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FIN Midterm I Practice Problems

Terms in this set (40)

Currency options sold through an options exchange contain
a right but not a commitment to the owner, and are standardized
The writer of a put option has a right, but not an obligation, to buy the underlying currency from the option buyer.
False
Any event that increases the U.S. demand for euros should result in a(n) ____ in the value of the euro with respect to ____, other things being equal.
increase; the U.S. dollar
The more intense the competition for a traded currency, the larger the bid/ask spread.
False
A high spot price relative to the strike price will result in a relatively high premium for a call option and a relatively high premium for a put option.
False
Which of the following is not true about syndicated loans?
The loans are only denominated in U.S. dollars.
A forward rate for a currency is said to exhibit a discount if..
the forward rate is less than the existing spot rate.
Exporting of products by one country to other countries at prices below cost is called elasticity.
False
The European Central Bank is located in..
Frankfurt
Currency futures contracts sold on an exchange contain.
a commitment to the owner, and are standardized.
Currency devaluations have the potential to reduce unemployment, while currency revaluations have the potential to reduce inflation.
True
If a U.S.-based MNC focused entirely on importing, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.
False
The primary income component in a country's current account may reflect income received due to.
direct foreign investment.
Conditional currency options are.
options where the premiums are canceled if a trigger level is reached.
Which of the following countries purchases the largest amount of exports by U.S. firms?
Canada
If you expect the British pound to appreciate, you could speculate by ____ pound call options or ___ pound put options
The Answer is NOT "a"
a. selling; purchasing
b. purchasing; purchasing
c, selling; selling
d, purchasing; selling
Eurobonds...
The Answer is NOT "c"
a. None of these are correct.
b. can be issued only by European firms.
c. can be issued only by European firms AND can be sold only to European investors.
d. can be sold only to European investors.
Which of the following theories suggests that firms seek to penetrate new markets over time?
The Answer is NOT "b"
a product cycle theory
b. imperfect markets theory
c. theory of comparative advantage
d. None of these are correct.
In general, common-law countries such as the United States, Canada, and the United Kingdom allow for more legal protection of shareholders than civil-law countries such as France and Italy.
True
The Sarbanes-Oxley Act (SOX), which was enacted in 2002, required MNCs and other firms to implement an internal reporting process that could be easily monitored by executives and the board of directors.
True
When the foreign exchange market opens in the United States each morning, the opening exchange rate quotations will be based on the..
prevailing prices in locations where the foreign exchange markets are already open
The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries
European
Expectations of a currency crisis may trigger actions by investors and speculators that make the crisis worse
True
The valuation of an MNC should rise when an event causes the expected cash flows from foreign subsidiaries to ____ and when the foreign currencies denominating these cash flows are expected to ____
increase; appreciate
When receiving quotations on a currency's exchange rate, the bank's bid quote is the rate at which the bank is willing to sell currency.
False
It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario?
Buy dollars with foreign currency
A forward contract can be used to lock in the ___ of a specified currency at a future point in time.
purchase price AND sale price
Large commercial banks play a major role in the international money market by accepting short-term deposits in various currencies, and channeling the money to corporations and government agencies that need to borrow those short-term funds in the desired currencies.
True
Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks, or trade names) in exchange for fees or some other specified benefits.
True
All European countries now use the euro as their currency.
False
The strike price on a currency option is also known as the exercise price.
True
Using indirect intervention, the Fed attempts to affect the dollar's value indirectly by influencing the factors that determine it, such as interest rates
True
As foreign exchange activity has grown, a given degree of central bank intervention has become
less effective
Which of the following is true regarding the euro?
All of the above are true.
Relatively high Japanese inflation may result in an increase in the supply of yen for sale and a reduction in the demand for yen
True
The Bank of England is responsible for setting the monetary policy for the European countries participating in the euro.
False
A straddle involves the purchase of either two call or two put options at the same exercise price.
False
The theory of comparative advantage begins by assuming that a given firm first becomes established in its home country and may subsequently penetrate foreign markets via geographic or product differentiation.
False
The supply curve for a currency is downward sloping since U.S. corporations would be encouraged to purchase more foreign goods when the foreign currency is worth less.
False
Margin is used in the forward market to mitigate default risk.
False
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