$13.99
Add to Cart
HW-777 MCQ 17-32
17. Graylon, Inc., based in Washington, exports products to a German firm and will receive payment of €200,000 in three months. On June1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, Graylon negotiated a forward contract with a bank to sell €200,000 forward in three months.The spot rate of the euro on September 1 is $1.15. Graylon will receive $_________ for the euros.
A) 224,000
B) 220,000
C) 200,000
D) 230,000
18. When you own _______, there is no obligation on your part; however, when you own _______, there is an obligation on your part.
A) call options; put options
B) futures contracts; call options
C) forward contracts; futures contracts
D) put options; forward contracts
19, If an actual put option premium is less than what is suggested by the put-call parity relationship, arbitrage can be conducted.
A) true.
B) false.
20. A weak dollar is normally expected to cause:
A) high unemployment and high inflation in the U.S.
B) high unemployment and low inflation in the U.S.
C) low unemployment and low inflation in the U.S.
D) low unemployment and high inflation in the U.S.
21. Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by _______ the dollar. Such an adjustment in the dollar’s value should _______ the U.S. demand for products produced by major foreign countries.
A) weakening; increase
B) weakening; decrease
C) strengthening; increase
D) strengthening; decrease
22. 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.
23. Due to _______, market forces should realign the spot rate of a currency among banks.
A) forward realignment arbitrage
B) triangular arbitrage
C) covered interest arbitrage
D) locational arbitrage
24. Assume the bid rate of an Australian dollar is $.60 while the ask rate is $.61 at Bank Q. Assume the bid rate of an Australian dollar is $.62 while the ask rate is $.625 at Bank V. Given this information, what would be your gain if you use $1,000,000 and execute loca-tional arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?
A) $10,003.
B) $12,063.
C) $14,441.
D) $16,393.
E) $18,219.
25. 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.
26. Translation exposure reflects:
A) the exposure of a firm’s ongoing international transac¬tions to exchange rate fluctuations.
B) the exposure of a firm’s local currency value to transac¬tions between foreign exchange traders.
C) the exposure of a firm’s financial statements to exchange rate fluctuations.
D) the exposure of a firm’s cash flows to exchange rate fluctuations.
27. Economic exposure refers to:
A) the exposure of a firm’s ongoing international transac¬tions to exchange rate fluctuations.
B) the exposure of a firm’s local currency value to transac¬tions between foreign exchange traders.
C) the exposure of a firm’s financial statements to exchange rate fluctuations.
D) the exposure of a firm’s cash flows to exchange rate fluctuations.
E) the exposure of a country’s economy (specifically GNP) to exchange rate fluctuations.
28. One argument why exchange rate risk is irrelevant to corporations is that shareholders can deal with this risk individually.
A) true.
B) false.
29. If Lazer Co. desired to lock in the maximum it would have to pay for its net payables in euros but wanted to be able to capitalize if the euro depreciates substantially against the dollar by the time payment is to be made, the most appropri¬ate hedge would be:
A) a money market hedge.
B) purchasing euro put options.
C) a forward purchase of euros.
D) purchasing euro call options.
E) selling euro call options.
30. An example of cross hedging is:
A) find two currencies that are highly positively correl¬ated; match the payables of the one currency to the receivables of the other currency.
B) use the forward market to sell forward whatever curren¬cies you will receive.
C) use the forward market to buy forward whatever currencies you will receive.
D) B and C
31. Since the results of both a money market hedge and a forward hedge are known beforehand, an MNC can implement the one that is more feasible.
A) true.
B) false.
32. Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firm’s reported earnings (from the consolidated income statement) to _______. If a firm desired to protect against this possi¬bility, it could stabilize its reported earnings by _______ euros forward in the foreign exchange market.
A) be reduced; purchasing
B) be reduced; selling
C) increase; selling
D) increase; purchasing
Answer will be sent by email as attachment.
A) 224,000
B) 220,000
C) 200,000
D) 230,000
18. When you own _______, there is no obligation on your part; however, when you own _______, there is an obligation on your part.
A) call options; put options
B) futures contracts; call options
C) forward contracts; futures contracts
D) put options; forward contracts
19, If an actual put option premium is less than what is suggested by the put-call parity relationship, arbitrage can be conducted.
A) true.
B) false.
20. A weak dollar is normally expected to cause:
A) high unemployment and high inflation in the U.S.
B) high unemployment and low inflation in the U.S.
C) low unemployment and low inflation in the U.S.
D) low unemployment and high inflation in the U.S.
21. Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by _______ the dollar. Such an adjustment in the dollar’s value should _______ the U.S. demand for products produced by major foreign countries.
A) weakening; increase
B) weakening; decrease
C) strengthening; increase
D) strengthening; decrease
22. 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.
23. Due to _______, market forces should realign the spot rate of a currency among banks.
A) forward realignment arbitrage
B) triangular arbitrage
C) covered interest arbitrage
D) locational arbitrage
24. Assume the bid rate of an Australian dollar is $.60 while the ask rate is $.61 at Bank Q. Assume the bid rate of an Australian dollar is $.62 while the ask rate is $.625 at Bank V. Given this information, what would be your gain if you use $1,000,000 and execute loca-tional arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?
A) $10,003.
B) $12,063.
C) $14,441.
D) $16,393.
E) $18,219.
25. 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.
26. Translation exposure reflects:
A) the exposure of a firm’s ongoing international transac¬tions to exchange rate fluctuations.
B) the exposure of a firm’s local currency value to transac¬tions between foreign exchange traders.
C) the exposure of a firm’s financial statements to exchange rate fluctuations.
D) the exposure of a firm’s cash flows to exchange rate fluctuations.
27. Economic exposure refers to:
A) the exposure of a firm’s ongoing international transac¬tions to exchange rate fluctuations.
B) the exposure of a firm’s local currency value to transac¬tions between foreign exchange traders.
C) the exposure of a firm’s financial statements to exchange rate fluctuations.
D) the exposure of a firm’s cash flows to exchange rate fluctuations.
E) the exposure of a country’s economy (specifically GNP) to exchange rate fluctuations.
28. One argument why exchange rate risk is irrelevant to corporations is that shareholders can deal with this risk individually.
A) true.
B) false.
29. If Lazer Co. desired to lock in the maximum it would have to pay for its net payables in euros but wanted to be able to capitalize if the euro depreciates substantially against the dollar by the time payment is to be made, the most appropri¬ate hedge would be:
A) a money market hedge.
B) purchasing euro put options.
C) a forward purchase of euros.
D) purchasing euro call options.
E) selling euro call options.
30. An example of cross hedging is:
A) find two currencies that are highly positively correl¬ated; match the payables of the one currency to the receivables of the other currency.
B) use the forward market to sell forward whatever curren¬cies you will receive.
C) use the forward market to buy forward whatever currencies you will receive.
D) B and C
31. Since the results of both a money market hedge and a forward hedge are known beforehand, an MNC can implement the one that is more feasible.
A) true.
B) false.
32. Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firm’s reported earnings (from the consolidated income statement) to _______. If a firm desired to protect against this possi¬bility, it could stabilize its reported earnings by _______ euros forward in the foreign exchange market.
A) be reduced; purchasing
B) be reduced; selling
C) increase; selling
D) increase; purchasing
Answer will be sent by email as attachment.
