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business
introduction to corporate finance

Questions and Answers of Introduction To Corporate Finance

1.7. Why is foreign exchange trading directly linked to trade in goods and services accounting for only 15 percent of the foreign exchange market turnover?
1.6. Do you believe that currency traders are a dying species?
1.5. What is algorithmic trading?
1.4. What are the activities performed by the front office and back office of a trading room?
1.3. Contrast a voice broker with electronic brokering systems.
1.2. What are the differences between a FX trader/dealer and a FX broker?
1.1. What is the basic function performed by the foreign exchange market?
1.Q: It is May 1, 2015, and Crédit Suisse’s head currency strategist has just learned from her chief economist that there is an 80 percent chance that Greece will leave the eurozone by year-end.
1.Explain why the reciprocal of the ask price is cheaper than the reciprocal of the bid price when quoted in euro terms per one U.S. dollar.
1.■ How spatial arbitrage transforms a geographically dispersed foreign exchange market into one globally integrated marketplace
1.■ What themechanics of exchange rates quotations are and themeaning of bid-ask spreads
1.■ What the different forex products are
1.■ How the Internet is steadily displacing the “visible human hand” in currency trading
1.How the interbank foreign exchange market is organized
5. What is the outlook for the rupee over the next 6 to 18 months? Narendra Aneja is the chief investment strategist at the Flying Dragon Fund – an India country fund domiciled in Boston – that
4. How would you characterize RBI’s forex policy? Narendra Aneja is the chief investment strategist at the Flying Dragon Fund – an India country fund domiciled in Boston – that has close to $1
3. Does it explain the rupee’s recent steep depreciation? Narendra Aneja is the chief investment strategist at the Flying Dragon Fund – an India country fund domiciled in Boston – that has
2. What is the relationship between India’s fiscal policies and its current account? Narendra Aneja is the chief investment strategist at the Flying Dragon Fund – an India country fund domiciled
1. Analyze India’s current account performance over the period 2007 to 2012. Narendra Aneja is the chief investment strategist at the Flying Dragon Fund – an India country fund domiciled in
17. Trials and tribulations of Argentina’s peso (advanced). Access the IMF Balance of Payments query tool at https://data.imf.org/bop and the Bank for International Settlements statistics explorer
16. Foreign remittances and the subprime crisis (B-advanced). Access the IMF Balance of Payments query tool at https://data.imf.org/bop and track the flows of expatriates’ remittances to the
15. Foreign remittances and the subprime crisis (A-advanced). Access the IMF Balance of Payments query tool at https://data.imf.org/bop and track the flows of expatriates’ remittances to Mexico
14. Tequila Crisis (D-intermediate). Access the IMF Balance of Payments query tool at https://data.imf.org/bop to present and analyze Mexico’s official reserve account over the period 1992–1996.
13. Tequila Crisis (C-intermediate). Access the IMF Balance of Payments query tool at https://data.imf.org/bop to present and analyze Mexico’s financial account over the period 1992–1996. How can
12. Tequila Crisis (B-intermediate). Access the IMF Balance of Payments query tool at https://data.imf.org/bop to present and analyze Mexico’s current account over the period 1992–1996. Break
11. Tequila Crisis (A-intermediate). Access exchange rate data at http://fx.sauder.ubc.ca/data.html to graph the Mexican peso price of one U.S. dollar over the period 1992–1996. Can you
10. Comparing the downfall of the Turkish lira and Argentine peso (intermediate).Access exchange rate data at http://fx.sauder.ubc.ca/data.html and the IMF Balance of Payments query tool at
9. Grexit (beginner). Access the IMF Balance of Payments query tool at https://data.imf.org/bop.a. Prepare a bar graph showing Greece’ current account deficit since 2001 to the present.b. How does
8. The world’s largest creditor nation (intermediate). How is Japan’s annual balance of payments impacted by the country’s dominant international creditor position?Which accounts are directly
7. Accounting for natural disasters (intermediate). The earthquake-cum-tsunami that devastated part of Japan on March 11, 2011, is estimated to be a loss of US$250 billion. What is its likely impact
6. Bank of China’s international reserves management (intermediate). How would China’s balance of payments be affected should its central bank decide to sell one billion of dollar-denominated
5. International debt forgiveness (intermediate). Assume that France decides to write off €10 billion of debt to Morocco. What would be the impact of debt forgiveness on (1) France’s balance of
4. Taiwan’s official reserve account (beginner). Assume that in 2018 Taiwan ran a surplus on its current account of US$125 billion and a financial account deficit of US$25 billion. What would be
3. Boeing’s big-ticket exports (beginner). Cathay Pacific, the Hong Kong–based airline, purchases five Boeing Dreamliners for $750 million. The U.S. Export-Import Bank provides a seven-year loan
2. Balance-of-payments double-entry bookkeeping (beginner). Show how the following transactions should be recorded in the U.S. balance of payments using a double-entry accounting system:■ Newmont
1. Balance of payments accounting (beginner). For the following international transactions, identify the balance of payments accounts and whether the transaction would generate an inflow or an
12. Does it make sense for France or any other member country of the eurozone to keep a national balance of payments? Given the single currency, do you believe that the eurozone balance of payments
11. What major differences would you expect between the balance of payments of a country that operates under a system of fixed exchange rates versus floating exchange rates?
10. What is the cash-flow relationship between the net international indebtedness of a country and its balance of payments?
9. Where are illicit activities such as drug trafficking and international terrorism recorded on the balance of payments?
8. What are international remittances? Where do they appear on the balance of payments?
7. What are the key transactions making up the balance of invisible trade? Where does it appear on the balance of payments?
6. Why is China accumulating forex reserves so rapidly? Is its balance of payments indeed balancing?
5. What are the major differences between the United States’ and China’s balance of payments?
4. What is the difference between international portfolio investment and foreign direct investment? Where do they appear on the balance of payments?
3. What are the major transaction categories making up the current account?
2. If the balance of payments always balances, how can a nation have a balance of payments surplus or deficit?
1. Why should a balance of payments always balance?
The U.S. private sector saves 6 percent of GDP and invests approximately 4 percent of GDP. The U.S. government runs a mammoth budgetary deficit of 10 percent of GDP. Is the United States running a
What would happen to China’s foreign exchange reserves if it allowed the yuan to float freely without central bank interference?
■ How a country’s budget deficit is directly equal to its current account deficit and, therefore, has to be financed by an equivalent surplus in its capital account
■ what is The relationship between a country’s national income account and its balance of payments
■ what is The relationship between balance of payments transactions and the foreign exchange market
■ What is The difference between current and financial account transactions
■ How to read the principal accounts of a balance of payments
4. Considering all-inclusive labor costs to be a primary determinant in locating its plant, where should Min-Soo recommend that Hyundai locate its power-train plant? Min-Soo, a senior analyst at the
3. What is your outlook for Spain as a member of the eurozone? Min-Soo, a senior analyst at the South Korean automotive company Hyundai, was reviewing the country reports prepared by Hyundai’s
2. Would you expect Poland to join the eurozone in the short term? Min-Soo, a senior analyst at the South Korean automotive company Hyundai, was reviewing the country reports prepared by Hyundai’s
1. What is the current exchange rate regime used by Poland? Min-Soo, a senior analyst at the South Korean automotive company Hyundai, was reviewing the country reports prepared by Hyundai’s
1.14. Special Drawing Rights (advanced). Access the IMF website www.imf.org/external/np/tre/sdr/sdrbasket.htm and http://fx.sauder.ubc.ca/data.html to compute the dollar value of one Special Drawing
1.13. When Switzerland becomes a dirty floater (intermediate). Log on to http://fx.sauder.ubc.ca/data.html and chart the Swiss franc price of one euro over the period 2008–2018. Explain the
1.12. Mapping central bank intervention strategies (intermediate). Log on to http://fx.sauder.ubc.ca/data.html:a. Plot the Thai baht, Mexican peso, Indian rupee, and Egyptian pound against the U.S.
1.11. Britain’s love affairwith the euro (intermediate). Even though Britain is a member of the European Union, it opted not to join the eurozone in 1999. Acrimonious debate within the British
1.10. A single currency for the Gulf states (advanced). Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates have long been rumored to be seriously considering the adoption of a
1.9. Denmark pegs its currency to the euro (advanced). Even though Denmark opted not to join the single currency in 1999, it has pegged its currency very tightly to the euro ever since and keeps the
1.8. Hong Kong currency board and the Chinese yuan (intermediate). For more than three decades Hong Kong has relied on a currency board to peg its currency against the U.S. dollar at HK$7.80 = US$1.
1.7. Exchange controls for foreign portfolio investments (intermediate). The Bostonbased Flying Dragon emerging market fund (FDE) was planning to purchase 1 million shares of Bangkok Bank at the
1.6. The CFA franc and the birth of the euro (intermediate). In 1999, the launch of the euro buried the French franc to which the CFA franc was pegged: the CFA franc would now be convertible into
1.5. The ECU as a basket of currencies (intermediate). What is the percentage/weight of the ECU’s total value accounted by the Spanish peseta? Refer to Exhibit 3.4 in the text. Would you get a
1.4. Asian financial crisis and the Thai baht (beginner). On July 3, 1997, the Thai baht was unpegged from the U.S. dollar and promptly depreciated from THB 25 = US$1 to THB 60 = US$1. What was the
1.3. Calculating par values against the dollar and gold (beginner). In 1958, the French franc (FF) was defined as worth 1∕175 ounce of gold. What was the FF’s par value against the dollar? What
1.2. The CFA franc devalues (beginner). The CFA franc was defined in terms of the French franc (FF) as CFA 50 = FF 1 from 1947 until 1994, when its value changed to CFA 100 = FF 1. Was the CFA
1.1. Brazilian real depreciates (beginner). Wharton Econometrics Forecasting Associates expects the Brazilian real (BRL) to depreciate by 30 percent against the U.S. dollar over the next 90 days from
1.18. Referring to the North American Free Trade Agreement (NAFTA), should the United States, Mexico, and Canada adopt a common currency?
1.17. Why is the eurozone allowing “internal devaluation” but not “external devaluation”?
1.16. What are the defining characteristics of an optimum currency area? What are the main differences between the United States and the eurozone in this respect?
1.15. Why are member countries of the eurozone experiencing different rates of inflation when the European Central Bank implements a single monetary policy with a single interest rate?
1.14. The eurozone is sometimes referred as a DM-zone (the deutsche mark being the former currency of Germany); explain.
1.13. Why have England, Sweden, and Denmark refused to join the eurozone?
1.12. Would the eurozone’s economic problems be alleviated if the currency were to depreciate significantly against the U.S. dollar and the Japanese yen?Which eurozone country would benefit the
1.11. Should Greece exit the eurozone? What would be the implications for Greece versus the eurozone and the European Union?
1.10. What are the key macroeconomic variables that explained devaluation or revaluation under the Bretton Woods system?
1.9. Why did the Argentine currency board collapse, whereas Hong Kong has been able to hold on to its fixed exchange rate against the U.S. dollar?
1.8. What is the difference between a currency board and dollarization?
1.7. Why did the European Monetary System fail? How does the euro differ from the EMS? Were the lessons from the EMS failure learned when the euro was designed?
1.6. Why was China able to survive the 1997 Asian financial crisis without devaluing the yuan, whereas most Asian countries had to massively devalue their currencies?
1.5. What are exchange controls on current account transactions? How do they differ from controls on financial account transactions? Which ones were the more important in ensuring the stability of
1.4. Why was the Bretton Woods system of “pegged yet adjustable” exchange rates reasonably successful until 1958 and increasingly unstable thereafter?
1.3. What are the defining characteristics of the Bretton Woods international monetary system?
1.2. Why did the major industrialized powers fail to reenact the gold standard after WorldWar I? Why did they turn to a “beggar thy neighbor” policy in the 1930s?
1.1. Explain the role played by gold in the gold standard system of international payments. Why was the gold standard suspended during World War I?
1.■ What the current map of exchange rate arrangements looks like and how it is likely to evolve over time
1.■ The roots of the euro crisis which lingers since 2010
1.■ How the European Union in 1999 launched its single currency – the euro – and why its architecture is unstable
1.■ Why the Asian financial crisis of 1997 led to the dismantling of currency pegs against the U.S. dollar
1.■ The trials and tribulations of industrialized countries such as the United Kingdom, Japan, and Germany experiencing floating exchange rates in the aftermath of the Bretton Woods system’s
1.■ How lax foreign exchange controls undermined the Bretton Woods system and eventually contributed to its collapse in 1971
1.■ How the Bretton Woods system (1944–1971) established “pegged yet adjustable” exchange rates enabling economies devastated by World War II to rebuild
1.How the gold standard (1878–1914) was the first system of fixed exchange rates
12. Special Drawing Rights and the Renminbi (advanced). On October 1, 2016, the International Monetary Fund revised the composition of the Special Drawing Rights (SDR) by adding the Chinese Renminbi

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