Practice multiple choice Qs for mid-session exam:

1. The ____ of the IMFs Balance-of-Payments Statistics measures the sum of all exchange
of goods and services of the reporting economy with the rest of the world.

a. current account
b. financial account
c. overall balance
d. trade balance
e. none of the above

2. The ____ established the World Bank and the International Monetary Fund in 1946.

a. Basle Accord
b. Bretton Woods Agreement
c. Louvre Accord
d. Plaza Accord
e. Treaty of Maastricht

3. Which of the following is a categorization of debt markets?

a. domestic versus international
b. intermediated versus non-intermediated
c. internal versus external
d. more than one of the above
e. none of the above

4. A fundamental analyst is likely to use which of the following in forecasting
exchange rates?

a. forward exchange rates
b. inflation differentials
c. nominal interest rate differentials
d. real interest rate differentials
e. all of the above

5. The exposure of a futures hedge in which there is a match with the underlying
position on maturity but not on currency is called a ____.

a. cross-hedge
b. delta-cross-hedge
c. delta-hedge
d. perfect hedge
e. none of the above



6. A long put option to sell pounds for dollars is identical to ____.

a. a long call option to buy dollars with pounds
b. a long call option to buy pounds for dollars
c. a short put option to sell dollars for pounds
d. a short put option to sell pounds for dollars
e. none of the above

7. The sensitivity of option value to changes in the underlying asset value is called the
____.

a. option delta
b. option gamma
c. option sigma
d. option theta
e. option vega

8. Alternatives for funding foreign operations in the foreign currency include ____.

a. borrow funds directly in the foreign country
b. borrow funds in the domestic market, convert these funds into foreign currency,
and then sell the domestic currency forward
c. engage in a currency swap
d. three of the above
e. two of the above

9. Multinational corporations have an advantage over domestic firms in their ____.

a. market selection and promotion strategies
b. plant location decisions
c. product sourcing decisions
d. more than one of the above
e. none of the above

10. A disaster hedge against adverse currency movements can be obtained with a
____.

a. currency forward
b. currency future
c. money market hedge
d. currency option
e. currency swap


11. A swap with one or more options attached is called a ____.

a. commodity swap
b. coupon swap
c. currency coupon swap
d. debt-for-equity swap
e. swaption

12. The $/ exchange rate is 1 =$0.90, and the /SFr exchange rate is SFr 1 = 0.70. What
is the SFr/$ exchange rate?

a. 0.63
b. 1.60
c. 1.59
d. 1.29

13. Eurocurrency spreads are narrower than in domestic money markets because
a. Eurobanks don't have to maintain reserves on Eurodollar deposits
b. Eurobanks face lower regulatory expenses
c. National banks are often required to lend money to certain borrowers at concessionary
rates
d. All of the above


14. On exchange-traded currency futures contracts, ____.

a. ommissions are charged as a bid-ask spread
b. expiration dates are negotiated
c. initial and maintenance margins are required
d. the contracts are traded only during normal banking hours

15. In which of the following phase, would firms establish their operations overseas?

a. domestic phase
b. international trade phase
c. multinational phase
d. none of them

16. Which of the following stakeholders vote in board of directors?

a. managers
b. stockholders
c. creditors
d. suppliers

17. In order to boost the value of the euro relative to the dollar, the U.S. Federal Reserve should ____.

a. sell dollars for euros and buy dollars with euros
b. sell dollars for euros and buy euros with dollars
c. sell euros for dollars and buy euros with dollars
d. sell euros for dollars and sell dollars for euros


18. Which of the following common elements can cause currency crises?

a. a fixed exchange rate system that overvalued the local currency
b. a large amount of foreign currency debt
c. high volatility in stock markets
d. a and b


19. The spot rate is $1.00/ and the one-year forward rate is $1.20/. What is the percentage forward
premium (or discount) on the euro?

a. less than 0%
b. 0%
c. 20 percent
d. more than 20%

20. Which of the following reasons CAN NOT explain imperfect hedging with future contracts?

a. limited number of contract sizes
b. limited choices of maturities
c. limited number of currencies
d. high transaction costs for commissions charged

21. Which of the following is true?

a. As volatility increases, call option values increase.
b. As volatility increases, call option values decrease.
c. As time to maturity increases, call option values decreases.
d. As time to maturity increases, call option values are unchanged.

22. Benefits of parallel loans include each of the following except ____.

a. allow firms to borrow in their home markets
b. allow foreign subsidiaries to be financed with low-cost foreign-source debt
c. allow parent firms to access new capital markets
d. Free of default risk



Question Answer
1 D
2 B
3 D
4 E
5 A
6 A
7 A
8 D
9 D
10 D
11 E
12 C
13 D
14 C
15 C
16 B
17 B
18 D
19 C
20 D
21 A
22 D