Finc301Spring11FinalExam 1.docx
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Finc301Spring11FinalExam 1.docx
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Finc301Spring11FinalExam1
NewYorkInstituteofTechnology
NanjingCampus
FINC301–InternationalFinanceManagement
Spring2011
FinalExam
Name:
________________________
Class:
________________________
NYITID#:
____________________
SectionA:
(35Questions–70points)
CIRCLEtheletteroftheonecorrectanswerONLY.DoNOTwriteanylettersanywhereinthissection!
1.CountiesAandBcurrentlyconsume400unitsoffoodand400unitsoftextileseachandcurrentlydonottradewithoneanother.ThecitizensofcountryAhavetogiveuponeunitoffoodtogaintwounitsoftextiles,whilethecitizensofcountryBhavetogiveuponeunitoftextilestogaintwounitsoffood.Theirproductionpossibilitiescurvesareshown:
Underthetheoryofcomparativeadvantage,iffreetradeisallowed,themarketclearingprice(orexchangerateifyouwill)betweenfoodandtextileswillbe
A. Oneunitoffoodforoneunitoftextiles
B. SomewherebetweenOneunitoffoodfortwounitsoftextilesandtwounitsoffoodforoneunitoftextiles
C. Oneunitoffoodfortwounitsoftextiles
D. Twounitsoffoodforoneunitoftextiles
2.Consideradentistanda14-yearoldboy.Thedentistcanmake$100perhourdrillingteethandthe14-yearoldboycanmake$2perhourpickingupusedaluminumcans.Thedentistisamanlymanandcanmowhishalf-acrelotinonehour.The14-yearoldboycanmowthelawnintwohours.Ifthedentisthirestheboytomowhislawnatanypricelessthan$100,butmorethan$4:
A. Bothheandtheboyarebetteroff.
B. Thedentistwouldbeexploitingtheboy.
C. Theboywouldbeexploitingthedentist.
D. Alloftheabove.
3.Theinternationalmonetarysystemwentthroughseveraldistinctstagesofevolution.Thesestagesaresummarized,inalphabeticorder,asfollows:
(i)Bimetallism
(ii)BrettonWoodssystem
(iii)Classicalgoldstandard
(iv)Flexibleexchangerateregime
(v)Interwarperiod
Thechronologicalorderthattheyactuallyoccurredis:
A. (iii),(i),(iv),(ii),and(v)
B. (i),(iii),(v),(ii),and(iv)
C. (vi),(i),(iii),(ii),and(v)
D. (v),(ii),(i),(iii),and(iv)
4.Supposethatthepoundispeggedtogoldat£20perounceandthedollarispeggedtogoldat$35perounce.Thisimpliesanexchangerateof$1.75perpound.Ifthecurrentmarketexchangerateis$1.80perpound,howwouldyoutakeadvantageofthissituation?
Hint:
assumethatyouhave$350availableforinvestment.
A. Startwith$350.Buy10ouncesofgoldwithdollarsat$35perounce.Convertthegoldto£200at£20perounce.Exchangethe£200fordollarsatthecurrentrateof$1.80perpoundtoget$360.
B. Startwith$350.Exchangethedollarsforpoundsatthecurrentrateof$1.80perpound.Buygoldwithpoundsat£20perounce.Convertthegoldtodollarsat$35perounce.
C. a)andb)bothwork
D. Noneoftheabove.
5.Acountryexperiencingasignificantbalance-of-paymentssurpluswouldbelikelyto
A. Expandimports,offeringmarketingopportunitiesforforeignenterprises.
B. Unlikelytoimposeforeignexchangerestrictions.
C. Expandexports,offeringinternationalmarketingopportunitiesfordomesticenterprises.
D. Botha)andb)
6.Whenacountry’scurrencydepreciatesagainstthecurrenciesofmajortradingpartners,
A. Thecountry’sexportstendtoriseandimportsfall.
B. Thecountry’sexportstendtofallandimportsrise.
C. Thecountry’sexportstendtoriseandimportsrise.
D. Thecountry’sexportstendtofallandimportsfall.
7.ThedifferencebetweenForeignDirectInvestmentandPortfolioInvestmentisthat:
A. PortfolioInvestmentmostlyrepresentsthesaleandpurchaseofforeignfinancialassetssuchasstocksandbondsthatdonotinvolveatransferofcontrol.
B. ForeignDirectInvestmentmostlyrepresentsthesaleandpurchaseofforeignfinancialassetssuchasstockswhereasPortfolioInvestmentmostlyinvolvesthesalesandpurchaseofforeignbonds.
C. Foreigndirectinvestmentisaboutbuyinglandandbuildingfactories,whereasportfolioinvestmentisaboutbuyingstocksandbonds.
D. Alloftheabove
8.Inthecontextofinvestmentsinsecurities(stocksandbonds),portfolioriskdiversificationrefersto:
A. thetime-honoredadage"Don'tputallyoureggsinonebasket"
B. investors'abilitytoreduceportfolioriskbyholdingsecuritiesthatarelessthanperfectlypositivelycorrelated
C. thefactthatthelesscorrelatedthesecuritiesinaportfolio,thelowertheportfoliorisk
D. Alloftheabove
9.Studiesshowthatinternationalstockmarketstendtomovemorecloselytogetherwhenthevolatilityishigher.Thisfindingsuggeststhat
A. Investorsshouldliquidatetheirportfolioholdingsduringturbulentperiods.
B. Sinceinvestorsneedriskdiversificationmostpreciselywhenmarketsareturbulent,theremaybelessbenefittointernationaldiversificationforinvestorswholiquidatetheirportfolioholdingsduringturbulentperiods.
C. Thiskindofcorrelationiswhyinternationalportfoliodiversificationissmartfortoday'sinvestor.
D. Noneoftheabove
10.Theadjustedpresentvalue(APV)modelthatissuitableforanMNCisthebasicnetpresentvalue(NPV)modelexpandedto:
A.distinguishbetweenthemarketvalueofaleveredfirmandthemarketvalueofanunleveredfirm
B.discerntheblockingofcertaincashflowsbythehostcountryfrombeinglegallyremittedtotheparent
C.considerforeigncurrencyfluctuationsorextrataxesimposedbythehostcountryonforeignexchangeremittances
D.Alloftheabove
11.Iftheinvestorhedgestheexchangerateriskwheninvestinginternationally:
A. Therisk-returnefficiencyislikelytobesuperior.
B. TheexpectedreturntotheU.S.dollarinvestorisapproximatelythesamewhethertheinvestorhedgestheexchangerateriskintheinvestment,orremainsunhedged.
C. Totheextentthattheinvestorestablishesaneffectivehedgetoeliminateexchangerateuncertainty,theriskwillbereduced.
D. Alloftheabove
12.ConsiderasimpleexchangeriskhedgingstrategyinwhichtheU.S.dollarbasedinvestorsellstheexpectedforeigncurrencyproceedsofariskyinvestmentforward.AlthoughtheexpectedforeigninvestmentproceedswillbeconvertedintoU.S.dollarsattheknownforwardexchangerateunderthisstrategy,theunexpectedforeigninvestmentproceeds
A. WillhavetobeconvertedintoU.S.dollarsattheuncertainforwardspotexchangerate.
B. WillhavetobeconvertedintoU.S.dollarsattheuncertainfuturespotexchangerate.
C. WillhavetobeconvertedintoU.S.dollarsattheuncertainswapexchangerate.
D. Noneoftheabove.
13.Abankmayestablishamultinationaloperationforthereasonofriskreduction.Theunderlyingrationalebeing:
A. Bymaintainingforeignbranchesandforeigncurrencybalances,banksmayreducetransactioncostsandforeignexchangeriskoncurrencyconversionifgovernmentcontrolscanbecircumvented.
B. Greaterstabilityofearningsispossiblewithinternationaldiversification.Offsettingbusinessandmonetarypolicycyclesacrossnationsreducesthecountry-specificriskofanyonenation.
C. Multinationalbanksareoftennotsubjecttothesameregulationsasdomesticbanks.Theremaybereducedneedtopublishadequatefinancialinformation,lackofrequireddepositinsuranceandreserverequirementsonforeigncurrencydeposits,andtheabsenceofterritorialrestrictions.
D. Multinationalbankingoperationshelpabankpreventtheerosionofitstraveler'scheck,tourist,andforeignbusinessmarketsfromforeignbankcompetition.
14.Thecurrentexchangerateis€1.00=$1.50.ComputethecorrectbalancesinBankA'scorrespondentaccount(s)withbankBifacurrencytraderemployedatBankAbuys€100,000fromacurrencytraderatbankBfor$150,000usingitscorrespondentrelationshipwithBankB.
A. BankA'sdollar-denominatedaccountatBwillfallby$150,000.
B. BankB'sdollar-denominatedaccountatAwillfallby$150,000.
C. BankA'spound-denominatedaccountatBwillfallby€100,000.
D. BankB'spound-denominatedaccountatAwillriseby€100,000.
15.A"threeagainstnine"forwardrateagreement,
A. Couldcallforabuyertosellasix-monthEurobondinthreemonthsatpricesagreedupontoday.
B. Isaforwardcontractonathree-monthEurobondwithanine-monthmaturity.
C. Couldcallforabuyertopaythesellertheincreasedinterestcostonanotationalamountifsix-monthinterestratesfallbelowanagreedratebeginningthreemonthsfromnowandendingninemonthsfromnow.
D. Isaforwardcontractonanine-monthEurobondwithathree-monthmaturity
16.Onelessonfromthecreditcrunchisthat
A. Intheaggregate,creditscorestendtounderstatetheprobabilityofdefault—therebyapoolofsubprimemortgagesisactuallyquiteasafeinvestmentsincenoteveryborrowerdefaults.
B. Moralhazard,whileanissueinthemarketforusedcars,doesnotseemtoaffecttheU.S.financialsystemduetotheeffectiveregulatoryenvironment.
C. BankersseemnottoscrutinizecreditriskascloselywhentheyserveonlyasmortgageoriginatorsandthenpassitontoMBSinvestorsratherthanholdthepaperthemselves.
D. Noneoftheabove
17.Withregardtoclearingproceduresforbondtransactions,whenatransactionisconducted,electronicbookentriesaremadethattransferbookownershipofthebondcertificatesfromthesellertothebuyerandtransferfundsfromthepurchaser'scashaccounttotheseller's.However,
A.Physicaltransferofthebondsseldomtakesplace.
B. Thephysicaltransferofthebondstakesplaceasmuchas3dayslater.
C. Thephysicaltransferofthebondstakesplaceasmuchas6weekslater.
D. T
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