Fundamentals of Corporate Finance, 12e (Ross)
Chapter 21 International Corporate Finance
1) Which one of the following securities is used as a means of investing in a foreign stock that otherwise could not be traded in the United States?
A) American Depository Receipt
B) Yankee bond
C) Yankee stock
D) LxIBOR
E) Gilt
2) Assume that $1 is equal to ￡.77 and equal to C$1.27. Based on this, you could say that C$1 is equal to: C$1(￡.77/C$1.27) = ￡.61. The exchange rate of C$1 = ￡.61 is referred to as the:
A) open exchange rate.
B) cross-rate.
C) backward rate.
D) forward rate.
E) interest rate.
3) International bonds issued in multiple countries but denominated in a single currency are called:
A) Treasury bonds.
B) Bulldog bonds.
C) Eurobonds.
D) Yankee bonds.
E) Samurai bonds.
4) U.S. dollars deposited in a bank in Switzerland are called:
A) foreign depository receipts.
B) international exchange certificates.
C) francs.
D) Eurocurrency.
E) Eurodollars.
5) International bonds and domestic bonds issued by the same domestic issuer are usually:
A) identical in all respects.
B) issued jointly in unlimited quantities.
C) treated as identical bonds for taxation purposes.
D) issued in different currencies.
E) subject to different regulations.
6) You would like to purchase a foreign bond that is issued by the Netherlands government. Which one of the following should you purchase?
A) Samurai bond
B) Kronor bond
C) Rembrandt bond
D) Swap
E) Bulldog bond
7) On Friday evening, Bank A loans Bank B Eurodollars that must be repaid the following Monday morning. Which one of the following is most likely the interest rate that will be charged on this loan?
A) Eurodollar yield to maturity
B) London Interbank Offer Rate
C) Paris Opening Interest Rate
D) United States Treasury bill rate
E) International prime rate
8) Party A has agreed to exchange $1 million U.S. for $1.02 million Canadian. What is this agreement called?
A) Gilt
B) LIBOR
C) SWIFT
D) Yankee agreements
E) Swap
9) Where does most of the trading in Eurobonds occur?
A) Munich
B) Frankfurt
C) London
D) New York
E) Paris
10) Which one of the following names matches the country where the bond is issued?
A) Empire: United Kingdom
B) Western: United States
C) Samurai: China
D) Bulldog: France
E) Dim sum: Hong Kong
11) The LIBOR is primarily used as the basis for the rate charged on:
A) short-term debt in the Lisbon market.
B) mortgage loans in the Lisbon market.
C) Eurodollar loans in the London market.
D) U.S. federal funds.
E) interbank loans in the U.S.
12) A basic interest rate swap generally involves trading a:
A) short-term rate for a long-term rate.
B) foreign rate for a domestic rate.
C) government rate for a corporate rate.
D) fixed rate for a variable rate.
E) taxable rate for a tax-exempt rate.
13) Which one of the following statements is correct concerning the foreign exchange market?
A) The trading floor of the foreign exchange market is located in London.
B) The foreign exchange market is the world's second largest financial market.
C) The four primary currencies that are traded in the foreign exchange market are the U.S. dollar, the British pound, the French franc, and the euro.
D) A cross-rate is the exchange rate of a non-U.S. currency expressed in another non-U.S. currency.
E) The price in U.S. dollars of a foreign currency is referred to as an indirect quote.
14) Triangle arbitrage:
A) is illegal in the U.S.
B) prevents the currency markets from obtaining equilibrium.
C) is a profitable opportunity involving three separate currency exchange transactions.
D) opportunities can exist only in the forward markets.
E) is based solely on differences in exchange rates between spot and futures markets.
15) Spot trades must be settled:
A) at the time of the trade.
B) on the day following the trade date.
C) within two business days.
D) within three business days.
E) within one week of the trade date.
16) Assume the euro is selling in the spot market for $1.15. Simultaneously, in the three-month forward market the euro is selling for $1.17. Which one of the following statements correctly describes this situation?
A) The spot market is out of equilibrium.
B) The forward market is out of equilibrium.
C) The dollar is selling at a premium relative to the euro.
D) The euro is selling at a premium relative to the dollar.
E) The euro is expected to depreciate in value.
17) A large U.S. company has ￡500,000 in excess cash from its foreign operations. The company would like to exchange these funds for U.S. dollars. In which of the following markets can this exchange be arranged?
A) ADR
B) National registry
C) National discount exchange
D) Forex
E) Eurobond market
18) The price of one euro expressed in U.S. dollars is referred to as a(n):
A) ADR rate.
B) cross inflation rate.
C) depository rate.
D) exchange rate.
E) foreign interest rate.
19) Trader A has agreed to give 100,000 U.S. dollars to Trader B in exchange for British pounds based on today's exchange rate of $1 = ￡.78. The traders agree to settle this trade within two business days. What is this exchange called?
A) Swap
B) Option trade
C) Futures trade
D) Forward trade
E) Spot trade
20) George and Pat just made an agreement to exchange U.S. dollars for Australian dollars based on today's exchange rate. Settlement will occur tomorrow. Which one of the following is the exchange rate that applies to this agreement?
A) Spot exchange rate
B) Forward exchange rate
C) Triangle rate
D) Cross rate
E) Current rate
21) A trader has just agreed to exchange British pounds for French francs three months from today. This exchange is an example of a:
A) spot trade.
B) forward trade.
C) short sale.
D) floating swap.
E) triangle arbitrage.
22) Assume that on Friday, one South African rand was worth $.0953 and on the following Monday the value was $.0962. Also assume one Kuwaiti dinar was worth $3.56 on Friday and $3.54 on the following Monday. Given these rates, which one of the following statements must be correct?
A) On Thursday, one U.S. dollar was equal to .0944 South African rand.
B) On Friday, one U.S. dollar was worth 10.388 rands.
C) Both the South African rand and the Kuwaiti dinar appreciated against the U.S. dollar from Friday to Monday.
D) The South African rand appreciated from Friday to Monday against the U.S. dollar.
E) The U.S. dollar depreciated from Friday to Monday against the Kuwaiti dinar.
23) Mr. Black and Mr. White have agreed to exchange C$12,500 for $10,000 with the exchange occurring four months from now. This agreed-upon exchange rate is called the:
A) spot rate.
B) swap rate.
C) forward rate.
D) parity rate.
E) triangle rate.
24) Suppose the spot exchange rate is C$1.273 and the six-month forward rate is C$1.275. The U.S. dollar is selling at a ________ relative to the Canadian dollar and the U.S. dollar is expected to ________ relative to the Canadian dollar.
A) discount; appreciate
B) discount; depreciate
C) premium; appreciate
D) premium; depreciate
E) premium; remain constant
25) Assume the spot rate on the Japanese yen is ￥110.05 while it is C$1.1379 on the Canadian dollar. The respective three-month forward rates are ￥111.75 and C$1.1339. The value of the U.S. dollar will ________ with respect to the yen and will ________ with respect to the Canadian dollar.
A) appreciate; appreciate
B) appreciate; depreciate
C) depreciate; appreciate
D) depreciate; depreciate
E) depreciate; remain constant
26) Assume that an item costs $100 in the U.S. and the exchange rate between the U.S. and Canada is: $1 = C$1.27. Which one of the following concepts supports the idea that the item that sells for $100 in the U.S. is currently selling in Canada for $127?
A) Unbiased forward rates condition
B) Uncovered interest rate parity
C) International fisher effect
D) Purchasing power parity
E) Interest rate parity
27) Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S. dollar and the British pound?
A) S0 = P UK(P US)
B) P US = F t(P UK)
C) P UK = S0(P US)
D) F t = P US(P UK)
E) S0(F t) = P UK(P US)
28) Which one of the following conditions is not required for absolute purchasing power parity to exist?
A) No trade barriers can exist.
B) Goods must be identical.
C) Transaction costs must be zero.
D) There can be no spoilage.
E) Spot and forward rates must be equal.
29) Absolute purchasing power parity is most apt to exist for which one of the following items?
A) A pound of beef
B) A computer
C) An ounce of silver
D) An automobile
E) A cell phone
30) Relative purchasing power parity:
A) states that identical items should cost the same regardless of the currency used to make the purchase.
B) relates differences in inflation rates to differences in exchange rates.
C) compares the real rate of return to the nominal rate of return.
D) explains the differences in real rates across national boundaries.
E) relates changes in exchange rates to changes in interest rates.
31) Which one of the following formulas correctly describes the relative purchasing power parity relationship?
A) E(S t) = S0[1 + (h FC ?h US)]t
B) E(S t) = S0[1 – (h FC ?h US)]t
C) E(S t) = S0[1 + (h US + h FC)]t
D) E(S t) = S0[1 ? (h US? h FC)]t
E) E(S t) = S0[1 + (h US –h FC)]t
32) Assume quotes are based on units of foreign currency per dollar and the U.S. dollar appreciated against the euro today. This means that:
A) it now takes more euros to buy one dollar.
B) the exchange rate between the dollar and euro weakened.
C) the U.S. inflation rate exceeds the inflation rate in Euroland.
D) it now takes more dollars to buy one euro.
E) the U.S. interest rate is less than the interest rate in Euroland.
33) The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:
A) the unbiased forward rates condition.
B) uncovered interest rate parity.
C) the international Fisher effect.
D) purchasing power parity.
E) interest rate parity.
34) Which one of the following states that the current forward rate is an unbiased predictor of the future spot exchange rate?
A) Unbiased forward rates
B) Uncovered interest rate parity
C) International Fisher effect
D) Purchasing power parity
E) Interest rate parity
35) Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?
A) Unbiased forward rates condition
B) Uncovered interest parity
C) International Fisher effect
D) Purchasing power parity
E) Interest rate parity
36) Which one of the following supports the idea that real interest rates are equal across countries?
A) Unbiased forward rates condition
B) Uncovered interest rate parity
C) International Fisher effect
D) Purchasing power parity
E) Interest rate parity
37) Which of the following variables used in the covered interest arbitrage formula is correctly defined?
A) S0: Current spot rate expressed in dollars per unit of foreign currency.
B) F t: Future inflation rate at Time t.
C) F1: 360-day forward rate.
D) R US: U.S. real risk-free interest rate.
E) R FC: Foreign country real interest rate.
38) Interest rate parity:
A) eliminates covered interest arbitrage opportunities.
B) exists when spot rates are equal for multiple countries.
C) means the nominal risk-free rate must be equal across countries.
D) exists when the spot rate is equal to the forward rate.
E) eliminates exchange rate fluctuations.
39) The interest rate parity approximation formula is:
A) F t = S0[1 + (R FC + R US)]t.
B) F t = S0[1 ? (R FC? R US)]t.
C) F t = S0[1 + (R FC – R US)]t.
D) F t = S0[1 + R FC(R US)]t.
E) F t = S0(1 ? R FC/R US)t.
40) The unbiased forward rate condition supports the idea that the current forward rate is a:
A) condition where a future spot rate is equal to the current spot rate.
B) guarantee of a future spot rate at one point in time.
C) condition where the spot rate is expected to remain constant over a period of time.
D) relationship between the future spot rates of two currencies at an equivalent point in time.
E) predictor of the future spot rate at the equivalent point in time.
41) The forward rate market is dependent upon:
A) current forward rates exceeding current spot rates.
B) current spot rates exceeding current forward rates over time.
C) current spot rates equaling current forward rates, on average, over time.
D) forward rates equaling the actual future spot rates on average over time.
E) current spot rates equaling the actual future spot rates on average over time.
42) Uncovered interest parity is defined as:
A) E(S t) = S0[1 + (h FC? h US)]t.
B) E(S t) = S0[1 + (R FC? R US)]t.
C) E(S t) = S0[1 ? (R FC? R US)]t.
D) E(S t) = S0[1 + (R US? R FC)]t.
E) E(S t) = S0[1 + (h FC + h US)]t.
43) The international Fisher effect states that ________ rates are equal across countries.
A) spot
B) one-year future
C) nominal interest
D) inflation
E) real interest
44) The home currency approach:
A) discounts all of a project's foreign cash flows using the current spot rate.
B) employs the uncovered interest parity relationship to project future exchange rates.
C) computes the net present value (NPV) of a project in the foreign currency and then converts that NPV into U.S. dollars.
D) utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency.
E) utilizes the international Fisher effect to compute the required future exchange rates.
45) The home currency approach:
A) generally produces more reliable results than those found using the foreign currency approach.
B) requires an applicable exchange rate for every time period for which there is a cash flow.
C) uses the current risk-free nominal rate to discount all cash flows related to a project.
D) stresses the use of the real rate of return to compute the net present value (NPV) of a project.
E) converts a foreign denominated NPV into a dollar denominated NPV.
46) The foreign currency approach to capital budgeting analysis:
A) produces different results than the home currency approach.
B) is computationally harder to use than the home currency approach.
C) computes the NPV of a project in both the foreign and the domestic currency.
D) requires an exchange rate for each time period for which there is a cash flow.
E) converts all foreign cash flows into dollar cash flows.
47) Which one of the following is a suggested method of reducing a U.S. importer's short-run exposure to exchange rate risk?
A) Entering a forward exchange agreement timed to match the invoice date
B) Investing U.S. dollars when an order is placed and using the investment proceeds to pay the invoice
C) Exchanging funds on the spot market at the time an order is placed with a foreign supplier
D) Exchanging funds on the spot market at the time an order is received
E) Exchanging funds on the spot market at the time an invoice is payable
48) Long-run exposure to exchange rate risk relates to:
A) daily variations in exchange rates.
B) variances between spot and future rates.
C) unexpected changes in relative economic conditions.
D) differences between future spot rates and related forward rates.
E) accounting gains and losses created by fluctuating exchange rates.
49) The type of exchange rate risk known as translation exposure is best described as the:
A) risk that a positive net present value (NPV) project could turn into a negative NPV project because of changes in the exchange rate between two countries.
B) problem encountered by an accountant of an international firm who is trying to record balance
sheet account values.
C) fluctuation in prices faced by importers of foreign goods.
D) variance in relative pay rates based on the currency used to pay an employee.
E) variance between the revenue of an exporter who uses forward rates and an equivalent exporter who does not use forward rates.
50) Which one of the following statements is correct?
A) The use of forward rates increases the short-run exposure to exchange rate risk.
B) Accounting translation gains and losses are recorded in the equity section of the balance sheet.
C) There is no known method of reducing long-run exchange rate risk.
D) A firm can record a profit on its income statement from a foreign subsidiary even when that subsidiary has no profit thanks to exchange rate risk.
E) Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk.
51) Which one of the following is the risk that a firm faces when it opens a facility in a foreign country, given that the exchange rate between the firm's home country and this foreign country fluctuates over time?
A) International risk
B) Diversifiable risk
C) Purchasing power risk
D) Exchange rate risk
E) Political risk
52) The market value of the Blackwell Corporation just declined by 5 percent. Analysts believe this decrease in value was caused by recent legislation passed by Congress. Which type of risk does this illustrate?
A) International risk
B) Diversifiable risk
C) Purchasing power risk
D) Exchange rate risk
E) Political risk
53) Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?
A) Accounting and payroll functions
B) Partial assembly of components unique to the finished product
C) Raw materials production
D) Packing materials manufacturing
E) Production of minor parts such as nuts and bolts
54) A U.S. firm has significant profits that were earned overseas. When U.S. taxes are paid on these profits, the profits are considered to be:
A) abrogated.
B) blocked.
C) repatriated.
D) confiscated.
E) taken over.
55) Assume a firm has $5 million of overseas profits that are invested in U.S. financial assets. These profits have not been repatriated. Given this, the firm is prohibited from using any of the $5 million to:
A) build a new factory in Europe.
B) pay bonuses to its foreign managers.
C) acquire new equipment for installation in its Asian plant.
D) pay dividends.
E) invest in euros.
56) One goal of the Tax Cuts and Jobs Act of 2017 is to encourage corporations to:
A) claim all overseas profits as U.S. profits to avoid paying taxes to foreign governments.
B) bring their overseas cash back to the U.S. at a one-time tax rate of 8 percent.
C) distribute all of their overseas profits as dividends to avoid all U.S. taxes.
D) bring all of their foreign assets back to the U.S. by paying a one-time tax rate of 15.5 percent on those assets.
E) repatriate their untaxed overseas profits.
57) Assume the direct quote on the euro is 1.23 and the indirect quote on the Swiss franc is .88. What is the cross-rate for euros in terms of Swiss francs?
A) €.1.0824/SF1
B) €.1.3977/SF1
C) €.9239/SF1
D) €1/SF1
E) €.7154/SF1
58) Suppose the spot exchange rates are ￥102 = $1 and ￡1 = $1.57. Also suppose the cross-rate is ￥159 = ￡1. What is the arbitrage profit per one U.S. dollar?
A) $.0164
B) $.0106
C) $.0057
D) $.0072
E) $.0148
59) How many euros can you get for $3,800 if one euro is worth $1.2987?
A) €2,638
B) €2,926
C) €3,677
D) €4,935
E) €5,201
60) You are planning a trip to Australia. Your hotel will cost you A$135 per night for six nights. You expect to spend another A$2,400 for meals, tours, souvenirs, and so forth. How much will this trip cost you in U.S. dollars if $1 = A$1.2904?
A) $2,488
B) $3,498
C) $2,631
D) $4,452
E) $4,142
61) You want to import $225,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.01552?
A) Rs14,887,424
B) Rs15,238,911
C) Rs14,497,423
D) Rs13,367,594
E) Rs13,415,096
62) Currently, $1 will buy C$1.1028 while $1.2334 will buy €1. What is the exchange rate between the Canadian dollar and the euro?
A) C$1 = €.8941
B) C$1 = €.6539
C) C$1 = €1.3602
D) C$1.3602 = €1
E) C$.8941 = €1
63) Assume ￥102.36 equal $1. Also assume that SKr6.5103 equal $1. How many Japanese yen can you acquire in exchange for 5,000 Swedish kronor?
A) ￥318
B) ￥261
C) ￥78,614
D) ￥33,320
E) ￥49,520
64) Assume you just returned from some extensive traveling throughout the Americas. You started your trip with $20,000 in your pocket. You spent 3.1 million pesos while in Chile and 548,200 pesos in Colombia. Then on the way home, you spent 47,500 pesos in Mexico. Assume the exchanges rates you encountered were $1 = Ps562 in Chile; $1 = Ps1,928 in Colombia; and $.0767 = Ps in Mexico. How many dollars did you have left by the time you returned to the
U.S.?
A) $11,113
B) $10,556
C) $4,117
D) $4,244
E) $8,575
65) You have ￡100. A friend of yours wants to exchange C$175 for your ￡100. What will be your profit or loss in pounds if you accept your friend's offer assuming you can exchange C$1 for $.9134 and exchange ￡1 for $1.7240?
A) ￡7.28 loss
B) ￡3.29 loss
C) ￡2.51 loss
D) ￡1.20 profit
E) ￡2.51 profit
66) Assume $1 = C$1.1098 and $1 = ￡.6018. Also assume you can buy ￡55 for C$100. How much profit can you earn using triangle arbitrage if you start out with $100?
A) $.78
B) $1.04
C) $1.43
D) $1.56
E) $1.54
67) Assume you can exchange $100 today for C$109.58 or for 1,304 Mexican pesos. Assume that last year, $100 was equivalent to C$105.48 or 1,310 Mexican pesos. One hundred dollars converted into ________ last year can now be converted into ________.
A) Canadian dollars; $103.89.
B) Mexican pesos; $99.54.
C) Mexican pesos; $100.38.
D) Canadian dollars; $96.26.
E) Canadian dollars; $101.20.
68) The camera you want to buy costs $495 in the U.S. How much will the identical camera cost in Canada if the exchange rate is C$1 = $.9128? Assume absolute purchasing power parity exists.
A) C$452
B) C$468
C) C$491
D) C$527
E) C$542
69) Assume that today you can exchange $1 for ￡.5926 and that last week, ￡1 was worth
$1.6729. How much profit or loss would you now have in pounds if you had converted ￡100 into
dollars last week and then converted the dollars back into pounds this week?
A) ￡.86 loss
B) ￡.39 loss
C) ￡.07 loss
D) ￡1.03 profit
E) ￡1.59 profit
70) Assume €1 = $1.1364 and $1 = S$1.2408. A new coat costs S$213 in Singapore. How much will the identical coat cost in euros if absolute purchasing power parity exists?
A) €300
B) €151
C) €119
D) €195
E) €233
71) Assume $1 can buy you either ￥113.25 or ￡.7708. If a TV in London costs ￡995, what will that identical TV cost in Tokyo if absolute purchasing power parity exists?
A) ￥86,857
B) ￥60,554
C) ￥146,191
D) ￥161,855
E) ￥163,542
72) Assume $1 is currently equal to A$1.2924 in the spot market. Also assume the expected inflation rate in Australia is 2.8 percent as compared to 2.4 percent in the U.S. What is the expected exchange rate one year from now if relative purchasing power parity exists?
A) A$1.2952
B) A$1.2976
C) A$1.2872
D) A$1.2853
E) A$1.3005
73) Assume $1 is currently equal to ￡.7741 in the spot market. Assume the expected inflation rate in the U.S. is 2.6 percent while it is 2.3 percent in the U.K. What is the expected exchange rate one year from now if relative purchasing power parity exists?
A) ￡.7764
B) ￡.7878
C) ￡.7839
D) ￡.7718
E) ￡.7791
74) Assume $1 is currently equal to ￡.7658. Also assume the expected inflation rate in the U.K. is 3.6 percent while it is 3.3 percent in the U.S. What is the expected exchange rate four years from now if relative purchasing power parity exists?
A) ￡.7750
B) ￡.7635
C) ￡.7681
D) ￡.7623
E) ￡.7567
75) Suppose the spot and three-month forward rates for the yen are ￥102.32 and ￥102.27, respectively. What is the approximate annual percent difference between the inflation rate in Japan and in the U.S.?
A) 1.93 percent
B) ?1.21 percent
C) 1.67 percent
D) ?.20 percent
E) 2.28 percent
76) Assume the spot exchange rate for the Hungarian forint is 267.767 HUF. Also assume the inflation rate in the United States is 1.6 percent per year while it is 3.5 percent in Hungary. What is the expected exchange rate three years from now?
A) 252.792 HUF
B) 272.855 HUF
C) 283.322 HUF
D) 262.679 HUF
E) 259.406 HUF
77) Assume the current spot rate is C$1.2568 and the one-year forward rate is C$1.2455. Also assume the nominal risk-free rate in Canada is 3.7 percent compared to 4.1 percent in the U.S. Using covered interest arbitrage, how much additional profit can you earn over that which you would earn if you invested $1 in the U.S for one year?
A) $.0054
B) $.0042
C) $.0008
D) $.0015
E) $.0061
78) Assume the current spot rate is C$1.0875 and the one-year forward rate is C$1.0724. Also assume the nominal risk-free rate in Canada is 3.9 percent while it is 4.1 percent in the U.S. How much additional income can you earn by using covered interest arbitrage as compared to investing $1 in the U.S for one year?
A) $.0118
B) $.0126
C) $.0020
D) $.0110
E) $.0087
79) Assume the spot rate for the Japanese yen currently is ￥102.32 per $1 and the one-year
forward rate is ￥102.69 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?
A) 1.63 percent
B) 2.01 percent
C) 2.14 percent
D) 2.96 percent
E) 1.01 percent
80) Assume the spot rate for the British pound currently is ￡.6369 per $1. Also assume the one-year forward rate is ￡.6421 per $1. A risk-free asset in the U.S. is currently earning 3.2 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free British security?
A) 4.18 percent
B) 4.57 percent
C) 3.67 percent
D) 4.04 percent
E) 4.92 percent
81) Assume a risk-free asset in the U.S. is currently yielding 4.1 percent, a Canadian risk-free asset is yielding 3.7 percent, and the current spot rate is C$1.2633. What is the approximate three-year forward rate if interest rate parity holds?
A) C$1.2482
B) C$1.2684
C) C$1.2541
D) C$1.2785
E) C$1.2582
82) Assume the spot rate on the Canadian dollar is C$1.2648, the risk-free nominal rate in the U.S. is 3.3 percent, and the risk-free nominal rate in Canada is 3.8 percent. What one-year forward rate will create interest rate parity?
A) C$1.2362
B) C$1.2429
C) C$1.2709
D) C$1.2587
E) C$1.2515
83) Assume the spot rate on the pound is ￡.5920 and the 6-month forward rate is ￡.5929. Also assume interest rate parity holds and the current six-month risk-free rate in the United States is
3.1 percent. What must the six-month risk-free rate be in Great Britain?
A) 3.25 percent
B) 2.87 percent
C) 2.94 percent
D) 3.10 percent
E) 3.52 percent
84) Assume the spot rate on the Canadian dollar is C$1.0926, the risk-free nominal rate in the U.S. is 3.8 percent and 4.1 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?
A) C$1.1058
B) C$1.1012
C) C$1.0959
D) C$1.0893
E) C$1.0795
85) You are considering a project in South Africa which has an initial cost of R385,000. The project is expected to return a one-time payment of R428,900 four years from now. The risk-free rate of return is 3.5 percent in the U.S. and 2.4 percent in South Africa. The inflation rate is 4 percent in the U.S. and 3 percent in South Africa. Currently, you can buy R10.48 for $1. How much will the payment of R428,900 be worth in U.S. dollars four years from now?
A) $42,777
B) $40,560
C) $47,251
D) $46,926
E) $44,357
86) You are expecting a payment of NKr450,000 three years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Norway. The inflation rate is 2.5 percent in the U.S. and 3 percent in Norway. Currently, you can buy NKr5.94 for $1. How much will the payment three years from now be worth in U.S. dollars?
A) $75,758
B) $73,530
C) $81,511
D) $78,077
E) $69,888
87) You are expecting a payment of C$100,000 two years from now. The risk-free rate of return is 3.8 percent in the U.S. and 4.1 percent in Canada. The inflation rate is 2 percent in the U.S. and 3 percent in Canada. Suppose the current exchange rate is C$1 = $.9132. How much will the payment two years from now be worth in U.S. dollars?
A) $91,870
B) $102,414
C) $108,851
D) $88,202
E) $90,775
88) Suppose the current spot rate for the Norwegian krone is NKr5.9433 while the expected inflation rate in Norway is 3.1 percent and 1.7 percent in the U.S. A risk-free asset in the U.S. is yielding 3.2 percent. What risk-free rate of return should you expect on a Norwegian security?
A) 5.1 percent
B) 4.0 percent
C) 4.4 percent
D) 5.9 percent
E) 4.6 percent
89) Suppose the current spot rate for the Norwegian krone is NKr5.5923 while the expected inflation rate in Norway is 2.2 percent compared to 1.8 percent in the U.S. A risk-free asset in the U.S. is yielding 3.4 percent. What approximate real rate of return should you expect on a risk-free Norwegian security?
A) 1.2 percent
B) 1.6 percent
C) 2.0 percent
D) .4 percent
E) .6 percent
90) Assume the expected inflation rate in Finland is 3.3 percent compared to 2.4 percent in the U.S. A risk-free asset in the U.S. is yielding 4.3 percent. What approximate real rate of return should you expect on a risk-free Finnish security?
A) .9 percent
B) 1.9 percent
C) 2.1 percent
D) 2.5 percent
E) 3.4 percent
91) Suppose the spot and six-month forward rates on the Norwegian krone are NKr5.94 and
NKr6.05 respectively. The annual risk-free rate in the United States is 4.5 percent, and the annual risk-free rate in Norway is 7 percent. What would the six-month forward rate have to be on the Norwegian krone to prevent arbitrage?
A) NKr6.0138
B) NKr6.0072
C) NKr6.0103
D) NKr6.0174
E) NKr6.0067
92) You observe that the inflation rate in the United States is .78 percent per year and that T-bills currently yield 2.94 percent annually. Using the approximate international Fisher effect, what do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 3.53 percent per year?
A) 4.22 percent
B) 1.37 percent
C) 2.24 percent
D) 1.87 percent
E) .88 percent
93) You want to invest in a project in Canada that has an initial cost of C$812,000 and is expected to produce cash inflows of C$340,000 a year for three years. The project will be worthless after the three years. The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S. The applicable interest rate for the project in Canada is 12 percent. Assume the current spot rate is C$1 = $.7874. What is the net present value of this project in Canadian dollars?
A) ?C$1,889
B) ?C$2,924
C) C$4,623
D) C$6,139
E) C$7,528
94) You want to invest in a riskless project in Sweden. The project has an initial cost of SKr3.86 million and is expected to produce cash inflows of SKr1.76 million a year for three years. The project will be worthless after three years. The expected inflation rate in Sweden is 3.2 percent while it is 2.8 percent in the U.S. A risk-free security is paying 4.1 percent in the U.S. The current spot rate is SKr7.7274. What is the net present value of this project in Swedish krona if the international Fisher effect applies?
A) SKr1,087,561
B) SKr701,458
C) SKr823,333
D) SKr958,029
E) SKr978,177
95) You are analyzing a project with an initial cost of ￡50,000. The project is expected to return ￡12,000 the first year, ￡36,000 the second year, and ￡40,000 the third and final year. There is no salvage value. Assume the current spot rate is ￡.6346. The nominal return relevant to the project is 12 percent in the U.S. The nominal risk-free rate in the U.S. is 3.4 percent while it is 4.1 percent in the U.K. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?
A) $23,611
B) $26,509
C) $26,930
D) $29,639
E) $30,796
96) You are analyzing a project with an initial cost of ￡130,000. The project is expected to return ￡20,000 the first year, ￡50,000 the second year, and ￡90,000 the third and final year. There is no
salvage value. The current spot rate is ￡.6211. The nominal risk-free return is 5.5 percent in the U.K. and 6 percent in the U.S. The return relevant to the project is 14 percent in the U.S. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?
A) ?$19,062
B) ?$5,409
C) $5,505
D) $9,730
E) $18,947
97) Global Inc. just placed an order for 25,000 units at a cost of 162 Singapore dollars each, which will be payable when the shipment arrives in 120 days. Global sells these units at $148 each. The spot exchange rate is S$1.2537. What will the profit be on this order if the exchange rate increases to S$1.2602 over the next 120 days?
A) $513,564
B) $508,121
C) $516,407
D) $486,224
E) $472,433
98) International Markets can purchase an item for ￥27,500. What will be the dollar change in the cost of that item in U.S. dollars if the exchange rate of ￥111.30 changes to ￥113.25?
A) $3.74
B) $4.25
C) ?$3.74
D) ?$4.25
E) ?$4.72
Chapter 10 Return and Risk: The Capital-Assets-Pricing Model Multiple Choice Questions 1. When a security is added to a portfolio the appropriate return and risk contributions are A) the expected return of the asset and its standard deviation. B) the expected return and the variance. C) the expected return and the beta. D) the historical return and the beta. E) these both can not be measured. Answer: C Difficulty: Medium Page: 255 2. When stocks with the same expected return are combined into a portfolio A) the expected return of the portfolio is less than the weighted average expected return of the stocks. B) the expected return of the portfolio is greater than the weighted average expected return of the stocks. C) the expected return of the portfolio is equal to the weighted average expected return of the stocks. D) there is no relationship between the expected return of the portfolio and the expected return of the stocks. E) None of the above. Answer: C Difficulty: Easy Page: 261 3. Covariance measures the interrelationship between two securities in terms of A) both expected return and direction of return movement. B) both size and direction of return movement. C) the standard deviation of returns. D) both expected return and size of return movements. E) the correlations of returns. Answer: B Difficulty: Medium Page: 258-259 Use the following to answer questions 4-5: GenLabs has been a hot stock the last few years, but is risky. The expected returns for GenLabs are highly dependent on the state of the economy as follows: State of Economy Probability GenLabs Returns Depression .05 -50% Recession .10 -15 Mild Slowdown .20 5 Normal .30 15% Broad Expansion .20 25 Strong Expansion .15 40
公司理财(英文版)题 库2
CHAPTER 2 Financial Statements & Cash Flow Multiple Choice Questions: I. DEFINITIONS BALANCE SHEET b 1. The financial statement showing a firm’s accounting value on a particular date is the: a. income statement. b. balance sheet. c. statement of cash flows. d. tax reconciliation statement. e. shareholders’ equity sheet. Difficulty level: Easy CURRENT ASSETS c 2. A current asset is: a. an item currently owned by the firm. b. an item that the firm expects to own within the next year. c. an item currently owned by the firm that will convert to cash within the next 12 months. d. the amount of cash on hand the firm currently shows on its balance sheet. e. the market value of all items currently owned by the firm. Difficulty level: Easy LONG-TERM DEBT b 3. The long-term debts of a firm are liabilities: a. that come due within the next 12 months. b. that do not come due for at least 12 months. c. owed to the firm’s suppliers. d. owed to the firm’s shareholde rs. e. the firm expects to incur within the next 12 months. Difficulty level: Easy NET WORKING CAPITAL e 4. Net working capital is defined as: a. total liabilities minus shareholders’ equity. b. current liabilities minus shareholders’ equity. c. fixed assets minus long-term liabilities. d. total assets minus total liabilities. e. current assets minus current liabilities. Difficulty level: Easy LIQUID ASSETS d 5. A(n) ____ asset is on e which can be quickly converted into cash without significant loss in value.
CHAPTER 2 Financial Statements & Cash Flow Multiple Choice Questions: I. DEFINITIONS BALANCE SHEET b 1. The financial statement showing a firm’s accounting value on a particular date is the: a. income statement. b. balance sheet. c. statement of cash flows. d. tax reconciliation statement. e. shareholders’ equity sheet. Difficulty level: Easy CURRENT ASSETS c 2. A current asset is: a. an item currently owned by the firm. b. an item that the firm expects to own within the next year. c. an item currently owned by the firm that will convert to cash within the next 12 months. d. the amount of cash on hand the firm currently shows on its balance sheet. e. the market value of all items currently owned by the firm. Difficulty level: Easy LONG-TERM DEBT b 3. The long-term debts of a firm are liabilities: a. that come due within the next 12 months. b. that do not come due for at least 12 months. c. owed to the firm’s suppliers. d. owed to the firm’s shareholders. e. the firm expects to incur within the next 12 months. Difficulty level: Easy NET WORKING CAPITAL e 4. Net working capital is defined as: a. total liabilities minus shareholders’ equity. b. current liabilities minus shareholders’ equity. c. fixed assets minus long-term liabilities. d. total assets minus total liabilities. e. current assets minus current liabilities. Difficulty level: Easy LIQUID ASSETS d 5. A(n) ____ asset is on e which can be quickly converted into cash without significant loss in value.
Chapter 20 Issuing Securities to the Public Multiple Choice Questions 1. An equity issue sold directly to the public is called: A. a rights offer. B. a general cash offer. C. a restricted placement. D. a fully funded sales. E. a standard call issue. 2. An equity issue sold to the firm's existing stockholders is called: A. a rights offer. B. a general cash offer. C. a private placement. D. an underpriced issue. E. an investment banker's issue. 3. Management's first step in any issue of securities to the public is: A. to file a registration form with the SEC. B. to distribute copies of the preliminary prospectus. C. to distribute copies of the final prospectus. D. to obtain approval from the board of directors. E. to prepare the tombstone advertisement. 4. A rights offering is: A. the issuing of options on shares to the general public to acquire stock. B. the issuing of an option directly to the existing shareholders to acquire stock. C. the issuing of proxies which are used by shareholders to exercise their voting rights. D. strictly a public market claim on the company which can be traded on an exchange. E. the awarding of special perquisites to management.
Fundamentals of Corporate Finance, 12e (Ross) Chapter 5 Introduction to Valuation: The Time Value of Money 1) Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning at 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true? A) Barb will earn more interest in Year 1 than Andy will. B) Andy will earn more interest in Year 3 than Barb will. C) Barb will earn more interest in Year 2 than Andy. D) After five years, Andy and Barb will both have earned the same amount of interest. E) Andy will earn compound interest. 2) Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct? A) Nan will have less money when she retires than Neal. B) Neal will earn more interest on interest than Nan. C) Neal will earn more compound interest than Nan. D) If both Nan and Neal wait to age 70 to retire they will have equal amounts of savings. E) Nan will have more money than Neal at any age. 3) You are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now? A) Future value B) Present value C) Principal amount D) Discounted value E) Invested principal 4) Christina invested $3,000 five years ago and earns 2 percent annual interest. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as: A) simplifying. B) compounding. C) aggregating. D) accumulating. E) discounting.
Chapter 30 Financial Distress Multiple Choice Questions 1. Financial distress can be best described by which of the following situations in which the firm is forced to take corrective action? A. Cash payments are delayed to creditors. B. The market value of the stock declines by 10%. C. The firm's operating cash flow is insufficient to pay current obligations. D. Cash distributions are eliminated because the board of directors considers the surplus account to be low. E. None of the above. 2. Insolvency can be defined as: A. not having cash. B. being illiquid. C. an inability to pay one's debts. D. an inability to increase one's debts. E. the present value of payments being less than assets. 3. Stock-based insolvency is a: A. income statement measurement. B. balance sheet measurement. C. a book value measurement only. D. Both A and C. E. Both B and C. 4. Flow-based insolvency is: A. a balance sheet measurement. B. a negative equity position. C. when operating cash flow is insufficient to meet current obligations. D. inability to pay one's debts. E. Both C and D.
Chapter 13 Risk, Cost of Capital, and Capital Budgeting Answer Key Multiple Choice Questions 1. The weighted average of the firm's costs of equity, preferred stock, and after tax debt is the: A. reward to risk ratio for the firm. B. expected capital gains yield for the stock. C. expected capital gains yield for the firm. D. portfolio beta for the firm. E. weighted average cost of capital (WACC). Difficulty level: Easy Topic: WACC Type: DEFINITIONS 2. If the CAPM is used to estimate the cost of equity capital, the expected excess market return is equal to the: A. return on the stock minus the risk-free rate. B. difference between the return on the market and the risk-free rate. C. beta times the market risk premium. D. beta times the risk-free rate. E. market rate of return. Difficulty level: Easy Topic: CAPM Type: DEFINITIONS
Chapter 04 Discounted Cash Flow Valuation Answer Key Multiple Choice Questions 1. An annuity stream of cash flow payments is a set of: A.level cash flows occurring each time period for a fixed length of time. B. level cash flows occurring each time period forever. C. increasing cash flows occurring each time period for a fixed length of time. D. increasing cash flows occurring each time period forever. E. arbitrary cash flows occurring each time period for no more than 10 years. Difficulty level: Easy Topic: ANNUITY Type: DEFINITIONS
2. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period. A. ordinary annuities; early annuities B. late annuities; straight annuities C. straight annuities; late annuities D. annuities due; ordinary annuities E.ordinary annuities; annuities due Difficulty level: Easy Topic: ANNUITIES DUE Type: DEFINITIONS
CHAPTER 8 Making Capital Investment Decisions I. DEFINITIONS INCREMENTAL CASH FLOWS a 1. The changes in a firm's future cash flows that are a direct consequence of accepting a project are called _____ cash flows. a. incremental b. stand-alone c. after-tax d. net present value e. erosion Difficulty level: Easy EQUIVALENT ANNUAL COST e 2. The annual annuity stream o f payments with the same present value as a project's costs is called the project's _____ cost. a. incremental b. sunk c. opportunity d. erosion e. equivalent annual Difficulty level: Easy SUNK COSTS c 3. A cost that has already been paid, or the liability to pay has already been incurred, is a(n): a. salvage value expense. b. net working capital expense. c. sunk cost. d. opportunity cost. e. erosion cost. Difficulty level: Easy OPPORTUNITY COSTS d 4. Th e most valuable investment given up i f an alternative investment is chosen is a(n): a. salvage value expense. b. net working capital expense.
Chapter 16 Capital Structure: Basic Concepts Multiple Choice Questions 1. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called: A. homemade leverage. B. dividend recapture. C. the weighted average cost of capital. D. private debt placement. E. personal offset. 2. The proposition that the value of the firm is independent of its capital structure is called: A. the capital asset pricing model. B. MM Proposition I. C. MM Proposition II. D. the law of one price. E. the efficient markets hypothesis. 3. The proposition that the cost of equity is a positive linear function of capital structure is called: A. the capital asset pricing model. B. MM Proposition I. C. MM Proposition II. D. the law of one price. E. the efficient markets hypothesis. 4. The tax savings of the firm derived from the deductibility of interest expense is called the: A. interest tax shield. B. depreciable basis. C. financing umbrella. D. current yield. E. tax-loss carry forward savings.
第二章财务报表分析 一、单选题 1．假定甲公司向乙公司赊销产品，并持有丙公司的债券和丁公司的股票，且向戊公司支付公司债利息。在不考虑其他条件的情况下，从甲公司的角度看，下列各项中属于本企业与债权人之间财务关系的是（）。（南京大学2011金融硕士） A．甲公司与乙公司之间的关系 B．甲公司与丙公司之间的关系 C．甲公司与丁公两之间的关系 D．甲公司与戊公司之间的关系 【答案】D 【解析】甲公司与乙公司是商业信用关系；甲公司为丙公司的债权人；甲公司是丁公司的股东；戊公司是甲公司的债权人。 2．杜邦财务分析体系的核心指标是（）。（浙江财经学院2011金融硕士） A．总资产报酬率 B．可持续增长率 C．ROE D．销售利润率 【答案】C 【解析】杜邦分析体系是对企业的综合经营理财及经济效益进行的系统分析评价，其恒
等式为：ROE=销售利润率×总资产周转率×权益乘数。可以看到净资产收益率（ROE）反映所有者投入资金的获利能力，反映企业筹资、投资、资产运营等活动的效率，是一个综合性最强的财务比率，所以净资产收益率是杜邦分析体系的核心指标。 3．影响企业短期偿债能力的最根本原因是（）。（浙江财经学院2011金融硕士）A．企业的资产结构 B．企业的融资结构 C．企业的权益结构 D．企业的经营业绩 【答案】D 【解析】短期偿债能力比率是一组旨在提供企业流动性信息的财务比率，有时也被称为流动性指标。它们主要关心企业短期内在不引起不适当压力的情况下支付账单的能力，因此，这些指标关注企业的流动资产和流动负债，但短期偿债能力比率的大小会因行业类型而不同，影响企业短期偿债能力的最根本原因还是企业的经营业绩。 4．市盈率是投资者用来衡量上市公司盈利能力的重要指标，关于市盈率的说法不正确的是（）。（浙江工商大学2011金融硕士） A．市盈率反映投资者对每股盈余所愿意支付的价格 B．市盈率越高表明人们对该股票的评价越高，所以进行股票投资时应该选择市盈率最高的股票 C．当每股盈余很小时，市盈率不说明任何问题 D．如果上市公司操纵利润，市盈率指标也就失去了意义
CHAPTER 20 INTERNATIONAL CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. a. The dollar is selling at a premium because it is more expensive in the forward market than in the spot market (SFr 1.53 versus SFr 1.50). b.The franc is expected to depreciate relative to the dollar because it will take more francs to buy one dollar in the future than it does today. c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates. 2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This is the relative PPP relationship. 3.a.The Australian dollar is expected to weaken relative to the dollar, because it will take more A$ in the future to buy one dollar than it does today. b.The inflation rate in Australia is higher. c.Nominal interest rates in Australia are higher; relative real rates in the two countries are the same. 4. A Yankee bond is most accurately described by d. 5. No. For example, if a cou ntry’s currency strengthens, imports bee cheaper (good), but its exports bee more expensive for others to buy (bad). The reverse is true for currency depreciation. 6.Additional advantages include being closer to the final consumer and, thereby, saving on transportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations. 7. One key thing to remember is that dividend payments are made in the home currency. More generally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.
CHAPTER 8 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concepts Review and Critical Thinking Questions 1. In this context, an opportunity cost refers to the value of an asset or other input that will be used in a project. The relevant cost is what the asset or input is actually worth today, not, for example, what it cost to acquire. 2. a.Yes, the reduction in the sales of the company’s other products, referred to as erosion, and should be treated as an incremental cash flow. These lost sales are included because they are a cost (a revenue reduction) that the firm must bear if it chooses to produce the new product. b. Yes, expenditures on plant and equipment should be treated as incremental cash flows. These are costs of the new product line. However, if these expenditures have already occurred, they are sunk costs and are not included as incremental cash flows. c. No, the research and development costs should not be treated as incremental cash flows. The costs of research and development undertaken on the product during the past 3 years are sunk costs and should not be included in the evaluation of the project. Decisions made and costs incurred in the past cannot be changed. They should not affect the decision to accept or reject the project. d. Yes, the annual depreciation expense should be treated as an incremental cash flow. Depreciation expense must be taken into account when calculating the cash flows related to a given project. While depreciation is not a cash expense that directly affects c ash flow, it decreases a firm’s net
Chapter 26 Short-Term Finance and Planning Multiple Choice Questions 1.The length of time between the acquisition of inventory and the collection of cash from receivables is called the: A.operating cycle. B.inventory period. C.accounts receivable period. D.accounts payable period. E.cash cycle. 2.The length of time between the acquisition of inventory and its sale is called the: A.operating cycle. B.inventory period. C.accounts receivable period. D.accounts payable period. E.cash cycle. 3.The length of time between the sale of inventory and the collection of cash from receivables is called the: A.operating cycle. B.inventory period. C.accounts receivable period. D.accounts payable period. E.cash cycle.
Chapter 21 Leasing Multiple Choice Questions 1.In a lease arrangement, the owner of the asset is: A.the lesser. B.the lessee. C.the lessor. D.the leaser. E.None of the above. 2.In a lease arrangement, the user of the asset is: A.the lesser. B.the lessee. C.the lessor. D.the leaser. E.None of the above. 3.Which of the following would not be a characteristic of a financial lease? A.They are not usually fully amortized. B.They usually do not have maintenance necessary for the leased assets. C.They usually do not include a cancellation option. D.The lessee usually has the right to renew the lease at expiration. E.All of the above are characteristics of financial leases.
4.An independent leasing company supplies ___________ leases versus the manufacturer who supplies ________________ leases. A.leveraged; direct B.sales and leaseback; sales-type C.capital; sales-type D.direct; sales-type E.None of the above