1. Which of the following statements is incorrect?

a. Country risk refers to the political developments in a country that could affect the cash flows associated with a loan or investment in that country.

b. All the answers are correct except one.

c. The spot rate is the cost of buying a foreign currency today, on the spot.

d. The largest segment of the Eurocurrency market is interbank transactions, in which banks borrow from and lend to one another overnight.

e. Spot rates are rates at which one agrees to buy or sell a currency on some future date.

2. Which of the following statements is incorrect?

a. Foreign bonds sold in the United States are called Yankee bonds.

b. A Eurodollar is defined as a U.S. dollar deposited in a bank in the United States.

c. The decision to accept international projects with a positive NPV increases the value of a firm, and it should be consistent with maximizing stockholder wealth.

d. All the answers are correct except one.

e. If the foreign exchange rate is the price in foreign currency for a dollar, then the exchange rate quote is called an indirect quote.

3. Which of the following statements is incorrect?

a. The spot rate is the cost of buying a foreign currency today on the spot.

b. Given that the spot rate is $1.5136/ and the 90-day forward quote is $1.4974/, we can say that the U.S. dollar is expected to appreciate against the Euro in the future.

c. All the answers are correct except one.

d. If the exchange rate is the price in foreign currency for a dollar, the quote is called an American or direct quote.

e. The forward rate is what you agree to pay for the currency in the future by signing a contract today to buy the currency on a date in the future.

4. Which of the following statements is incorrect?

a. Finance balance sheets reflect book values.

b. If one observes the market quoted price of a debt security where the expected cash flows of that security are known, then one can calculate the current cost of that security to the firm.

c The best method to use when estimating a firms discount rate is the weighted average cost of capital approach.

d. The cost of preferred stock can be calculated using the perpetuity model for the present value of cash flows.

e. All the answers are correct except one.