Question 1.1.Under which accounting method are most income statement accounts translated at the average exchange rate for the period? (Points : 1)

Current/noncurrent method Monetary/nonmonetary method Temporal method Current rate method

Question 2.2.Exchange rate risk of a foreign currency payable is an example of: (Points : 1)

transaction exposure. translation exposure. economic exposure. none of the above.

Question 3.3.To hedge a foreign currency receivable: (Points : 1)

buy call options on the foreign currency with a strike in the domestic currency. buy put options on the foreign currency with a strike in the domestic currency. sell call options on the foreign currency with a strike in the domestic currency. sell put options on the foreign currency with a strike in the domestic currency.

Question 4.4.The sensitivity of "realized" domestic currency values of the firm's contractual cash flowsdenominatedin foreign currency to unexpected changes in the exchange rate is: (Points : 1)

transaction exposure. translation exposure. economic exposure. none of the above.

Question 5.5.When exchange rates change: (Points : 1)

This can alter the operating cash flow of a domestic firm. This can alter the competitive position of a domestic firm. This can alter the home currency values of a multinational firm's assets and liabilities. All of the above

Question 6.6.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.

Question 7.7.A U.S.-based MNC with exposure to the Swedish krona could best cross-hedge with: (Points : 1)

forward contracts on the euro. forward contracts on the ruble. forward contracts on the pound. forward contracts on the yen.

Question 8.8.The management of translation exposure is best described as: (Points : 1)

selecting a mechanical means for handling the consolidation process for MNCs that logically deals with exchange rate changes. selecting a mechanical means for handling the consolidation process for MNCs that makes this quarter's accounting numbers as attractive as possible. selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as LIFO on the income statement and FIFO on the balance sheet. selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as FIFO on the income statement and LIFO on the balance sheet.

Question 9.9.Currency risk: (Points : 1)

is the same as currency exposure. represents random changes in exchange rates. measure "what the firm has at risk". a) and b).

Question 10.10.The sensitivity of "realized" domestic currency values of the firm's contractual cash flowsdenominatedin foreign currency to unexpected changes in the exchange rate is: (Points : 1)

transaction exposure. translation exposure. economic exposure. none of the above.

Question 1.1.A "global bond" issue: (Points : 1)

is a very large international bond offering by several borrowers pooled together. is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets. has higher yields for the purchasers . has a lower liquidity.

Question 2.2.A "primary" stock market is: (Points : 1)

a big internationally-important market like the NYSE. a market where corporations issue new shares to initial investors. where brokers and market makers trade. None of the above

Question 3.3.A foreign branch bank: (Points : 1)

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. operates like a local bank, but legally is a part of the parent bank. is subject to domestic regulation only. All of the above

Question 4.4.The primary activity (or activities) of offshore banks: (Points : 1)

include money laundering where banking secrecy laws are strict. is to seek deposits and grant loans in currencies other than the currency of the host government. involve check clearing of large bags of checks. None of the above

Question 5.5.Which investment is likely to be themostliquid: (Points : 1)

a share of publicly traded company trading on the NYSE. a bond issued by a Fortune 500 company. a house in a nice part of town. a) and b) are equally liquid.

Question 6.6.A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as: (Points : 1)

the stop price. the limit price. the last price. the sell price.

Question 7.7.Which banks cannot accept foreign deposits? (Points : 1)

Domestic banks located in the U.S. Edge Act banks located in the U.S. Subsidiary banks located overseas Foreign branches located overseas

Question 8.8.Floating-rate notes (FRN): (Points : 1)

experience very volatile price changes between reset dates. are typically medium-term bonds with coupon payments indexed to some reference rate (e.g., LIBOR). appeal to investors with strong need to preserve the principal value of the investment should they need to liquidate prior to the maturity of the bonds. b) and c)

Question 9.9.The credit rating of an international borrower: (Points : 1)

depends on the volatility of the exchange rate. depends on the volatility, but not absolute level, of the exchange rate. is usually never higher than the rating assigned to the sovereign government of the country in which it resides. is unrelated to the rating assigned to the sovereign government of the country in which it resides.

Question 10.10.A bank may establish a multinational operation for the reason of growth. The rationale: (Points : 1)

Growth prospects in a home nation may be limited by a market largely saturated with the services offered by domestic banks. Multinational banks are often not subject to the same regulations as domestic banks. There may be reduced need to publish adequate financial information, lack of required deposit insurance and reserve requirements on foreign currency deposits, and the absence of territorial restrictions. Greater stability of earnings is possible with international diversification. Offsetting business and monetary policy cycles across nations reduces the country-specific risk of any one nation. By maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and foreign exchange risk on currency conversion if government controls can be circumvented.