Graded Homework

the New York Fed.
the Federal Reserve System.
the EXIM bank.
None of the above—the U.S. does not have a central bank.

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

a contract giving the seller (writer) of the option the right, but not the obligation, to buy (call) or sell (put) a given quantity of an asset at a specified price at some time in the future.
a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (call) or sell (put) a given quantity of an asset at a specified price at some time in the future.
a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (put) or sell (call) a given quantity of an asset at a specified price at some time in the future.
a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (put) or sell (sell) a given quantity of an asset at a specified price at some time in the future.

options.
money market hedging.
futures.
All of the above

attempts to profit from a change in the futures price.
wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position in the futures contract.
stands ready to buy or sell contracts in unlimited quantity.
b) and c)

depends on the volatility of the exchange rate.
depends on the volatility, but not absolute level, of the exchange rate.
is usually never higher than the rating assigned to the sovereign government of the country in which it resides.
is unrelated to the rating assigned to the sovereign government of the country in which it resides.

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

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.

a big, internationally important market like the NYSE.
a market where corporations issue new shares to initial investors.
where brokers and market makers trade.
None of the above

may be higher than the spot price.
may be the same as the spot price.
may be less than the spot price.
All of the above

convertible bonds and dual currency bonds.
convertible bonds and kitchen sink bonds.
convertible bonds and bonds with equity warrants.
callable bonds and exchangeable bonds.

circumvent trade barriers.
reduce transportation costs.
reduce transactions costs.
Both a) and b)

assets and liabilities should be translated based on their maturity.
monetary balance sheet accounts should be translated at the spot rate; nonmonetary accounts are translated at the historical rate in effect when the account was first recorded.
monetary accounts are translated at the current exchange rate; other accounts are translated at the current exchange rate if they are carried on the books at current value; items carried at historical cost are translated at historic exchange rates.
all balance sheet accounts are translated at the current exchange rate, except stockholder equity.

Broker
Dealer
They are the same swaps, and therefore carry the same risks.

efficient market, fundamental, and technical approaches.
efficient market and technical approaches.
efficient market and fundamental approaches.
fundamental and technical approaches.

IRP
Hedge Ratio
Black Scholes
Risk Neutral Valuation

asset exposure.
operating exposure.
a) and b)
none of the above

SF1.30/$
SF1.35/$
SF6.25/$
None of the above

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.

a firm that invests short-term cash inflows in more than one currency.
a firm that has sales affiliates in several countries.
a firm that is incorporated in more than one country.
a firm that incorporated in one country that has production and sales operations in several other countries.

to establish a “zone of monetary stability” in Europe.
to coordinate exchange rate policies vis-à-vis the non-EMS currencies.
to pave the way for the eventual European monetary union.
all of the above

anything other than the “big six”: U.S. dollar, British pound, Japanese yen, euro, Canadian dollar, and Swiss franc.
any currency that trades at less than one U.S. dollar.
any currency that is less than a $20 denomination.
None of the above

U.S. firms that produce domestically and sell only to domestic customers will be unaffected.
U.S. firms that produce domestically and sell only to domestic customers can be affected if they compete against imports.
U.S. firms that produce domestically and sell only to domestic customers will be affected, but only if they borrow in foreign currency to finance their domestic operations.
Both a) and b)

U.S. dollar, the euro, the Indian rupee, and the Chinese Yuan.
U.S. dollar, the euro, the pound sterling, and the Swiss franc.
U.S. dollar, the euro, the Swiss franc, and the yen.
U.S. dollar, the euro, the pound sterling, and the yen.

legal restrictions.
excessive transportation costs.
information asymmetry.
All of the above

unsystematic risk.
sensitivity of returns on a security to world market movements.
risk-adjusted performance.
risk of default and bankruptcy.

the link between the future home currency values of the firm’s assets and liabilities and exchange rate fluctuations.
the extent to which the firm’s operating cash flows would be affected by random changes in exchange rates.
the sensitivity of realized domestic currency values of the firm’s contractual cash flows denominated in foreign currencies to unexpected exchange rate changes.
the potential that the firm’s consolidated financial statement can be affected by changes in exchange rates.

operational hedging provides a more stable long-term approach than does financial hedging.
financial hedging, when instituted on a rollover basis, is a superior long-term approach to operational hedging.
since they both have the same goal, stabilizing the firm’s cash flows in domestic currency, they are fungible in use.
None of the above statements are correct.

the debt service exchanges decrease periodically through time as the hypothetical notational principal is amortized.
the debt service exchanges are the same each year, but the level of interest and principal changes as the loans amortize.
there is no such thing as an amortizing interest-only swap.
None of the above