” International Monetary System”


Foreign exchange is defined as:(a) When a domestic resident exchanges goods with a foreigner. (b) Using dollars to buy oil from audi !rabia. (c) Bank deposits denominated in foreign currency. (d) Using "uros to buy French wine. (e) !ll of the abo#e. %he foreign-exchange mar&et is necessary because(a) "x'orts gi#e rise to a su''ly of foreign currencies. (b) (m'orts gi#e rise to a demand for foreign exchange. (c) (nternational transactions in#ol#e different currencies. (d) !ll of the abo#e %he 'resent international monetary system is best described as(a) %he *retton Woods system set u' after World War ((. (b).a gold standard (c) ! 'erfectly floating exchange-rate system. (d) A managed floating exchange rate system with IM sur!eillance. the *retton Woods system was set u' on the theory that(a) "eficits were temporary and could #e financed #y international assistance. (b) "xchange rates would be used to achie#e e,uilibrium. (c) %he gold standard would ultimately be restored. (d) balance-of-'ayments deficits should be related to decreases in a country-s money su''ly. Fixed exchange-rate systems maintained by a gold standard ha#e difficulty achie#ing e,uilibrium if(a) %he money su''ly rises with sur'luses. (b) %he money su''ly falls with deficits. (c) (nflation of costs and 'rices occurs with a balance-of-'ayments sur'lus. (d) $hanges in the money supply are unrelated to the state of the #alance of payments. %he excess of sa#ing o#er in#estment in a country is necessarily reflected in (a) !n a''reciation of the foreign-exchange rate. (#) An excess of exports o!er imports. (c) !n excess of im'orts o#er ex'orts. (d) 0hanges in the money su''ly. (e) 0a'ital im'orts from other countries .







0ritics of the current international monetary system charge that (a) (t has 'oorly handled oil deficits. (b) %he foreign-exchange mar&et is inefficient. (c) It may encourage too much inflation. (d) it relies too much on the (nternational 2onetary Fund ((2F). %he *retton Woods system(a) Was essentially a gold standard with monetary 'olicy dominated by the 4ondon financial 2ar&et. (b) Was a managed floating exchange rate system. (c) %as a fixed exchange rate system #acked #y international currency reser!es. (d) Was a gold standard system based on international gold 5eser#es. ! currency is said to a''reciate(a) %hen it can #uy more foreign exchange. (b) When its demand cur#e slo'es downward. (c) When it floats. (d) When s'eculators sell gold. u''orters of the current international monetary system argue that it (a) !llows monetary autonomy. (b) "ases balance-of-'ayments ad8ustment. (c) 5ecycles oil re#enues easily. (d) All of the a#o!e 9ne reason the international gold standard bro&e down after World War ( is that (a) :old became too costly to mine. (b) :old became too chea' to 're#ent inflation. (c) &he 'reat "epression made further deflation (due to a trade deficit) undesira#le. (d) ;latinum became more #aluable than gold. (e) *ritain had under#alued the 'ound sterling and France had o#er#alued the franc. %he floating exchange rate-system finds e,uilibrium(a) *y letting a country-s exchange rate ad8ust whene#er reser#es change. (b) *y letting the money su''ly rise or fall as the exchange rate rises or falls. (c) By letting the exchange rate seek that le!el at which the (uantity of foreign exchange demanded e(uals the foreign exchange supplied. (d) *y letting the exchange rate float with the interest rate set by a country-s






central ban&. (e) When staffs of economists determine the e,uilibrium exchange rate on a day-by-day basis.

With floating exchange rates< an autonomous increase in im'orts(a) Increases exports #ecause the currency depreciates. (b) decreases ex'orts because the currency a''reciates. (c) =oes not increase ex'orts at all. (d) (ncreases ex'orts because the currency a''reciates. (e) =oes not affect the currency at all. under a floating exchange rate-system< an increase in ca'ital ex'orts from a country will(a) (ncrease ca'ital im'orts by an e,ual amount. (#) $ause the exchange rate to depreciate and) there#y increase the current account surplus. (c) 0ause the exchange rate to a''reciate and< thereby increase the current account sur'lus. (d) >a#e no im'act on the exchange rate. (e) (ncrease the money su''ly. the exchange-rate system that best characteri?es the 'resent international monetary arrangement used by industriali?ed countries is: a. Freely fluctuating exchange rates b. !d8ustable 'egged exchange rates $. Managed floating exchange rates d. ;egged or fixed exchange rates which exchange-rate system does not re,uire monetary reser#es for official exchange-rate inter#ention@ a. loating exchange rates b. ;egged exchange rates 0. 2anaged floating exchange rates d. =ual exchange rates %he *retton Woods !greement of 16++ established a monetary system based on: a. :old and managed floating exchange rates #. 'old and ad*usta#le pegged exchange rates c. 'ecial =rawing 5ights and managed floating exchange rates d. 'ecial =rawing 5ights and ad8ustable 'egged exchange rates





$1. :old and managed floating exchange rates b. :old and ad8ustable 'egged exchange rates $. $7. $ost of $apital refers to. Imposes hardships on exporters of the de!aluing country c. (s generally followed by 'rice deflation in the de#aluing country 16.ermit a country to o#er#alue its currency in the exchange mar&ets b. Special "rawing +ights and managed floating exchange rates d. Increase the supply of foreign currency when imports exceed exports d. .&he cost of e(uity can #e deri!ed from the following model.uity b) %he cost of debt after tax c) %he #alue of the firmBs debt d) &he cost of in!entory e) %he #alue of the firmBs e. 'ecial =rawing 5ights and ad8ustable 'egged exchange rates a main 'ur'ose of exchange stabili?ation funds is to: a.13. =ecrease the su''ly of foreign currency when im'orts exceed ex'orts as a 'olicy instrument< currency de#aluation may be contro#ersial since it: a. %he *retton Woods !greement of 16++ established a monetary system based on: a. (m'oses hardshi's on the ex'orters of foreign countries #.. a) %he cost of e. a) !n in#entory model b) ! cash flow model c) &he capital asset pricing model d) ! debt model e) Aone of the abo#e . (s generally followed by unem'loyment in the de#aluing country d.ermit a country to under#alue its currency in the exchange mar&ets c. (a) Flotation 0ost (b) =i#idend (c)+e(uired +ate of +eturn (d) Aone of the abo#e --.uity -. &he weighted a!erage cost of capital does not deal with the following components. .

-/.uidity of a firm d) After tax interest cost e) Aone of the abo#e -0.uity c) &he market !alue of de#t and e(uity d) %he mar&et #alue of assets e) Aone of the abo#e -5.&he cost of de#t should #e deri!ed from the following consideration. a) =ebt ca'acity of a firm b) ol#ency of a firm c) 4i. &he international cost of capital may #e different from the purely domestic cost of capital #ecause of the following reason(s). a) %he cost of debt and the cost of 'referred stoc& b) &he cost of de#t) the cost of preferred stock and the cost of e(uity c) %he cost of debt< the cost of 'referred stoc&< and the cost of retained earnings d) %he cost of common stoc& and the cost of retained earnings e) %he cost of debt< the cost of 'referred stoc&< and the cost of retained earnings -3. %hen we calculate the weighted a!erage cost of capital) which of the following methods is superior4 a) %he boo& #alue of debt b) %he boo& #alue of e. &he weighted a!erage cost of capital usually goes down up to a certain point if we add a) 2ore e. &he weighted a!erage cost of capital consists of the following 2222.uity b) 2ore debt c) 2ore 'referred stoc& . a) (nflation tends to be higher in a foreign country b) %he foreign subsidiaryBs cost of ca'ital may be substantially lower than the 'arentBs cost of ca'ital c) %he 'olitical ris& is greater in a foreign country d) ! and * e) A) B) and $ -1.

&he company7s optimum capital structure is compati#le with 222222 a) 2inimi?ing the com'anyBs weighted a#erage cost of ca'ital b) 2aximi?ing the #alue of the com'any c) 2aximi?ing the com'anyBs share 'rice d) !ll of the abo#e e) Aone of the abo#e . a) (t is inferior b) (t is su'erior c) %he com'any incurs additional cost by raising additional funds d) (t is always constant e) Aone of the abo#e ..8.In foreign in!estment analysis) the optimum capital #udget is o#tained at the point where a) %he net 'resent #alue is maximi?ed b) %he internal rate of return is maximi?ed c) %he internal rate of return crosses the marginal cost of ca'ital d) !ll of the abo#e e) Aone of the abo#e ).d) Aone of the abo#e e) !ll of the abo#e -6.9. a) %he com'anyBs accessibility to international ca'ital mar&ets b) %ax ad#antages in different countries c) "xchange rate ris& d) ! and * .. &he main reasons why the international cost of capital may #e different from the purely domestic cost of capital are due to the following. &he marginal cost of capital means that 2222. a) %hey are smart b) %hey can obtain additional ca'ital internationally c) %hey ha#e different national wor& forces d) %hey ha#e 'olitical clout e) Aone of the abo#e . Multinational companies may lower their cost of capital mainly #ecause 22222.

.e) A) B) and $ . Multinational companies may reduce their cost of capital #y 2222. %eighted A!erage $ost of $apital is generally denoted #y.0 &he optimum capital #udget is defined as the amount of in!estment that maximi:es 222222 a) %he mar&et share of the com'any b) %he #alue of the com'any c) %he net cash flow of the com'any d) "arnings before taxes of the com'any e) !ll of the abo#e . a) (ncreasing foreign direct in#estment b) =i#ersifying ris& across the national boundaries c) (ncreasing 'olitical 'ressure d) "x'loiting local labor e) Aone of the abo#e .5./.(uity shares b) 4oans c) *onds d) .reference shares. $ost of $apital for 'o!ernment securities is also known as. . %hich of the following has the highest cost of capital4 a). a) C! b) Cw c) =8 d) Cc .1.6. a) +isk<free +ate of Interest b) 2aximum 5ate of 5eturn c) 5ate of (nterest on Fixed =e'osits d) Aone of the abo#e. $ost of capital may #e defined as a) Weighted a#erage cost of ca'ital b) 5ate of return ex'ected by shareholder .3.

&he capital<cost gap across countries may decline in the future #ecause of the following. &he capital<cost gap across ma*or industrial countries had 222.%hich of the following cost of capital re(uire tax ad*ustment4 a) 0ost of e. in the early 9668s.(uity shares ha!e higher risk than that c) ".c) !#erage (55 of the 'ro8ects of the firm d) Minimum rate of return that the firm should earn /8. irms cost of capital is the a!erage cost of 22222 a) All sources b) !ll borrowings c) hare ca'ital d) hare bonds D debentures //.uity shares b) 0ost of 'reference shares c) $ost of de#entures d) 0ost of retained earnings /.uity shares are easily saleable d) !ll of the abo#e .. a) "eclined b) (ncreased c) Aot changed d) *een eliminated e) !ll of the abo#e /. a) (ncreasing ca'ital flows across countries b) %he remo#al of ca'ital controls around the world c) !d#ances in information and communications d) ! growing integration of domestic and offshore mar&ets e) !ll of the abo#e /9. $ost of e(uity share capital is more than cost of de#t #ecause a) Face #alue of debentures is more than face #alue of shares b) .

ual to boo& #alue of share b) hareholders are ready to subscribe to right issue c) 2ar&et 'rice is more than issue 'rice d) All of the a#o!e +/. !d8ustments of funds commitments between 0ountries. !ll of the following are hedges against exchange-rate ris& exce't• *alancing 2onetary !ssets and 4iabilities. • >se of Spot Markets • • Foreign 0urrency wa's.(uity Share $apital does not imply that a) 2ar&et 'rice is e. +1./0) $ost $apital for . Which of the following is not one of ad#antages for a flexible exchange rate system@ • 0ountries can maintain inde'endent monetary 'olicy • exchange rates under a flexi#le system are unsta#le • • countries can maintain inde'endent fiscal 'olicy flexible exchange rates 'ermit a smooth ad8ustment +3 Under the 'urely fluctuating exchange rate system< the balance of 'ayments imbalances are automatically corrected by the following mechanism • 'eculation • go#ernment inter#ention • • interest rate changes supply and demand in exchange markets .

dollar #alue • • the decline of international reser#es ?apan7s trade surplus . . %he Erules of the game” under the gold standard can best be described as which of the following@ • Selling domestic assets in a deficit and #uying assets in a surplus • lowing down the automatic ad8ustments 'rocesses inherent in the gold standard • elling domestic assets in order to accumulate gold .).1 %he ob8ecti#es of the (nternational 2onetary Fund ((2F) are . • 16/6 • 963. %he managed floating exchange system was established in . • %o 'romote international monetary coo'eration • to 'romote exchange stability • • to create standby reser#es all of the a#o!e . balance of 'ayments deficits • the decrease in the U.7 Which of the following is not directly attributable to the colla'se of the fixed exchange rate system@ • U.$.ngland the (nternational 2onetary Fund . . Which of the following is not directly related to the *retton Woods system@ • 16++ • the fixed exchange rate system • • the #ank of .+6. • • • 161/ 1616 1637 .

.. ! con#ertible currency is a currency that may be freely exchanged for • :old or sil#er./. a perpetual surplus is impossi#le . • • 9nly co''er. oreign currencies. • • Inflation or deflation can occur e!en under conditions of full employment.• • elling foreign assets in a deficit and buying foreign assets in a sur'lus Aone of the abo#e.er'etual sur'lus is 'ossible.3 What was the ultimate goal of the *retton Woods !greement@ • %he creation of a global alliance of tates • %he creation of an economic trade bloc& . Under the gold standard< • .1 what was the desire behind the *retton Woods !greement@ • ! desire to 'ut an end to the econd World War • A desire to eradicate the causes that led to the Second %orld %ar • • ! desire for creating a system of fluctuating currencies ! desire for the abolition of different currencies . (nflation can occur e#en under conditions of full em'loyment only in the long run . • .+ Which one of the following statements is true@ • (nflation but not deflation can occur e#en under conditions of full em'loyment. • 9nly sil#er.. • =eflation but not inflation can occur e#en under conditions of full em'loyment. • • .er'etual deficit is 'ossible.er'etual sur'lus is im'ossible< but a 'er'etual deficit is 'ossible. .

• • &he creation of a new world economic order %he creation of a military alliance .) %he =ayton !greement (166.) /7 ! 0urrency that has increased in foreign exchange #alue relati#e to a floating rate currency has• 5e#alued • Fiolated international trade agreements • • !''reciated "eteriorated. /1) World War 1 caused the sus'ension of the gold standard for fixed international exchange rates because the war• 0ost too much money • Interrupted free mo!ement of gold • • 4asted too long Used gold as the main ingredient in armament 'lating /$ %he 'ost World War (( (nternational 2onetary !greement that was de#elo'ed in 16++ is &nown as the• United Aations • 4eague of nations • • Galta !greement Bretton %oods Agreement .otsdam !greement (16+.6 What was the name of the !greement that laid the foundations for the creation of the• W%9< the (2F and the World *an& :rou'@ • &he Bretton %oods Agreement (96//) • • %he .

• • U.on 1st Ian 166./) Which of the following grou's would be aided by a de'reciation of the !merican dollar@ • Foreign 'roducers of goods im'orted by the United tates. • &he %orld %ar I • %he World War (( • • %he "stablishment of :!%% (n 161) when :=. • :!% < W%9 • W%9< :!%% • • 'A&&) %&@ (2F< :!%% /1. /+.. Foreign wor&ers.(*5= ((nternational *an& for 5econstruction and =e#elo'ment) also &nown as • "xim *an& • %orld Bank • • (nternational 2onetary fund (nternational *an& // Ultimately HHHHHHwas re'laced by the HHHHH. • American producers of goods for export.. was >igh /. Which is the right se. ..%he first 'hase of globali?ation started around 1617 and ended with H.uence of a stages of (nternationali?ation • =omestic< %ransnational< :lobal< (nternational< 2ultinational • =omestic< (nternational< 2ultinational< :lobal< %ransnational • • "omestic) Multinatinal) International) &ransnational) 'lo#al =omestic< (nternatinal< %ransnational< 2ultinational< :lobal . im'orters of goods from abroad.

3.uro Market) 38) %hat is the #ase interest rate paid on deposits among #anks in the eurocurrency market called4 (A"U (A"0. may increase or decrease fall.olycentric !''roach • +egiocentric Approach • • "thnocentric !''roach :eocentric !''roach /6.) If inflation goes up in the >S relati!e to other countries) it is expected that the price of the >S dollar will.)If the euro dollar deposit rate is . AIB@+. "U(A. • :old %heory • 5icardo %heory • • Mercantilism >ec&sher %heory (.B per year and the euro<euro rate is 1B per year) #y how much will . 39./3.. ubsidiaries consider regional en#ironment for 'olicy J trategy formulation is &nown as • . !ccording to this theory the holdings of a countryBs treasure 'rimarily in the form of gold constituted its wealth.. remain the same. increase.

uro 33.uoting the same 'rice. the "U currency the "uro'ean Union the "2U the .-800 in $iti#ank in Dew Eork) this means that.7K 3/.) Suppose that the .e. e#ery other ban& is . U foreign in#estors remitting 'rofits.uros are (uoted at price C9.the euro #e expected to de!alue in the coming year4 7.7K $.uro is selling at a forward discount in the forward<exchange market.uro area) than in the >nited .) the .uropean countries ha!e formed a union and created a common currency known as FFFFFFFFFF. large ban&s will .) If . the "uro has low exchange-rate ris& the "uro is gaining strength in relation to the dollar interest rates are higher in Euroland (i. &his implies that most likely FFFFFFFFFF. most #anks will pro#a#ly #e in that range.) A group of .) %hich of the following are usual suppliers of .)K -.uros4 U ex'orters "uro'ean direct in#estors. this is the 'rice used by the 0entral *an& 31. All of the a#o!e 30.6B ).uote their own rate while small ban&s will follow the lead of 0itiban&.

In empirical studies on foreign exchange rate forecasting) efficiency #est descri#es the general consensus on market efficiency. firms selling #onds in the . .) . MCQs on Exchange rate determination 58. .S. . less regulation than in the U. %eak<form =. A. .Strong<form *. 0.. emi wea&-form .&here are many informed in!estors 59. lower #ond yields than in the >. =. . 36. A. emi strong-form $. oreign exchange markets are efficient if *.All of the a#o!e .uro market is.. "uromar&et. less 'rice #olatility than in the U.) A ma*or appeal for >.States interest rates are declining in "uro'e 35.urope7s leading cross #order exchange is the. %here are no go#ernment regulations %here are no barriers of funds mo#ement %ransaction costs are negligible All of the a#o!e .uronext.S. 4ondon toc& "xchange. =eutsche *oerse. less com'etition than in the U.

. &hese conditions include the following . Fundamental analysis< mar&et-based forecasts< and forward rates ". A..rice charting Golitical factors Filter rule .A technical analysis in exchange rate forecasting in!ol!es the following except .Inflation rates *. &hese are A.&hree methods are widely used to forecast flexi#le exchange rates. . !ll of the abo#e 51. %he forecaster has consistent access to information before other in#estors . A) B) and $ 50.&echnical analysis) fundamental analysis) and forward rates *. 0.erfectly efficient form mar&et . emi-strong form efficient mar&et 0. Folume mo#ements . &hese three methods are . ". (nterest rates %he balance of 'ayments 2oney su''ly Grice trends 5. trong form efficient mar&et =. A.&here are three kinds of efficient markets. A. =. ".. 0. %echnical analysis< mar&et-based forecasts< and s'ot rates 0.A fundamental analysis in exchange rate forecasting in!ol!es the following except FFFFFF.&he forecaster has exclusi!e use of a superior forecasting model *."ufey and 'iddy suggested that currency forecasting can #e consistently useful or profita#le only if one of the four conditions is met.. A.%eak form efficient market *.Gast price *. undamental analysis) technical analysis) and market<#ased forecasts ".5-. 5/.

2ar&et-based forecast . >edging decision Wor&ing ca'ital management 4ong-term in#estment analysis 4ong-term financing decision ..Inefficient B. . A) B) and $ 53If the forward rate is the #est a!aila#le predictor (un#iased) of future spot rates) the forward market is . A. =. $onsistency and discipline ". Aone of the abo#e 55. !. =.&wo ma*or (ualities of mechanical rules as compared with chartists are . !. . Fundamental analysis *. 0harting and forward rates 2echanical rules and s'ot rates 0harting and the theory of 'urchasing 'ower 'arity 2ulti'le regression analysis and s'ot rates 68. ilter rule is a rule that #elongs to the following forecasting method.0. *.. 0onsistency and su'erior 8udgement $.&wo primary methods of technical analysis consist of .Superior accuracy and su#*ecti!e *udgement ".fficient 0. 9b8ecti#e 8udgement and error-free results 69. emi-efficient =. * and 0 ". 0. orecasting needs of the multinational company do not include !. ! and * . 0. %he forecaster 'redicts the nature of go#ernment inter#ention in the foreign exchange mar&et =.$harting and mechanical rules *. ub8ecti#e 8udgement and ob8ecti#e s&ill *. ". A.Speculation 56.

&he four<step se(uence as a general forecasting procedure under a fixed rate system consists of . *. Forward exchange rate $. %echnical analysis and fundamental analysis 6. iscal ". "conomic *.. Aone of the abo#e 60. *. !. 'ot rate< forward rate< and inflation rate 'ot rate< forward rate< and exchange rate . 0. 'ot rate< forward rate< and wage rate ". (nternational .%hether a country will de!alue its currency under a fixed rate system is ultimately a decision.uired ad8ustment %iming of ad8ustment 2ature of ad8ustment .&here are at least three ways to determine the si:e of the change in the exchange rate re(uired to #ring the #alance of payments #ack into e(uili#rium. Forward-rate forecasting model . %hich of the following is not one of the three ways to restore the #alance<of<payments e(uili#rium4 !. 2omentary $. !ssessing the balance of 'ayments outloo& 2easuring the magnitude of re. =.&echnical analysis 6-. ree market or #lack market rate ".Market<#ased forecasts consist of !. %he theory of 'urchasing 'ower 'arity *. Golitical ". "conometrics model =.All of the a#o!e 6/.Spot rate) forward rate) and interest rate =. !.. $. All of the a#o!e "..0.

'roduction 'lanning *. .. facility location . !. ". orecasts. %ight monetary 'olicy *. %ight fiscal 'olicy 0.%hich of the following is not a force that affects exchange rates. 0. in#entory budgets 0.In the case of a structural #alance of payments deficit) policy makers attempt to implement a num#er of correcti!e policies) excluding .@ne purpose of short<range forecasts is to determine !.Higher go!ernment spending ".61. Short<range) medium<range) and long<range FinanceJaccounting< mar&eting< and o'erations trategic< tactical< and o'erational "x'onential smoothing< regression< and time series =e'artmental< organi?ational< and industrial . =. ". !. "xchange controls ". orecasts are usually classified #y time hori:on into three categories A. B.. research and de#elo'ment 'lans =. =. %rade 'atterns (nterest 5ate differentials %he gold standard (nternational relations $apital flows 65. *. !. *ecome more accurate with longer time hori?ons Are rarely perfect !re more accurate for indi#idual items than for grou's of items !ll of the abo#e Aone of the abo#e 66. =. *. Wage controls 63. 0. 0. *o# assignments 988.

"xecuti#e o'inions .&he two general approaches to forecasting are A.conomic) technological) and demand "x'onential smoothing< =el'hi< and regression 0ausal< time-series< and seasonal =e'artmental< organi?ational< and territorial 98/. Weather forecast ".989. ". months to . Medium<range forecast 0.%hich of the following is not a step in the forecasting process4 !. ". decision makers) staff personnel) and respondents4 !.liminate any assumptions =etermine the time hori?on elect a forecasting model(s) #alidate and im'lement the results 980. hort-range forecast =. =. ". Jualitati!e and (uantitati!e 2athematical and statistical Iudgmental and . B. =. trategic forecast 98-.. =. years is typically called a !.ualitati#e >istorical and associati#e Iudgmental and associati#e 981. =etermine the use of the forecast .%hich of the following uses three types of participants. ".A forecast with a time hori:on of a#out . *. trategic< tactical< and o'erational . hort-range time hori?on 2edium-range time hori?on Aong<range time hori:on Aai#e method< because there is no data history !ll of the abo#e 98. $. 0. 4ong-range forecast B. *.&he three ma*or types of forecasts used #y #usiness organi:ations are !. 0. orecasts used for new product planning) capital expenditures) facility location or expansion) and +I" typically utili:e a !. 0. B. =.

%rend *. "xecuti#e o'inions ales force com'osites 0onsumer sur#eys %he =el'hi method Mo!ing a!erage 985. *. 5andom #ariations 0. (t is based on the assum'tion that future demand will be the same as 'ast demand. 999. ales force com'osition model 2ulti'le regression ?ury of executi!e opinion model 0onsumer mar&et sur#ey model 2anagement coefficients model 986. 0onsumer sur#eys ". 0. =. =. ". ales force com'osites $.%hich of the following statements a#out time<series forecasting is true4 !. (t ma&es extensi#e use of the data collected in the . &he "elphi method =. %he analysis of 'ast demand hel's 'redict future demand. %ime series analysis 983. 0. ". *ecause it accounts for trends< cycles< and seasonal 'atterns< it is more 'owerful than causal forecasting.. =. Associati!e models "x'onential smoothing Weighted mo#ing a#erage im'le mo#ing a#erage %ime series 998. .&he forecasting model that pools the opinions of a group of experts or managers is known as the !. 0.*. *.%hich of the following is not a type of (ualitati!e forecasting4 !. *. =. $.%hich of the following techni(ues uses !aria#les such as price and promotional expenditures) which are related to product demand) to predict demand4 A. easonality .ualitati#e a''roach.&ime<series data may exhi#it which of the following #eha!iors4 !. *.

&he fundamental difference #etween cycles and seasonality is the !.%hich time series model #elow assumes that demand in the next period will #e e(ual to the most recent period7s demand4 !.=.%hich of the following is not present in a time series4 !. !ll of the abo#e 99-. ".. *. =. ". =. Aai#e a''roach 2o#ing a#erage a''roach Weighted mo#ing a#erage a''roach "x'onential smoothing a''roach Aone of the abo#e 993. =. 0. 0. ".%hich of the following is not a characteristic of simple mo!ing a!erages4 . 0. *. *.In time series) which of the following cannot #e predicted4 !. 0. *. *. 0. =. 0ycles ".'radual) long<term mo!ement in time<series data is called !. =. easonality 9'erational #ariations %rend 0ycles 5andom #ariations 99/. 4arge increases in demand %echnological trends easonal fluctuations 5andom fluctuations 4arge decreases in demand 991. ". easonal #ariation 0ycles %rends "x'onential #ariation 5andom #ariation 99. =uration of the re'eating 'atterns 2agnitude of the #ariation !bility to attribute the 'attern to a cause !ll of the abo#e 990.

0.Increasing the num#er of periods in a mo!ing a!erage will accomplish greater smoothing) #ut at the expense of !. "x'onential smoothing is considerably more difficult to im'lement on a com'uter. =. *. !ccuracy 0. >as minimal data storage re. 9-9. *. "asily altered weighting scheme 0. *. tability =. "x'onential smoothing ty'ically re.uires less record-&ee'ing of 'ast data.%hich of the following statements comparing the weighted mo!ing a!erage techni(ue and exponential smoothing is true4 !. =. moothes random #ariations in the data *. 2anager understanding *.uirements (t weights each historical #alue e.%hich time series model uses past forecasts and past demand data to generate a new forecast4 !. "x'onential smoothing is more easily used in combination with the =el'hi method. 2ore em'hasis can be 'laced on recent #alues using the weighted mo#ing a#erage.ually =.%hich is not a characteristic of exponential smoothing4 !. *. 0. =. 0.uirements . =. Weights each historical #alue e.A six<month mo!ing a!erage forecast is #etter than a three<month mo!ing a!erage forecast if demand !. (s rather stable >as been changing due to recent 'romotional efforts Follows a downward trend Follows an u'ward trend 996. 5es'onsi#eness to changes 9-8. 0.!.ually (t smoothes real #ariations in the data 995. (t smoothes random #ariations in the data (t has minimal data storage re. Aai#e 2o#ing a#erage Weighted mo#ing a#erage "x'onential smoothing 9--.

). (hich of the follo)ing ignores the time value of money* .The capital budget for the year is approved by a company s F.. a) #o'er (). . and be less profitable 1. a) !ailabilit" of funds b) $elationships among proposed pro%ects c) $isk associated 'ith a particular pro%ect d) #ll of these 12$.9-. S. (. I. a) Internal rate of return *. d) Cash paybac& 12+. and be more profitable .. The capital budgeting decision depends in part on the K. this may indicate that pro-ect # may have a 0. b) Higher ().. *. Capital budgeting is the process a) *sed in sell or process further decisions b) Of determining ho' much capital stock to issue c) %f ma&ing capital expenditure decisions d) Of eliminating unprofitable product lines 12'. #. +. &. ". Lualitati#e forecast Aai#e forecast 2o#ing a#erage forecast Weighted mo#ing a#erage forecast "x'onentially smoothed forecast 124. H. b) )rofitabilit" inde.f pro-ect # has a lo)er paybac& period than pro-ect !.A forecast #ased on the pre!ious forecast plus a percentage of the forecast error (pre!ious) is a(n) !. =. a) !oard of directors b) Capital budgeting committee c) Officers d) Stockholders 12". O. c) (et present !alue /. $. c) /igher 012 and be more profitable . G. d) #o'er (). 0. J. and be less profitable 2.

d) . SS.gnores the time value of money KK. 11. . **. a) 4 "ears b) ' years c) 6 "ears d) 8 "ears 165.. 161. $$. this means that the pro-ect earns a return higher than the a) Internal rate of return b) nnual rate of return c) . c) 1ro-ect earns a rate of return of 159 OO. . in using the net present value method. this indicates that the ##. 00. .555 each year.555 and is expected to have a 465.method 166. b) Ignores the cost of an in!estment II. FF.555 salvage value at the end of its ten7 year life.< &&. CC. //.123. a) b) c) d) 0et present value method Cash pa"back techni=ue nnual rate of return method )rofitabilit" inde.. 77.e8uired rate of return d) )rofitabilit" inde- .f an asset costs 4215. 55.. the cash paybac& period is 33.. a) Ignores obsolescence factors HH. 22.< )). d) )ro%ect earns a rate of return of .a) )ro%ect9s rate of return e-ceeds :. c) Is complicated to use JJ.# disadvantage of the cash paybac& techni8ue is that it GG. (hen a capital budgeting pro-ect generates a positive net present value. and generates annual net cash inflo)s of 465.f a company s re8uired rate of return is 159 and. a pro-ect s net present value is :ero. . b) )ro%ect9s rate of return is less than the minimum rate re=uired ((. 162. The primary capital budgeting method that uses discounted cash flo) techni8ues is the ++.

222. c) Implementing and monitoring the selected in!estment pro%ects . SSS. ===. b) 1resent value of cash flo)s by the initial investment HHH.. 777. b) nal"?ing the set of in!estment opportunities@ and identif"ing those that 'ill create CCCC. OOO..164. ///. The profitability index is computed by dividing the FFF. 16$.ntangible benefits in capital budgeting )ould include all of the follo)ing except increased . c) Initial in!estment b" the total cash flo's III. 555. 333. tax rate for capital budgeting a) !erage ta. a) Identif"ing potential in!estments 3333. The capital budgeting method that ta&es into account both the si:e of the original investment and the discounted cash flo)s is the ###.rate b) &a-imum ta.. +++. a) . (((. The relevant purposes is the@ .otal cash flo's b" the initial in!estment GGG. a) )roduct =ualit" b) 7mplo"ee lo"alt" c) <alvage value d) )roduct safet" 16". The capital budgeting process involves .. ))). This means that >>>>>> must be ignored and >>>>>>> must be considered. . $$$. &&&. Capital budgeting must be placed on an incremental basis. a) <un& cost? opportunity cost b) Sunk cost> financing cost c) Cannibali?ation> opportunit" cost d) Opportunit" cost> net 'orking capital 16+. ..rate c) &inimum ta. CCC. ***. d) Initial in!estment b" the present !alue of cash flo's JJJ. 111. 000.. shareholder !alue 5555.rate d) Marginal tax rate 163. a) Cash pa"back method b) Internal rate of return method c) (et present !alue method d) 1rofitability index 16'.

TTTT. a) Dails to explicitly consider the time value of money b) Is the amount of time it takes for a pro%ect to recoup its profits c) Is the best method for e!aluating comple. 144. a) Capital spending ////. d) .he timing problem b) &ultiple I$$s c) .he pro%ect has a negati!e ().. a) The pro-ect generates an alternating series of net cash inflo)s and outflo)s &&&&. b) $ecogni?e the time !alue of mone" CCCCC. $$$$. Capital budgeting techni8ues should@ . as a capital budgeting techni8ue include@ ++++. JJJJJ.. dA #ll of the above 77777.. c) #ead to higher stock prices 'hen applied CCCCC. HHHHH. dA #ll of the above 145. 142.pro%ects d) Is ne!er used b" businesses toda" . d) Capital in!estment BBBB. c) .EEEE. 14". a) . a) Full account for e-pected risk and return 33333. a) )a"back period b) 5iscount pa"back period c) Internal rate of return d) 0et present value for evaluating most 141.he pro%ect is of considerabl" large scale )))).he pro%ect generates an immediate cash inflo' follo'ed b" cash outflo' ((((. c) Capital hedging 1111. SSSS. 1otential problems in using the . b) Capital budgeting 0000. FFFF. The preferred techni8ue capital investments is GGGG. HHHH. The paybac& method@ FFFFF. IIIII.. GGGGG. b) . OOOO. The process of identifying )hich long7lived investment pro-ects a firm should underta&e is &no)n as@ .. IIII.s )hen ####... ****.he scale problem dA #ll of the above 146. JJJJ. KKKK. # pro-ect may have multiple ..

22222. the 012 is@ KKKKKK. 1"1.c) )rofits CCCCCC. b) E8ual to :ero &&&&&&. c) . d) Cannot be determined 'ithout kno'ing the discount rate OOOOOO.. the 012 of a pro-ect@ KKKKK. a) )ositi!e ######.... b) 5ecreases $$$$$. b) Cecreases &&&&&. d) )I EEEEEE.. #s the discount rate increases. d) Cannot be determined 'ithout kno'ing the discount rate OOOOO. a) Increases +++++. c) Is unaffected (((((. method focuses on@ EEEEEE. c) )rofits 00000.. The 012 method focuses on@ *****. 14' #s the discount rate increases.. is e8ual to the discount rate. The . d) Cannot be determined 'ithout kno'ing the discount rate . a) Sales . a) )a"back GGGGGG.s unaffected SSSSS. 1"5. (hich method directly estimates the change in shareholder )ealth* FFFFFF. .b) ccounting returns 333333.... a) Increases #####.. b) ccounting returns /////. of a pro-ect@ 14+.. ))))). b) I$$ HHHHHH. the . d) Cash flo)s 11111.. a) Sales .14$.. c) 012 IIIIII. d) Cash flo)s 555555. c) (egati!e ((((((. 143.. (hen the ..

. The 012 method is most li&ely to be used in@ %%%%%%%... c) Firms run b" CFOs 'ith &3 s MMMMMMM.c) )a"back SSSSSS. dA #ll of the above (((((((. 1"$. aA 1ounger CFOs bA Older CFOs cA CFOs 'ithout an &3 dA b. .. b) The scale of the pro-ects may differ GGGGGGG. JJJJJJJ. b) Focus on cash flo's 3333333. c) Multiple . (hich of the follo)ing is a problem )ith the .1"2... The compound annual return on a pro-ect is &no)n as its@ )))))).b) ..nternal . ++++++.. b) )ublicl" traded firms #######.he riskAfree rate .. 1"'. 1111111. 1"4..ate of . a) #arge firms KKKKKKK..d) The discount rate used in 012 analysis 111111..he risk of the pro%ects ma" differ FFFFFFF.s CCCCCCC. analysis should be@ ******.he current corporate bond rate //////.he prime rate 000000.. The paybac& method is more li&ely to be used by@ +++++++. a) ().. c) . may give conflicting decisions for mutually exclusive pro-ects because@ 7777777.eturn* 222222. b) )I $$$$$$. 012 and . 1"6.. SSSSSSS. TTTTTTT. a) . dA ll of the abo!e IIIIIII. and c .. The hurdle rate used in . a) . FFFFFFF. dA ll of the abo!e are problems 'ith the Internal $ate of $eturn 5555555.. 1"". $$$$$$$. d) .he discount rates on the pro%ects ma" differ HHHHHHH..a) ppropriate ad%ustment for the time !alue of mone" .. c) ..

a) 7=ual to the internal rate of return ///////.nvestment Cecision b) /orking Capital &anagement c) &arketing &anagement d) Capital Structure 1$5 Capital !udgeting deals )ith@ FFFFFFFF.. e) #ess than the internal rate of return .ate of Cash Ciscount .rreversible c) *nimportant d) ll of the abo!e 1$6. 55555555. a) $e!ersible b) . a) . c) 0et #ssets Method &&&&&&&&.ime .oo high 0000000. a) .. SSSSSSSS. ********. c) Greater than the internal rate of return 1111111.... Capital !udgeting Cecisions are@ ((((((((.... OOOOOOOO. (hich of the follo)ing is not used in Capital !udgeting* JJJJJJJJ. then )hich of the follo)ing must be true* The discount rate used is ...a-A7ffect b) . 1"3. b) Sensiti!it" nal"sis ########. d) Cash Flo's 1$2. . )))))))). CCCCCCCC.oo lo' 2222222. d) (either Ba) nor Bb) 1$1.1"+.alue of &one" c) $e=uired $ate of $eturn d) . (hich of the follo)ing is not incorporated in Capital !udgeting* $$$$$$$$. c) 3oth Ba) and Bb) IIIIIIII. a) Hong7term Cecisions GGGGGGGG.ime ..f the calculated 012 is negative.alue of &one" KKKKKKKK. b) . a) . ++++++++... d) . b) ShortAterm 5ecisions HHHHHHHH. 77777777. . Capital !udgeting is a part of@ 33333333...