1. The capital account includes: (Points : 1)

the export and import of goods and services.

all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses.

all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs).

None of the above

2. A swap bank: (Points : 1)

can act as a broker, bringing together counterparties to a swap.

can act as a dealer, standing ready to buy and sell swaps.

Both a) and b).

Only sometimes a) but never ever b)

3. Eurobonds are usually: (Points : 1)

bearer bonds.

registered bonds.

bulldog bonds.

foreign currency bonds.

4. The secondary stock markets: (Points : 1)

are the markets for "pre-owned" or "used" shares of stock.

provide marketability to shares.

provide price discovery or share valuation.

All of the above

5. ADRs: (Points : 1)

are American Depository Receipts.

are denominated in U.S. dollars that trade on a U.S. stock exchange.

are depository receipts for foreign stocks held by the U.S. depository's custodian.

all of the above

6. Privatization is often seen as a cure for bureaucratic inefficiency and waste; some economists estimate that privatization improves efficiency and reduces operating costs by as much as: (Points : 1)

5 percent

10 percent

15 percent

20 percent

7. What paradigm is used to define the futures price? (Points : 1)

IRP

Hedge Ratio

Black Scholes

Risk Neutral Valuation

8. What is the difference between accounting exposure and translation exposure? (Points : 1)

Translation is about going from one language to another, accounting is just about the numbers.

Accounting exposure and translation exposure are the same thing.

Hedging one always involves increasing the other.

Hedging one might involve increasing the other.

9. In the swap market, which position potentially carries greater risks, broker or dealer? (Points : 1)

Broker

Dealer

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

10. The link between a firm's future operating cash flows and exchange rate fluctuations is called: (Points : 1)

asset exposure.

operating exposure.

a) and b).

none of the above

11. Systematic risk is: (Points : 1)

nondiversifiable risk.

the risk that remains even after investors fully diversify their portfolio holdings.

a and b.

none of the above.

12. Forward parity states that: (Points : 1)

any forward premium or discount is equal to the expected change in the exchange rate.

any forward premium or discount is equal to the actual change in the exchange rate.

the nominal interest rate differential reflects the expected change in the exchange rate.

an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country.

13. The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is: (Points : 1)

transaction exposure.

translation exposure.

economic exposure.

None of the above

14. The "world beta" measures the: (Points : 1)

unsystematic risk.

sensitivity of returns on a security to world market movements.

risk-adjusted performance.

risk of default and bankruptcy.

15. The European Monetary System (EMS) has the following chief objectives: (Points : 1)

to establish a "zone of monetary stability" in Europe.

to coordinate exchange rate policies vis--vis the non-EMS currencies.

to pave the way for the eventual European monetary union.

all of the above

16. The spot market: (Points : 1)

involves the almost-immediate purchase or sale of foreign exchange.

involves the sale of futures, forwards, and options on foreign exchange.

takes place only on the floor of a physical exchange.

All of the above

17. The "reporting currency" is defined in FASB 52 as: (Points : 1)

the currency of the primary economic environment in which the entity operates.

the currency in which the MNC prepares its consolidated financial statements.

a currency that is not the parent firm's home country currency.

a) and c)

18. There are two types of equity-related bonds: (Points : 1)

convertible bonds and dual currency bonds.

convertible bonds and kitchen sink bonds.

convertible bonds and bonds with equity warrants.

callable bonds and exchangeable bonds.

19. Nominal differences in currency swaps: (Points : 1)

can be explained by the set of international parity relationships.

can be explained by the credit risk differentials.

can be explained by the quality spread differential.

disappear when controlling for volatility.

20. In comparison to the current/noncurrent method, the monetary/nonmonetary method: (Points : 1)

differs substantially with regard to the treatment of inventory.

classifies accounts on the basis of similarity of attributes rather than the similarity of maturities.

a) and b)

None of the above

21. During the period between World War I and World War II: (Points : 1)

the major European powers and the U.S. returned to the gold standard and fixed exchange rates.

while most countries abandoned the gold standard during World War I, international trade and investment flourished during the interwar period under a coherent international monetary system.

the U.S. dollar emerged as the dominant world currency, gradually replacing the British pound for the role.

None of the above

22. Covered Interest Arbitrage (C.I.A.) activities will result in: (Points : 1)

an unstable international financial markets.

restoring equilibrium quite quickly.

a disintermediation.

no effect on the market.

23. Correspondent bank relationships can be beneficial: (Points : 1)

because a bank can service its MNC clients at a very low cost.

because a bank can service its MNC clients without the need to have personnel in many different countries.

because a bank can service its MNC clients without developing its own foreign facilities to service its clients.

All of the above

24. Amortizing currency swaps (Points : 1)

The debt service exchanges decrease periodically through time as the hypothetical notational principal is amortized

Incorporate an amortization feature in which periodically the amortized portions of the notational principals are re-exchanged.

a) and b)

None of the above

25. In which market does a clearinghouse serve as a third party to all transactions? (Points : 1)

Futures

Forwards

Swaps

None of the above

26. The dollar-euro exchange rate is $1.25 = 1.00 and the dollar-yen exchange rate is 100 = $1.00. What is the euro-yen cross rate? (Points : 1)

125 = 1.00

1.00 = 125

1.00 = 0.80

None of the above

27. A dealer in British pounds who thinks that the pound is about to appreciate: (Points : 1)

may want to widen his bid-ask spread by raising his ask price.

may want to lower his bid price.

may want to lower his ask price.

None of the above

28. A representative office: (Points : 1)

is a way for the parent bank to provide its MNC clients with a level of service greater than that provided through merely a correspondent relationship.

is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in dealings with the bank's correspondents.

is a step up from a correspondent relationship, but below a foreign branch.

All of the above

29. If a country is grappling with a major balance-of-payment difficulty, it may not be able to expand imports from the outside world. Instead, the country may be tempted to: (Points : 1)

impose measures to restrict imports.

impose measures to discourage capital outflows.

Both a) and b)

None of the above

30. Prior to the 1870s, both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. Suppose that the dollar was pegged to gold at $30 per ounce, the French franc is pegged to gold at 90 francs per ounce and to silver at 9 francs per ounce of silver, and the German mark pegged to silver at 1 mark per ounce of silver. What would the exchange rate between the U.S. dollar and German mark be under this system? (Points : 1)

1 German mark = $2

1 German mark = $0.50

1 German mark = $3

1 German mark = $1