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1.

Which of the following is not a form of corporate control that could reduce agency problems for an MNC?

(a) Investor monitoring

(b) Stock options

(c) Hostile takeover threat

(d) All of the above

If choice d is selected set score to 2.

2. Which of the following theories suggests that firms seek to penetrate new markets over time?

(a) Theory of comparative advantage

(b) Imperfect markets theory

(c) Product cycle theory

(d) None of the above

If choice c is selected set score to 2.

3. Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks or trade names) in exchange for fees or some other specified benefits.

(a) True

(b) False

If choice a is selected set score to 2.

4. The Single European Act of 1987:-

(a) Reduced competition in most industries

(b) Eliminated competition in many industries

(c) Increased competition in most industries

(d) Reduced efficiency in most industries

If choice c is selected set score to 2.

5. Which of the following is not a way in which agency problems can be reduced through corporate control?

(a) Threat of hostile takeover

(b) Acquisition of a foreign subsidiary

(c) Executive compensation

(d) Monitoring by large shareholders

If choice b is selected set score to 2.

6. Due to the larger opportunity set of funding sources around the world from which an MNC can choose, an MNC may be able to obtain capital at a lower cost than a purely domestic firm.

(a) True

(b) False

If choice a is selected set score to 2.

7. A centralized management style for an MNC results in relatively high agency costs.

(a) True

(b) False

If choice b is selected set score to 2.

8.

An increase in the current account deficit will place

pressure on the home currency value,

other things equal.

(a) Downward

(b) Upward

(c) No

(d) Upward or downward (depending on the size of the deficit)

If choice a is selected set score to 2.

9. Which of the following would likely have the least direct influence on a country's current account?

(a) National income

(b) A tax on income earned from foreign stocks

(c) Tariffs

(d) Inflation

(e) Exchange rates

If choice b is selected set score to 2.

10. A weakening of the U.S. dollar with respect to the British pound would likely reduce the U.S. exports to Britain and increase U.S. imports from Britain.

(a) True

(b) False

If choice b is selected set score to 2.

11. Assume that a bank's bid rate on Swiss francs is £0.25 and its ask rate is £0.26. Its bid-ask percentage spread is:-

(a) 4.26%

(b) 4%

(c) About 4.17%

(d) About 3.85%

If choice d is selected set score to 2.

12. The forward rate is the exchange rate used for immediate exchange of currencies.

(a) True

(b) False

If choice b is selected set score to 2.

13. Assume the Canadian dollar is equal to £0.51 and the Peruvian Sol is equal to £0.16. The value of the Peruvian Sol in Canadian dollars is:-

(a) About 2.36 Canadian dollars

(b) About .3621 Canadian dollars

(c) About 2.51 Canadian dollars

(d) About .3137 Canadian dollars

If choice d is selected set score to 2.

14. is not a bank characteristic important to customers in need of foreign exchange.

(a) Quote competitiveness

(b) Speed of execution

(c) Forecasting advice

(d) Advice about current market conditions

(e) All of the above are important bank characteristics to customers in need of foreign exchange

If choice e is selected set score to 2.

15. LIBOR is:-

(a) The maximum deposit rate ceiling on deposits in the international money market

(b) The average inflation rate in European countries

(c) The interest rate commonly charged for loans between banks

(d) The maximum interest rate offered on bonds that are issued in London

(e) The maximum loan rate ceiling on loans in the international money market

If choice c is selected set score to 2.

16. From 1944 to 1971, the exchange rate between any two currencies was typically:-

(a) Non existent; that is currencies were not exchanged, but gold was used to pay for all foreign t ransactions

(b) Floating, but subject to central bank intervention

(c) Fixed within narrow boundaries

(d) Floating and not subject to central bank intervention

If choice c is selected set score to 2.

17. Futures contracts are typically

; forward contracts are typically

(a) Sold on an exchange; Offered by commercial banks

(b) Sold on an exchange; Sold on an exchange

(c) Offered by commercial banks; Sold on an exchange

(d) Offered by commercial banks; Offered by commercial banks

If choice a is selected set score to 2.

18. When the foreign exchange market opens in the UK each morning, the opening exchange rate quotations will be based on the:-

(a) Prevailing prices in locations where the foreign exchange markets have been open

(b) Closing prices in Canada during the previous day

(c) Officially set by central banks before the U.S. market opens

(d) Closing prices in the U.S. during the previous day

If choice a is selected set score to 2.

19. Under the gold standard, each currency was convertible into gold at a specified rate and the

exchange rate between two currencies was determined by their relative convertibility rates per ounce of gold.

(a) True

(b) False

If choice a is selected set score to 2.

20. The strike price is also known as the premium price.

(a) True

(b) False

If choice b is selected set score to 2.

21. Eurobonds are certificates representing bundles of stock.

(a) True

(b) False

If choice b is selected set score to 2.

22. A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. The share price of the firm was 15 Euros when the Dutch market closed. As the U.S. market opens, the Euro is worth $1.10. Thus, the price of the ADR should be

(a)

(b) 16.50 Euros

(c) 16.5

(d) 13.64

(e) None of the above

15

If choice c is selected set score to 2.

23. The commonly accepted goal of the MNC is to:-

(a) a) Maximize short-term earnings

(b) b) Maximize shareholder wealth

(c) c) Minimize risk

(d) d) Both (a) and (c)

(e) e) Maximize international sales

If choice b is selected set score to 2.

24. An increase in UK interest rates relative to Euro interest rates is likely to

for Euros and

(a) Reduce; Increase

(b) Increase; Increase

(c) Reduce; Reduce

(d) Increase; Reduce

the supply of Euros for sale.

If choice a is selected set score to 2.

the UK demand

25. In general, when speculating on exchange rate movements, the speculator will borrow the currency

that is expected to appreciate and invest in the country whose currency is expected to depreciate.

(a) True

(b) False

If choice b is selected set score to 2.

26.

Assume the following information regarding UK and European annualized interest rates:-

Milly Bank can borrow either £20 million or €20 million. The current spot rate of the Euro is £0.75. Furthermore, Milly Bank expects the spot rate of the Euro to be £0.76 in 90 days. What is Milly Bank's pound profit from speculating if the spot rate of the euro is indeed £0.76 in 90 days?

(a) £5,61,813

(b) £5,02,713

(c) £5,41,324

(d) £2,51,200

(e) £2,51,386

If choice d is selected set score to 2.

27.

The equilibrium exchange rate of pounds is $1.70. At an exchange rate of $1.72 per pound:-

(a) U.S. demand for pounds would be less than the supply of pounds for sale and there would be

a shortage of pounds in the foreign exchange market

(b) U.S. demand for pounds would be equal to the supply of pounds for sale and there would be

a shortage of pounds in the foreign exchange market

(c) U.S. demand for pounds would exceed the supply of pounds for sale and there would be a su

rplus of pounds in the foreign exchange market

(d) U.S. demand for pounds would be less than the supply of pounds for sale and there would be

a surplus of pounds in the foreign exchange market

(e) U.S. demand for pounds would exceed the supply of pounds for sale and there would be a sh ortage of pounds in the foreign exchange market

If choice d is selected set score to 2.

28.

If

inflation in New Zealand suddenly increased while Euro area inflation stayed the same, there

would be:-

(a) An inward shift in the demand schedule for NZ$ and an outward shift in the supply schedule f

or NZ$

(b) An inward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for

NZ$

(c) An outward shift in the demand schedule for NZ$ and an inward shift in the supply schedule f

or NZ$

(d) An outward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$

If choice a is selected set score to 2.

29.

The exchange rates of smaller countries are very stable because the market for their currency is very liquid.

(a) True

(b) False

If choice b is selected set score to 2.

30. Any event that reduces the Euro area demand for Japanese Yen should result in a(n)

value of the Japanese Yen with respect to

(a) Decrease; Euro

(b) Increase; Non Euro currencies

(c) Decrease; Non Euro currencies

(d) Increase; Euro

If choice a is selected set score to 2.

, other things being equal.

in the

31. News of a potential surge in U.S. inflation and zero Chilean inflation places value of the Chilean Peso. The pressure will occur

(a) Downward; Only after the U.S. inflation surges

(b) Upward; Only after the U.S. inflation surges

(c) Downward; Immediately

(d) Upward; Immediately

If choice d is selected set score to 2.

pressure on the

32. If a country experiences high inflation relative to the UK, its exports to the UK should

, its imports should

currency's equilibrium value.

(a) Increase; Decrease; Downward

(b) Increase; Decrease; Upward

(c) Decrease; Increase; Upward

(d) Decrease; Increase; Downward

(e) Decrease; Decrease; Upward

If choice a is selected set score to 2.

and there is

pressure on its

33. Since supply and demand for a currency are constant (primarily due to government intervention), currency values seldom fluctuate.

(a) True

(b) False

If choice b is selected set score to 2.

34. Relatively high Japanese inflation may result in an increase in the supply of Yen for sale and a reduction in the demand for Yen.

(a) True

(b) False

If choice a is selected set score to 2.

35. To force the value of the dollar to appreciate against the pound, the Federal Reserve should:-

(a) Sell dollars for pounds in the foreign exchange market and the Bank of England should sell p ounds for dollars in the foreign exchange market

(b) Sell dollars for pounds in the foreign exchange market and the Bank of England should sell d ollars for pounds in the foreign exchange market

(c) Sell pounds for dollars in the foreign exchange market and the Bank of England should sell p

ounds for dollars in the foreign exchange market

(d) Sell dollars for pounds in the foreign exchange market and the Bank of England should not int

ervene

If choice c is selected set score to 2.

36. A primary result of the Bretton Woods Agreement was:-

(a) The establishment of the European Monetary System (EMS)

(b) Establishing that exchange rates of most major currencies were to be allowed to fluctuate fre

ely without boundaries (although the central banks did have the right to intervene when necessary)

(c) Establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values

(d) Establishing specific rules for when tariffs and quotas could be imposed by governments

If choice c is selected set score to 2.

37. The currency of country X is pegged to the currency of country Y. Assume that county Y's currency

depreciates against the currency of country Z. It is likely that country X will export

country Z and import

from country Z.

(a) Less; More

(b) Less; Less

(c) More; More

(d) More; Less

If choice d is selected set score to 2.

to

38. The Bank of England may use a stimulative monetary policy with least concern about causing inflation if the pound's value is expected to:-

(a) Strengthen

(b) Remain stable

(c) Weaken

(d) None of the above will have an impact on inflation

If choice a is selected set score to 2.

39. The Exchange Rate Mechanism (ERM) crisis in 1992 represents the

in German interest

rates that caused other European interest rates to spending.

(a) Increase; Decrease

(b) Decrease; Increase

(c) Decrease; Decrease

(d) Increase; Increase

and resulted in less aggregate

If choice d is selected set score to 2.

40. As foreign exchange activity has grown:-

(a) Central bank intervention has become less effective

(b) Central bank intervention has become more frequent

(c) Central bank intervention has become more effective

(d) None of the above

If choice a is selected set score to 2.

41. Which of the following are examples of currency controls?

(a) Prohibition of remittance of funds

(b) Ceilings on granting credit to foreign firms

(c) Import restrictions

(d) All of the above

If choice d is selected set score to 2.

42. A major advantage of the Euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.

(a) True

(b) False

If choice a is selected set score to 2.

43. Currency devaluation can boost a country's exports, but currency revaluation can increase foreign competition.

(a) True

(b) False

If choice a is selected set score to 2.

44. A potential advantage of exchange rate target zones is that they may stabilize international trade patterns by reducing exchange rate volatility.

(a) True

(b) False

If choice a is selected set score to 2.

45. The Bretton Woods Agreement created a system under which exchange rates are determined by market forces without intervention by various governments.

(a) True

(b) False

If choice b is selected set score to 2.

46. Non sterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply.

(a) True

(b) False

If choice a is selected set score to 2.

47. Due to

, market forces should realign the relationship between the interest rate differential

of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies.

(a) Locational arbitrage

(b) Triangular arbitrage

(c) Covered interest arbitrage

(d) Forward realignment arbitrage

If choice c is selected set score to 2.

48. In which case will locational arbitrage most likely be feasible?

(a) One bank's bid price for a currency is less than another bank's bid price for the currency

(b) One bank's ask price for a currency is less than another bank's ask price for the currency

(c) One bank's bid price for a currency is greater than another bank's ask price for the currency

(d) One bank's ask price for a currency is greater than another bank's bid price for the currency

If choice c is selected set score to 2.

49. If the interest rate is lower in the U.S. than in the United Kingdom and if the forward rate of the British pound is the same as its spot rate:-

(a) a) U.S. investors could possibly benefit from covered interest arbitrage

(b) b) British investors could possibly benefit from covered interest arbitrage

(c) c) Neither U.S. nor British investors could benefit from covered interest arbitrage

(d) d) Both (a) and (b)

If choice a is selected set score to 2.

50. Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the UK interest rate, the:-

(a) Smaller will be the forward premium of the foreign currency

(b) Smaller will be the forward discount of the foreign currency

(c) Larger will be the forward premium of the foreign currency

(d) Larger will be the forward discount of the foreign currency

If choice d is selected set score to 2.

51. Assume the bid rate of a Singapore dollar is £0.20 while the ask rate is £0.21 at Bank X. Assume the

bid rate of a Singapore dollar is £0.22 while the ask rate is £0.23 at Bank Z. Given this information, what would be your gain if you use £10,00,000 and execute locational arbitrage? That is, how much will you end up with over and above the £10,00,000 you started with?

(a) £11,764

(b) £18,219

(c) £48,710

(d) £36,585

(e) £47,619

If choice c is selected set score to 2.

52. Assume the U.S. dollar is worth £0.55 and the Canadian dollar is worth £0.47. What is the value of the Canadian dollar in U.S. dollars to the nearest cent?

(a) 0.15

(b) 0.85

(c) 1.17

(d) 1.54

(e) 0.42

If choice b is selected set score to 2.

53. Assume the bid rate of a Swiss Franc is £0.42 while the ask rate is £0.45 at Bank X. Assume the bid

rate of the Swiss Franc is £0.40 while the ask rate is £0.41 at Bank Y. Given this information, what would be your gain if you use £10,00,000 and execute locational arbitrage? That is, how much will you end up with over and above the £10,00,000 you started with?

(a) £24,340

(b) £12,550

(c) £1,50,000

(d) £1,25,000

If choice a is selected set score to 2.

54. Assume the bid rate of an Australian Dollar is £0.40 while the ask rate is £0.42 at Bank Q. Assume the bid rate of an Australian dollar is £0.415 while the ask rate is £0.419 at Bank V. Given this information, what would be your gain if you use £10,00,000 and execute locational arbitrage? That is, how much will you end up with over and above the £10,00,000 you started with?

(a) £18,219

(b) £14,441

(c) £10,003

(d) £0

(e) £12,063

If choice d is selected set score to 2.

55. Assume the following information:-

You have £4,00,000 to invest.

If you conduct covered interest arbitrage, what amount will you have after 1 year to the nearest £?

(a) £4,24,242

(b) £4,24,841

(c) £4,16,000

(d) £4,08,911

(e) None of the above

If choice e is selected set score to 2.

56. For locational arbitrage to be possible, one bank's ask rate must be higher than another bank's bid rate for a currency.

(a) True

(b) False

If choice b is selected set score to 2.

57. Realignment in the exchange rates of banks will eliminate locational arbitrage. More specifically, market forces will increase the ask rate of the bank from which the currency was bought to conduct locational arbitrage and will decrease the bid rate of the bank to which the currency was sold to conduct locational arbitrage.

(a) True

(b) False

If choice a is selected set score to 2.

58. If Interest Rate Parity (IRP) exists, then the rate of return achieved from covered interest arbitrage should be equal to the rate available in the foreign country.

(a) True

(b) False

If choice b is selected set score to 2.