1. A U.S. firm has total assets valued at 318,000 located in London. This valuation did not change from last year. Last year, the exchange rate was .61 = $1. Today, the exchange rate is .63 = $1. By what amount did these assets change in value on the firm's U.S. financial statements?

Multiple Choice

$16,549.57

$13,511.03

$12,248.91

$13,511.03

$0

2. Which one of the following terms is used to identify the concept that exchange rates vary to keep purchasing power constant among currencies?

Multiple Choice

Exchange rate equilibrium

Exchange rate parity

Universal parity

Market equilibrium

Purchasing power parity

3. Which term is defined as having international operations in a world where relative currency values change?

Multiple Choice

Political risk

Relative purchasing power parity

Interest rate parity

Absolute purchasing power parity

Exchange rate risk

4. Which one of the following is an example of the political risks associated with foreign operations?

Multiple Choice

Technological changes

Exchange rate fluctuations

Translation exposure to exchange rate risk

Changes in foreign tax laws

Changes in relative wage rates between the home country and the foreign country

5. Suppose a U.S. firm builds a factory in China, staffs it with Chinese workers, uses materials supplied by Chinese companies, and finances the entire operation with a loan from a Chinese bank located in the same town as the factory. This firm is most likely trying to greatly reduce, or eliminate, which one of the following?

Multiple Choice

Interest rate disparities

Short-run exposure to exchange rate risk

Long-run exposure to exchange rate risk

Political risk associated with the foreign operations

Translation exposure to exchange rate risk

6. Later this week, you are traveling from the U.S. to Canada for a week's vacation. This morning, you exchanged some U.S. dollars for Canadian dollars in preparation for that trip. Which one of the following best describes this exchange?

Multiple Choice

Forward trade

Spot trade

Arbitrage transaction

Cross-rate exchange

Euro currency transaction

7. Which country is correctly matched with its currency?

Multiple Choice

Canadapound

Chinayuan

Mexicoreal

Japanlira

United Kingdomeuro

8. Which one of the following is the rate that most international banks charge when they loan Eurodollars to other banks?

Multiple Choice

ADR

LIBOR

Cross-rate

Gilt rate

Swap rate

9. Which of these is defined as an agreement to exchange two securities or two currencies?

Multiple Choice

Hedge

Swap

SWIFT

Gilt

Arbitrage

10. Assume the exchange rate is 1.05 Swiss francs per U.S. dollar. How many U.S. dollars are needed to purchase 1,250 Swiss francs?

Multiple Choice

$1,315.79

$1,190.48

$1,128.80

$1,140.00

$1,318.46

11. Which one of the following is the agreed-upon exchange rate that is to be used when currencies are exchanged at some point in the future based on an agreement made today?

Multiple Choice

• Spot rate
• ADR rate
• London Interbank Offer Rate
• Forward exchange rate
• Cross-rate

12. Which one of the following best describes an agreement you make today to exchange U.S. dollars for British pounds three months from now?

Multiple Choice

Forward trade

Spot trade

Arbitrage transaction

Cross-rate exchange

Eurocurrency transaction

13. An agreement to exchange currencies sometime in the future is referred to as which one of the following.

Multiple Choice

Forward trade

Hedge

Gilt

Forward exchange rate

Spot trade

14. An American Depositary Receipt is defined as a security:

Multiple Choice

• that has been deposited in an interest-bearing account at a U.S. bank.
• issued outside the U.S. that represents shares of a U.S. stock.
• issued in the U.S. that represents shares of a foreign stock.
• that has a guarantee of payment from a U.S. bank.
• issued in multiple countries but denominated in U.S. currency.

15. Assume the exchange rates in New York for $1 are C$1.1382 and .6387 while in Toronto, C$1 will buy .5612. How much profit can you earn on $10,000 using triangle arbitrage?

Multiple Choice

$.91

$1.08

$.97

$1.03

$1.11

16. You are given the exchange rate between the U.S. dollar and the Canadian dollar. You are also given the exchange rate between the U.S. dollar and the Mexican peso. What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Multiple Choice

Swap rate

Depositary rate

Forward rate

London Interbank rate

Cross-rate

17. Assume you can exchange $1 for either .8031 euro or .6390. What is the cross-rate between the pound and the euro?

Multiple Choice

.7519/1

.8356/1

.7957/1

1.0852/1

1.5577/1

18. A trader in Switzerland just agreed to trade Swiss francs for British pounds based on today's exchange rate. The trade is expected to settle tomorrow. What term best describes this exchange?

Multiple Choice

Arbitrage transaction

Forward trade

Spot trade

Purchasing power parity

Interest rate parity

19. A.B. Securities assists issuers by pricing and selling new securities to the public. Which one of the following terms best fits the role that A. B. Securities is playing?

Multiple Choice

Underwriter

Investment advisor

Specialist

Securities dealer

Venture capitalist

20. What is the group of underwriters called who share both the risks and the marketing responsibilities for a security offering?

Multiple Choice

Syndicate

Underwriting cartel

Firm commitment group

Dutch auction group

Venture capitalists

21. Currently, you own 1.2 percent of the outstanding shares of Home Security. The firm has decided to issue additional shares of stock and has given you the first option to purchase 1.2 percent of those additional shares. What type of offer is this?

Multiple Choice

Rights offer

Red herring offer

Private placement

IPO

General cash offer

22. What is the legal document called that is provided to potential investors and describes a new security offering?

Multiple Choice

Security agreement

Prospectus

Public statement

Registration statement

Formal filing

23. GW Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called?

Multiple Choice

Markup

Commission

Rights price

Spread

Offer

24. Venture capital is most apt to be the source of funding for a:

Multiple Choice

bankruptcy reorganization.

global expansion of an established firm.

new, high-risk venture.

seasonal production costs.

daily operations for an established, profitable firm.

25. Assume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue?

Multiple Choice

The red herrings can finally be distributed as their distribution was awaiting SEC approval.

The waiting period started when the approval was received this morning.

The SEC believes the issue will be a profitable investment for all purchases made at the offer price.

The issuer is following all the required rules and regulations in regard to this issue.

The final prospectuses have all been delivered or the SEC would not have approved the issue.