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  9.4   Risk Management in Practice   1) German company is evaluating alternatives to hedge US1M payable in three months. A money market hedge for this transaction will be A) raising Euro denominated short term loan at annual interest rate of 2%. B) investing in dollar denominated short term government security yielding 0.2%. C) one cannot.
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  61. A put option allows the holder to A. buy the underlying asset at the strike price on or before the expiration date.B. sell the underlying asset at the strike price on or before the expiration date.C. sell the option in the open market prior to expiration.D. sell the underlying asset at the strike price on.
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  Short Answer Questions  74. Discuss margin buying of common stocks. Include in your discussion the advantages and disadvantages, the types of margin requirements, how these requirements are met, and who determines these requirements.  75. List three factors that are listing requirements for the New York Stock Exchange. Why does the exchange have such requirements?      .
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  21. The risk premium for common stocks A. cannot be zero, for investors would be unwilling to invest in common stocks.B. must always be positive, in theory.C. is negative, as common stocks are risky.D. cannot be zero, for investors would be unwilling to invest in common stocks and must always be positive, in theory.E. cannot be zero,.
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  51. You purchased 100 shares of common stock on margin at $40 per share. Assume the initial margin is 50% and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $25? Ignore interest on margin. A. 0.33B. 0.55C. 0.20D. 0.23E. 0.25 100 shares * $40/share.
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  Multiple Choice and True/False Questions   9.1   Types of Foreign Exchange Exposure   1) ________ exposure deals with cash flows that result from existing contractual obligations. A) Operating B) Transaction C) Translation D) Economic   2) ________ exposure measures the change in the present value of the firm resulting from unexpected changes in exchange rates. A) Operating B) Transaction C) Translation D) Accounting   3).
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  41. A mutual fund had year-end assets of $465,000,000 and liabilities of $37,000,000. If the fund NAV was $56.12, how many shares must have been held in the fund? A. 4,300,000B. 6,488,372C. 8,601,709D. 7,626,515E. 7,146,972 42. A mutual fund had year-end assets of $521,000,000 and liabilities of $63,000,000. If the fund NAV was $26.12, how many shares must have.
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  21. Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60? A. 40%B. 33%C. 35%D. 25%E. none of the above 22. Specialists on stock exchanges perform the following functions A. Act as dealers in their.
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  11. A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15. The risk-free rate is 6 percent. An investor has the following utility function: U = E(r) - (A/2)s2. Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset? A. 5B. 6C. 7D. 8E. 1 12. According.
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  9.3   Transaction Exposure Management: The case of Trident   1) A U.S. firm sells merchandise today to a British company for £100,000.  The current exchange rate is $2.03/£, the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk.
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  11. Which of the following statements is true A. Inflation has no effect on the nominal rate of interest.B. The realized nominal rate of interest is always greater than the real rate of interest.C. Certificates of deposit offer a guaranteed real rate of interest.D. Certificates of deposit offer a guaranteed nominal rate of interest.E. Inflation has no.
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  71. When a distribution is positively skewed, ____________. A. standard deviation overestimates riskB. standard deviation correctly estimates riskC. standard deviation underestimates riskD. the tails are fatter than in a normal distributionE. the tails are skinnier than in a normal distribution 72. When a distribution is negatively skewed, ____________. A. standard deviation overestimates riskB. standard deviation correctly estimates riskC. standard deviation underestimates riskD. the tails.
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  Short Answer Questions  85. Distinguish between U. S. Treasury debt and U.S Agency debt.  86. Discuss the advantages and disadvantages of common stock ownership, relative to other investment alternatives.  87. The Dow Jones Industrial Average and the New York Stock Exchange Index have unique characteristics. Discuss how these indices are calculated and any problems/advantages associated with.
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  31. Block transactions are transactions for more than _______ shares and they account for about _____ percent of all trading on the NYSE. A. 1,000; 5B. 500: 10C. 100,000; 50D. 10,000; 30E. 5,000; 23 32. A program trade is A. a trade of 10,000 (or more) shares of a stock.B. a trade of many shares of one stock for one other stock.C. a.
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  11. Which one of the following statements regarding orders is false? A. A market order is simply an order to buy or sell a stock immediately at the prevailing market price.B. A limit sell order is where investors specify prices at which they are willing to sell a security.C. If stock ABC is selling at.
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Multiple Choice Questions  1. Which one of the following statements regarding open-end mutual funds is false? A. The funds redeem shares at net asset value.B. The funds offer investors professional management.C. The funds offer investors a guaranteed rate of return.D. The funds offer investors professional management and a guaranteed rate of return.E. The funds redeem shares at net.
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  31. Asset allocation refers to ____________.  A. choosing which securities to hold based on their valuation B. investing only in "safe" securities C. the allocation of assets into broad asset classes D. bottom-up analysis E. top-down analysis 32. Security selection refers to ____________.  A. choosing which securities to hold based on their valuation B. investing only in "safe" securities C. the allocation of assets into broad asset classes D. top-down analysis E. moving.
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Instruction 9.1: Use the information for the following problem(s).   Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for euro 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the.
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  21. The Dow Jones Industrial Average (DJIA) is computed by: A. adding the prices of 30 large "blue-chip" stocks and dividing by 30.B. calculating the total market value of the 30 firms in the index and dividing by 30.C. adding the prices of the 30 stocks in the index and dividing by a divisor.D. adding the.
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  11. Closed end funds are frequently issued at a ______ to NAV and subsequently trade at a __________ to NAV. A. discount, discountB. discount, premiumC. premium, premiumD. premium, discountE. No consistent relationship has been observed. 12. At issue, offering prices of open-end funds will often be A. less than NAV due to loads and commissions.B. greater than NAV due to loads and.
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Multiple Choice Questions 1. The material wealth of a society is a function of _________.  A. all financial assets B. all real assets C. all financial and real assets D. all physical assets E. all commodities 2. _______ is/are a real asset(s).  A. Only land B. Only machines C. Only stocks and bonds D. Only knowledge E. Land, machines and knowledge are real assets 3. The means by which individuals hold their claims on real assets.
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  41. You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is A. $4500B. unlimitedC. zeroD. $9000E. cannot tell from the information given 42. You buy 300 shares of Qualitycorp for $30 per share and deposit initial margin of 50%. The next day Qualitycorp's price drops to $25 per.
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  41. A year ago, you invested $2,500 in a savings account that pays an annual interest rate of 2.5%. What is your approximate annual real rate of return if the rate of inflation was 1.6% over the year? A. 4.1%.B. 2.5%.C. 2.9%.D. 1.6%.E. 0.9%. 2.5% - 1.6% = 0.9%. 42. A year ago, you invested $2,500 in a savings account.
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  31. In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs: A. by adjusting the divisor.B. automatically.C. by adjusting the numerator.D. quarterly, on the last trading day of each quarter.E. none of the above. 32. Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is false? A. The DJIA is not very representative.
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Multiple Choice Questions  1. Which of the following statements regarding risk-averse investors is true? A. They only care about the rate of return.B. They accept investments that are fair games.C. They only accept risky investments that offer risk premiums over the risk-free rate.D. They are willing to accept lower returns and high risk.E. They only care about the.
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  9.2   Why Hedge?   1) ________ is a technique used by MNEs to deal with currency exposure. A) No counter-measure B) Speculation C) Hedging D) All are techniques MNEs could use.   2) Hedging, or reducing risk, is the same as adding value or return to the firm.   3) Assuming no transaction costs (i.e., hedging is "free"), hedging currency.
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  61. A mutual fund had average daily assets of $3.0 billion in 2009. The fund sold $600 million worth of stock and purchased $700 million worth of stock during the year. The fund's turnover ratio is ___. A. 27.5%B. 12%C. 15%D. 25%E. 20% 600,000,000/3,000,000,000 = 20% 62. A mutual fund had average daily assets of $2.0 billion in 2009. The.
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  21. The Profitability Fund had NAV per share of $17.50 on January 1, 2009. On December 31 of the same year the fund's NAV was $19.47. Income distributions were $0.75 and the fund had capital gain distributions of $1.00. Without considering taxes and transactions costs, what rate of return did an.
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  71. Certificates of deposit are insured by the ____________. A. SPICB. CFTCC. Lloyds of LondonD. FDICE. AIG 72. Certificates of deposit are insured for up to ____________ in the event of bank insolvency. A. $10,000B. $100,000C. $50,000D. $500,000E. 10,000,000 73. The maximum maturity of commercial paper that can be issued without SEC registration is ____________. A. 270 daysB. 180 daysC. 90 daysD. 30 daysE. 15 days 74. Which of the following is used extensively in.
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  51. What is the expected standard deviation for the stock? A. 2.07%B. 9.96%C. 7.04%D. 1.44%E. 12.17% 52. What is the expected variance for the stock? A. 142.07%B. 189.96%C. 177.04%D. 128.17%E. 148.04% 53. Which of the following measures of risk best highlights the potential loss from extreme negative returns? A. Standard deviationB. VarianceC. Upper partial standard deviationD. Value at Risk (VaR)E. Sharpe measure 54. Over the past year you earned a nominal rate of interest of.
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  71. What is an Exchange-traded fund? Give two examples of specific ETFs. What are some advantages they have over ordinary open-end mutual funds? What are some disadvantages?  72. Discuss the consistency of mutual fund performance results, as studied by Goetzmann and Ibbotson (1994) and Malkiel (1995).      .
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  11. Commercial paper is a short-term security issued by ________ to raise funds. A. the Federal Reserve BankB. commercial banksC. large, well-known companiesD. the New York Stock ExchangeE. state and local governments 12. Which one of the following terms best describes Eurodollars? A. Dollar-denominated deposits in European banks.B. Dollar-denominated deposits at branches of foreign banks in the U.S.C. Dollar-denominated deposits at foreign banks.
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  Short Answer Questions  84. Discuss the relationships between interest rates (both real and nominal), expected inflation rates, and tax rates on investment returns.  85. Discuss why common stocks must earn a risk premium.  86. Discuss the historical distributions of each of the following in terms of their average return and the dispersion of their returns: U.S..
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  31. The fee that mutual funds use to help pay for advertising and promotional literature is called a A. front-end load fee.B. back-end load fee.C. operating expense fee.D. 12b-1 fee.E. structured fee. 32. Patty O'Furniture purchased 100 shares of Green Isle mutual fund at a net asset value of $42 per share. During the year Patty received dividend income.
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  41. The yield to maturity reported in the financial pages for Treasury securities A. is calculated by compounding the semiannual yield.B. is calculated by doubling the semiannual yield.C. is also called the bond equivalent yield.D. is calculated as the yield-to-call for premium bonds.E. is calculated by doubling the semiannual yield and is also called the bond equivalent.
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Multiple Choice Questions  1. Over the past year you earned a nominal rate of interest of 10 percent on your money. The inflation rate was 5 percent over the same period. The exact actual growth rate of your purchasing power was A. 15.5%.B. 10.0%.C. 5.0%.D. 4.8%.E. 15.0%. 2. Over the past year you earned a nominal rate of interest of.
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  11. In 2009, ____________ was the most significant liability of U.S. households in terms of total value.  A. credit cards B. mortgages C. bank loans D. student loans E. other debt 12. Which of the following financial assets made up the greatest proportion of the financial assets held by U.S. households?  A. Pension reserves B. Life insurance reserves C. Mutual fund shares D. Debt securities E. Personal trusts 13. In 2009, _______ of the assets.
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Multiple Choice Questions  1. The trading of stock that was previously issued takes place A. in the secondary market.B. in the primary market.C. usually with the assistance of an investment banker.D. A and B.E. B and C. 2. A purchase of a new issue of stock takes place A. in the secondary market.B. in the primary market.C. usually with the assistance of an investment.
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  61. You purchase a share of CAT stock for $90. One year later, after receiving a dividend of $4, you sell the stock for $97. What was your holding-period return? A. 14.44%B. 12.22%C. 13.33%D. 5.56%E. 15.21% 62. When comparing investments with different horizons the ____________ provides the more accurate comparison. A. arithmetic averageB. effective annual rateC. average annual returnD. historical annual averageE. geometric return 63. Annual Percentage.
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  9.2   Why Hedge?   1) Does foreign currency exchange hedging both reduce risk and increase expected value? Explain, and list several arguments in favor of currency risk management and several against.   9.3   Transaction Exposure Management: The case of Trident   1) Currency risk management techniques include forward hedges, money market hedges, and option hedges..
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  31. The holding-period return (HPR) for a stock is equal to A. the real yield minus the inflation rate.B. the nominal yield minus the real yield.C. the capital gains yield minus the tax rate.D. the capital gains yield minus the dividend yield.E. the dividend yield plus the capital gains yield. 32. The historical arithmetic rate of return on U.S..
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    1) Describe the Russian ruble collapse through August of 1998. ruble fell from RUB6.3/USD to over RUB13/USD. 8.4   Forecasting in Practice   1) Foreign exchange forecasting can be either long-term, or short-term in duration. Compare and contrast the motivation for and the techniques a forecaster might use for each of the time periods.       .
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  21. The value of a derivative security _______.  A. depends on the value of the related security B. is unable to be calculated C. is unrelated to the value of the related security D. has been enhanced due to the recent misuse and negative publicity regarding these instruments E. is worthless today 22. Although derivatives can be used as speculative instruments, businesses most.
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  51. Differences between hedge funds and mutual funds are that A. hedge funds are only subject to minimal SEC regulation.B. hedge funds are typically open only to wealthy or institutional investors.C. hedge fund managers can pursue strategies not available to mutual funds such as short selling, heavy use of derivatives, and leverage.D. hedge funds are commonly.
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  41. In 2009, ____________ was the most significant real asset of U.S. nonfinancial businesses in terms of total value.  A. equipment and software B. inventory C. real estate D. trade credit E. marketable securities 42. In 2009, ____________ was the least significant real asset of U.S. nonfinancial businesses in terms of total value.  A. equipment and software B. inventory C. real estate D. trade credit E. marketable securities 43. In 2009, ____________ was the least.
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Multiple Choice Questions  1. Which of the following is/are not characteristic of a money market instrument? A. LiquidityB. MarketabilityC. Long maturityD. Liquidity premiumE. Long maturity and liquidity premium 2. You sold a futures contract on oats at a futures price of 233.75 and at the time of expiration the price was 261.25. What was your profit or loss? A. $1375.00B. -$1375.00C. -$27.50D. $27.50E. $1325.00 3. Treasury Inflation-Protected Securities.
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