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Study Resources (Business Management)

  Multiple Choice and True/False Questions   7.1   Foreign Currency Futures   1) Financial derivatives are powerful tools that can be used by management for purposes of A) speculation. B) hedging. C) human resource management. D) A and B above.   2) A foreign currency ________ contract calls for the future delivery of a standard amount of foreign exchange at a.
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  4.3   Corporate Governance   1) 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. B) Corporate board audit and compensation committee members must come from outside directors. C) Companies may not make loans to their.
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  9) Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize.   10) Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers.   11) It is characteristic of foreign.
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  11) The United States experienced a balance of trade ________ during the 1990s and a balance of trade ________ during the 2000s. A) surplus; surplus B) surplus; deficit C) deficit; deficit D) deficit; surplus 12) The ________ is the difference between merchandise imports and exports and a measure of a country's international trade in goods.
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  Multiple Choice and True/False Questions   5.1   Functions of the Foreign Exchange Market   1) Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market? A) The transfer of purchasing power between countries. B) Obtaining or providing credit for international trade transactions. C) Minimizing the risks of.
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TABLE 7.1 Use the below mentioned table to answer the following question(s).   April 19, 2010, British Pound Option Prices (cents per pound, 62,500 pound contracts).     11) Refer to Instruction 7.1. The risk of strategy #1 is that interest rates might go down or that your credit rating might improve. What is the risk.
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  7) Which of the following is a way in which the euro affects markets? A) Countries within the Euro zone enjoy cheaper transaction costs. B) Currency risks and costs related to exchange rate uncertainty are reduced. C) Consumers and business enjoy price transparency and increased price-based competition. D) All of the above.   8) The 1991.
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  Essay Questions   2.1   History of the International Monetary System   1) Most Western nations were on the gold standard for currency exchange rates from 1876 until 1914. Today we have several different exchange rate regimes in use, but most larger economy nations have freely floating exchange rates today and are not obligated to.
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  5.4   Size of the Foreign Exchange Market   1) Daily trading volume in the foreign exchange market was about ________ per ________ in 2007. A) $3,200 billion; month B) $1,000 billion; month C) $3,200 billion; day D) $1,000 billion; day   2) Daily trading volume of foreign exchange had actually decreased in 2010 from the levels reported in.
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  5.5   Foreign Exchange Rates and Quotations   1) The three currencies that dominate foreign exchange trading are A) U.K pound, Chinese yuan, and Japanese yen. B) U.S. dollar, Chinese yuan, and U.K. pound. C) U.S. dollar, Japanese yen, and the euro. D) U.S. dollar, U.K. pound, and Japanese yen.   2) A foreign exchange ________ is the.
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  2) The Fisher Effect is a familiar economic theory in the domestic market. In words, define the Fisher Effect and explain why you think it is also appropriately applied to international markets.   6.3   Forward Rate as an Unbiased Predictor of the Future Spot Rate   1) Some forecasters believe that foreign exchange markets.
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  8.2   Currency Market Intervention   1) The Chinese government announces that on December 31, 2006 the value of the Yuan will officially change from 6.40 Yuan/$ to 6.00 Yuan/$. This would be an official ________ of the Chinese currency of ________. A) revaluation; 6.25% B) revaluation; 6.67% C) devaluation; 6.25% D) devaluation; 6.67%   2) Indirect intervention is A).
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  Essay Questions   5.1   Functions of the Foreign Exchange Market   1) Identify and explain the three functions of the foreign exchange market. Transfer of purchasing power is necessary because international trade and capital transactions normally involve parties living in countries with different national currencies. Usually each party, wants to deal in its own currency,.
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  Multiple Choice and True/False Questions   4.1   Who Owns the Business?   1) The authors suggest that the most likely progression of ownership goes from A) 100% privately held, to 80% privately held, to 40% privately held, to 0% privately held. B) 0% privately held, to 40% privately held, to 80% privately held, to 100% privately.
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  Multiple Choice and True/False Questions   3.1   Typical Balance of Payments Transactions   1) The balance of payments as applied to a course in international finance may be defined as A) the amount still owed by an exporting firm after making an initial down payment. B) the amount still owed by governments to the International Monetary.
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  Essay Questions   4.1   Who Owns the Business?   1) The authors reference empirical evidence that family-controlled firms all over the world may outperform publicly traded firms. What factors are cited as reasons for this occurring? 4.2   The Goal of Management   1) Compare and contrast the Shareholder Wealth Maximization model and the Stakeholder Capitalism model for.
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  7.3   Option Pricing and Valuation   1) The value of a European style call option is the sum of two components, the A) present value plus the intrinsic value. B) time value plus the present value. C) intrinsic value plus the time value. D) the intrinsic value plus the standard deviation.   2) Which of the following is.
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  21) The role of official reserves is ________ under a ________ exchange rate regime. A) enhanced; floating B) diminished; fixed C) enhanced; fixed D) None of the above apply. 22) If most major economies are operating under a regime of fixed exchange rates, then a ________ in a country's balance of payments suggests that the.
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  2.4   A Single Currency for Europe: The Euro   1) On January 4, 1999 the member nations of the EMU introduced a new unified currency, the euro, to replace the individual national currencies of many member nations. Identify and explain several of the arguments made both for and against the euro. Do.
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  7.5   Interest Rate Derivatives   1) A/an ________ is a contract to lock in today interest rates over a given period of time. A) forward rate agreement B) interest rate future C) interest rate swap D) none of the above   2) An agreement to exchange interest payments based on a fixed payment for those based on a.
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  3.6   Capital Mobility   1) The era between 1880 and 1914, when the gold standard was in use, was characterized by increasing capital mobility.   2) Which of the following is the best definition of money laundering? A) legal transfer of funds through the usual international payments mechanisms B) the transfer of cash into collectibles that.
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      Essay Questions   7.1   Foreign Currency Futures   1) Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses? 7.2   Currency Options   1) Compare and contrast foreign currency options and futures. Identify situations when you may prefer one vs. the other when speculating on foreign.
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  Essay Questions   8.1   Exchange Rate Determination: The Theoretical Thread   1) Describe the asset market approach to exchange rate determination. How is this consistent with economic theory of (say, security) prices in general? 8.2   Currency Market Intervention   1) Assume your country has a balance of payments surplus. How would the government and markets react to.
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  Essay Questions   6.1   Prices and Exchange Rates   1) The authors state that empirical tests of purchasing power parity "have, for the most part, not proved PPP to be accurate in predicting future exchange rates." The authors then state that PPP does hold up reasonably well in two situations. What are some reasons.
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  5.3   Transactions in the Foreign Exchange Market   1) Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.   5.4   Size of the Foreign Exchange Market   1) The foreign exchange market has expanded significantly in the last 20 years. What is the volume.
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  Multiple Choice and True/False Questions   8.1   Exchange Rate Determination: The Theoretical Thread   1) The important thing to remember about foreign exchange rate determination is that parity conditions, asset approach, and balance of payments approaches are ________ theories rather than ________ theories. A) competing; complementary B) competing; contemporary C) complementary; contiguous D) complementary; competing   2) It is safe.
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  3.3   The Accounts of the Balance of Payments   1) Which of the following is NOT a part of the Current Account of BOP? A) net export/import of goods B) Balance of Trade C) net portfolio investment D) net export/import of services   2) Which of the following is NOT part of the balance of payments account? A) the.
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11) The principle focus of the IMF bailout efforts during the Asian financial crisis was A) banking liquidity. B) shareholder's wealth. C) reestablishing fixed currency exchange rates in Asia. D) dollarization of Asian currencies.   12) In the years immediately preceding 1998 the Russian Ruble operated under a ________ type of exchange rate regime. A) fixed B) free.
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  7.4   Interest Rate Risk   1) The single largest interest rate risk of a firm is A) interest sensitive securities. B) debt service. C) dividend payments. D) accounts payable.   2) The most widely used reference rate for standardized quotations, loan agreements, or financial derivative valuations is the A) Federal Reserve Discount rate. B) federal funds rate. C) LIBOR. D).
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  8.4   Forecasting in Practice   1) Which of the following is a driver in the determination of foreign exchange rates under the Asset Market Approach to forecasting? A) relative inflation rates B) relative real interest rates C) forward exchange rates D) the current account balance   2) Short-term forecasts are typically motivated by a desire to hedge a.
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  Multiple Choice and True/False Questions   6.1   Prices and Exchange Rates   1) If an identical product can be sold in two different markets, and no restrictions exist on the sale or transportation costs, the product's price should be the same in both markets. This is known as A) relative purchasing power parity. B) interest rate.
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  3.4   BOP Impacts on Key Macroeconomic Rates   1) In a static (accounting) sense, a nation's GDP can be represented by the following equation: where C = consumption spending, I = investment spending, G = government spending, X = exports of goods and services, and M = imports of goods and services. A).
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  8.3   Disequilibrium: Exchange Rates in Emerging Markets   1) Which of the following was NOT an international currency crisis in the 1990s and early 2000s? A) the Asian Crisis B) the Russian Crisis C) the Argentine Crisis D) All of the above were currency crises in the 1990s and 2000s.   2) A currency board is A) a structure,.
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  4.2   The Goal of Management   1) The shareholder wealth maximization model assumes as a universal truth that the market is efficient.   2) What are frequently taught as universal truths in a finance classroom may in fact just be cultural norms. 3) During the 1990s, rapidly increasing stock prices exposed a flaw in the.
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  2) Describe the management objectives of a firm governed by the shareholder wealth maximization model and one governed by the stakeholder wealth maximization model. Give an example of how these two models may lead to different decision-making by executive management.   4.3   Corporate Governance   1) The Sarbanes-Oxley Act (SOX) was passed in 2002.
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  11) If the direct quote for a U.S. investor for British pounds is $1.43/£, then the indirect quote for the U.S. investor would be ________ and the direct quote for the British investor would be ________. A) £0.699/$; £0.699/$ B) $0.699/£; £0.699/$ C) £1.43/£; £0.699/$ D) £0.699/$; $1.43/£ TABLE 5.1 Use the table to answer the.
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  6.2   Interest Rates and Exchange Rates   1) ________ states that nominal interest rates in each country are equal to the required real rate of return plus compensation for expected inflation. A) Absolute PPP B) Relative PPP C) The Law of One Price D) The Fisher Effect   2) In its approximate form the Fisher effect may be.
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  21) The government just released international exchange rate statistics and reported that the real effective exchange rate index for the U.S. dollar vs the Japanese yen decreased from 105 last year to 95 currently and is expected to fall still further in the coming year. Other things equal U.S. ________.
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  5.3   Transactions in the Foreign Exchange Market   1) The ________ is a derivative forward contract that was created in the 1990s. It has the same characteristics and documentation requirements as traditional forward contracts except that they are only settled in U.S. dollars and the foreign currency involved in the transaction is.
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  2.5   Emerging Markets and Regime Choices   1) 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 A) the Argentine peso had grown too strong against major.
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  11) Anglo-American is defined to mean A) North, Central, and South America. B) the United States, Canada, and Western Europe. C) the United States, United Kingdom, Canada, Australia and New Zealand. D) the United States, France, Britain, and Germany.   12) In finance, an efficient market is one in which A) prices are assumed to be correct. B).
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  3.2   Fundamentals of Balance of Payments Accounting   1) The authors identify a tip for understanding BOP accounting. They recommend that you "follow the cash flow."   2) The balance of payments is most like a(an) A) cash flow statement. B) balance sheet. C) income statement. D) proxy statement.   3) The BOP must be in balance but the current.
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  7.3   Option Pricing and Valuation   1) In option valuation, total value is equal to the intrinsic value plus the time value of the option. Define the latter two terms.   7.4   Interest Rate Risk   1) How does counterparty risk influence a firm's decision to trade exchange-traded derivatives rather than over-the-counter derivatives?   7.5   Interest Rate Derivatives   1).
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  11) 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 ________. A) exchange markets; over-the-counter B) over-the-counter; exchange markets C) private; government sponsored D) government sponsored; private   12) All exchange-traded options are settled through a clearing.
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  11) Other things equal, and assuming efficient markets, if a Honda Accord costs $21,375 in the U.S. then at an exchange rate of $1.63/£, the Honda Accord should cost ________ in Great Britain. A) £21,375 B) £18,365 C) £13,113 D) £42,322   12) The assumptions for absolute PPP are more rigid than the assumptions for relative.
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