at close to the current quoted prices.
15. 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.
16. A dealer in British pounds who thinks that the pound is about to appreciate: (Points : 1)
may want to widen his bid-ask spread by raising his ask price.
may want to lower his bid price.
may want to lower his ask price.
None of the above
17. A European option is different from an American option in that: (Points : 1)
one is traded in Europe and one in traded in the United States.
European options can only be exercised at maturity; American options can be exercised prior to maturity.
European options tend to be worth more than American options, ceteris paribus.
American options have a fixed exercise price; European options' exercise price is set at the average price of the underlying asset during the life of the option.
18. 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
19. Although the world economy is much more integrated today than it was 10 or 20 years ago, a variety of barriers still hamper free movements of people, goods, services, and capital across national boundaries. These barriers include: (Points : 1)
legal restrictions.
excessive transportation costs.
information asymmetry.
All of the above
20. When a currency trades at a discount in the forward market: (Points : 1)
the forward rate is less than the spot rate.
the forward rate is more than the spot rate.
the forward exchange rate is less than one dollar (e.g., €1.00 = $0.928)
the exchange rate is less than it was yesterday.
21. 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
22. An example of a political risk is: (Points : 1)
expropriation of assets.
adverse change in tax rules.
the opposition party being elected.
Both answers a) and b) are correct.
23. Prior to the 1870s, both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. Suppose that the dollar was pegged to gold at $30 per ounce, the French franc is pegged to gold at 90 francs per ounce and to silver at 9 francs per ounce of silver, and the German mark pegged to silver at 1 mark per ounce of silver. What would the exchange rate between the U.S. dollar and German mark be under this system? (Points : 1)
1 German mark = $2
1 German mark = $0.50
1 German mark = $3
1 German mark = $1
24. 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
25. In the swap market, which position potentially carries greater risks, broker or dealer? (Points : 1)
Broker
Dealer
They are the same swaps, and therefore carry the same risks.
26. 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.
27. Regarding the mechanics of international portfolio diversification, which statement is true? (Points : 1)
Security returns are much less correlated across countries than within a country.
Security returns are more correlated across countries than within a country.
Security returns are about as equally correlated across countries as they are within a country.
None of the above
28. A closed end mutual fund: (Points : 1)
invests in bonds of a particular maturity; when they mature, the fund closes.
trades on a stock exchange just like a publicly traded corporation.
always trades at Net Asset Value.
All of the above
29. 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
30. When a country's currency depreciates against the currencies of major trading partners: (Points : 1)
the country's exports tend to rise and imports fall.
the country's exports tend to fall and imports rise.
the country's exports tend to rise and imports rise.
the country's exports tend to fall and imports fall.
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