International Monetary System

1.

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 .

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1.

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

3.

6.

17.

11.

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central ban&. (e) When staffs of economists determine the e,uilibrium exchange rate on a day-by-day basis.
1).

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

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11.

13.

%he *retton Woods !greement of 16++ established a monetary system based on: a. :old and managed floating exchange rates b. :old and ad8ustable 'egged exchange rates $. Special "rawing +ights and managed floating exchange rates d. 'ecial =rawing 5ights and ad8ustable 'egged exchange rates a main 'ur'ose of exchange stabili?ation funds is to: a. ;ermit a country to o#er#alue its currency in the exchange mar&ets b. ;ermit a country to under#alue its currency in the exchange mar&ets c. Increase the supply of foreign currency when imports exceed exports d. =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. (m'oses hardshi's on the ex'orters of foreign countries #. Imposes hardships on exporters of the de!aluing country c. (s generally followed by unem'loyment in the de#aluing country d. (s generally followed by 'rice deflation in the de#aluing country

16.

$7.

$1.

$ost of $apital refers to,

(a) Flotation 0ost (b) =i#idend (c)+e(uired +ate of +eturn (d) Aone of the abo#e

--. &he weighted a!erage cost of capital does not deal with the following components,
a) %he cost of e,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,uity

-..&he cost of e(uity can #e deri!ed from the following model,

a) !n in#entory model b) ! cash flow model
c) &he capital asset pricing model

d) ! debt model e) Aone of the abo#e

-/.&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,uidity of a firm
d) After tax interest cost

e) Aone of the abo#e

-0. &he international cost of capital may #e different from the purely domestic cost of capital #ecause of the following reason(s),
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 weighted a!erage cost of capital consists of the following 2222.
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,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 weighted a!erage cost of capital usually goes down up to a certain point if we add
a) 2ore e,uity
b) 2ore debt

c) 2ore 'referred stoc&

d) Aone of the abo#e e) !ll of the abo#e

-6. &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

.8. Multinational companies may lower their cost of capital mainly #ecause 22222.
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

.9. &he marginal cost of capital means that 2222.

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

.- 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

)..

&he main reasons why the international cost of capital may #e different from the purely domestic cost of capital are due to the following,
a) %he com'anyBs accessibility to international ca'ital mar&ets b) %ax ad#antages in different countries c) "xchange rate ris& d) ! and *

e) A) B) and $

./. Multinational companies may reduce their cost of capital #y 2222.

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

.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

.1. %hich of the following has the highest cost of capital4

a);(uity shares b) 4oans c) *onds d) ;reference shares.

.3. $ost of $apital for 'o!ernment securities is also known as,

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.

.5. %eighted A!erage $ost of $apital is generally denoted #y,

a) C! b) Cw c) =8 d) Cc

.6. $ost of capital may #e defined as

a) Weighted a#erage cost of ca'ital b) 5ate of return ex'ected by shareholder

c) !#erage (55 of the 'ro8ects of the firm d) Minimum rate of return that the firm should earn

/8. &he capital<cost gap across countries may decline in the future #ecause of the following,
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. &he capital<cost gap across ma*or industrial countries had 222. in the early 9668s.
a) "eclined

b) (ncreased c) Aot changed d) *een eliminated e) !ll of the abo#e

/- %hich of the following cost of capital re(uire tax ad*ustment4

a) 0ost of e,uity shares b) 0ost of 'reference shares c) $ost of de#entures d) 0ost of retained earnings

/.. 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

//. $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) ;(uity shares ha!e higher risk than that c) ",uity shares are easily saleable d) !ll of the abo#e

/0) $ost $apital for ;(uity Share $apital does not imply that
a) 2ar&et 'rice is e,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

+/. !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. !d8ustments of funds commitments between 0ountries.

+1. 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

+6. Which of the following is not directly related to the *retton Woods system@ 16++ the fixed exchange rate system

the #ank of ;ngland the (nternational 2onetary Fund

.7 Which of the following is not directly attributable to the colla'se of the fixed exchange rate system@ U. . balance of 'ayments deficits the decrease in the U. . dollar #alue

the decline of international reser#es ?apan7s trade surplus

.1 %he ob8ecti#es of the (nternational 2onetary Fund ((2F) are . %o 'romote international monetary coo'eration to 'romote exchange stability

to create standby reser#es all of the a#o!e

.$. %he managed floating exchange system was established in . 16/6 963.

161/ 1616 1637

.). %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

elling foreign assets in a deficit and buying foreign assets in a sur'lus Aone of the abo#e.

.+ Which one of the following statements is true@ (nflation but not deflation can occur e#en under conditions of full em'loyment. =eflation but not inflation can occur e#en under conditions of full em'loyment.

Inflation or deflation can occur e!en under conditions of full employment. (nflation can occur e#en under conditions of full em'loyment only in the long run

... Under the gold standard< ;er'etual sur'lus is 'ossible. ;er'etual deficit is 'ossible.

;er'etual sur'lus is im'ossible< but a 'er'etual deficit is 'ossible. a perpetual surplus is impossi#le

./. ! con#ertible currency is a currency that may be freely exchanged for :old or sil#er. 9nly sil#er.

9nly co''er. oreign currencies.

.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

.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&

&he creation of a new world economic order %he creation of a military alliance

.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 ;otsdam !greement (16+.) %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

/) 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. American producers of goods for export.

U. . im'orters of goods from abroad. Foreign wor&ers.

/+- %he first 'hase of globali?ation started around 1617 and ended with H.. &he %orld %ar I %he World War ((

%he "stablishment of :!%% (n 161) when :=; was >igh

/.- (*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.on 1st Ian 166. :!% < W%9 W%9< :!%%

'A&&) %&@ (2F< :!%%

/1.. Which is the right se,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

/3.. ubsidiaries consider regional en#ironment for 'olicy J trategy formulation is &nown as ;olycentric !''roach +egiocentric Approach

"thnocentric !''roach :eocentric !''roach

/6. !ccording to this theory the holdings of a countryBs treasure 'rimarily in the form of gold constituted its wealth. :old %heory 5icardo %heory

Mercantilism >ec&sher %heory

(;uro Market) 38) %hat is the #ase interest rate paid on deposits among #anks in the eurocurrency market called4
(A"U (A"0. AIB@+. "U(A.

39.) If inflation goes up in the >S relati!e to other countries) it is expected that the price of the >S dollar will,
may increase or decrease fall. increase. remain the same.

3..)If the euro dollar deposit rate is .B per year and the euro<euro rate is 1B per year) #y how much will

the euro #e expected to de!alue in the coming year4

7.)K -.6B ).7K $.7K

3/.) %hich of the following are usual suppliers of ;uros4

U ex'orters "uro'ean direct in#estors. U foreign in#estors remitting 'rofits. All of the a#o!e

30.) If ;uros are (uoted at price C9.-800 in $iti#ank in Dew Eork) this means that,
most #anks will pro#a#ly #e in that range. e#ery other ban& is ,uoting the same 'rice. large ban&s will ,uote their own rate while small ban&s will follow the lead of 0itiban&. this is the 'rice used by the 0entral *an&

31.) A group of ;uropean countries ha!e formed a union and created a common currency known as FFFFFFFFFF.
the "U currency the "uro'ean Union the "2U the ;uro

33.) Suppose that the ;uro is selling at a forward discount in the forward<exchange market. &his implies that most likely FFFFFFFFFF.
the "uro has low exchange-rate ris& the "uro is gaining strength in relation to the dollar interest rates are higher in Euroland (i.e.) the ;uro area) than in the >nited

States interest rates are declining in "uro'e

35.) A ma*or appeal for >.S. firms selling #onds in the ;uro market is,
less regulation than in the U. . lower #ond yields than in the >.S. less com'etition than in the U. . less 'rice #olatility than in the U. .

36.) ;urope7s leading cross #order exchange is the,

=eutsche *oerse. "uromar&et. 4ondon toc& "xchange. ;uronext.

MCQs on Exchange rate determination

58. oreign exchange markets are efficient if
*. 0. =. ;. %here are no go#ernment regulations %here are no barriers of funds mo#ement %ransaction costs are negligible All of the a#o!e

A.&here are many informed in!estors

59.In empirical studies on foreign exchange rate forecasting) efficiency #est descri#es the general consensus on market efficiency.

A.Strong<form
*. emi strong-form $. %eak<form =. emi wea&-form

;.All of the a#o!e

5-.A fundamental analysis in exchange rate forecasting in!ol!es the following except FFFFFF.

A.Inflation rates
*. 0. =. ;. (nterest rates %he balance of 'ayments 2oney su''ly Grice trends

5..A technical analysis in exchange rate forecasting in!ol!es the following except .

A.Gast price
*. 0. ". ". Folume mo#ements ;rice charting Golitical factors Filter rule .

5/.&here are three kinds of efficient markets. &hese are

A.%eak form efficient market

*. emi-strong form efficient mar&et 0. trong form efficient mar&et =. ;erfectly efficient form mar&et ;. A) B) and $

50.&hree methods are widely used to forecast flexi#le exchange rates. &hese three methods are .

A.&echnical analysis) fundamental analysis) and forward rates

*. %echnical analysis< mar&et-based forecasts< and s'ot rates 0. Fundamental analysis< mar&et-based forecasts< and forward rates ". undamental analysis) technical analysis) and market<#ased forecasts ". !ll of the abo#e

51."ufey and 'iddy suggested that currency forecasting can #e consistently useful or profita#le only if one of the four conditions is met. &hese conditions include the following .

A.&he forecaster has exclusi!e use of a superior forecasting model

*. %he forecaster has consistent access to information before other in#estors

0. %he forecaster 'redicts the nature of go#ernment inter#ention in the foreign exchange mar&et =. ! and * ;. 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.Inefficient
B. ;fficient 0. emi-efficient =. * and 0 ". Aone of the abo#e

55. orecasting needs of the multinational company do not include

!. *. 0. =. >edging decision Wor&ing ca'ital management 4ong-term in#estment analysis 4ong-term financing decision

;.Speculation
56.&wo primary methods of technical analysis consist of .

A.$harting and mechanical rules

*. 0. =. ". 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.&wo ma*or (ualities of mechanical rules as compared with chartists are .

!. ub8ecti#e 8udgement and ob8ecti#e s&ill *. 0onsistency and su'erior 8udgement

$.Superior accuracy and su#*ecti!e *udgement

". $onsistency and discipline ". 9b8ecti#e 8udgement and error-free results

69. ilter rule is a rule that #elongs to the following forecasting method.
!. Fundamental analysis *. 2ar&et-based forecast

0. "conometrics model =. Forward-rate forecasting model

;.&echnical analysis
6-.Market<#ased forecasts consist of
!. *. 'ot rate< forward rate< and inflation rate 'ot rate< forward rate< and exchange rate

$.Spot rate) forward rate) and interest rate

=. 'ot rate< forward rate< and wage rate ". %echnical analysis and fundamental analysis

6..&he four<step se(uence as a general forecasting procedure under a fixed rate system consists of .
!. *. 0. =. !ssessing the balance of 'ayments outloo& 2easuring the magnitude of re,uired ad8ustment %iming of ad8ustment 2ature of ad8ustment

;.All of the a#o!e

6/.&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. %hich of the following is not one of the three ways to restore the #alance<of<payments e(uili#rium4
!. %he theory of 'urchasing 'ower 'arity *. Forward exchange rate

$. ree market or #lack market rate

". All of the a#o!e ". Aone of the abo#e

60.%hether a country will de!alue its currency under a fixed rate system is ultimately a decision.
!. "conomic *. 2omentary $. Golitical

". iscal
". (nternational

61.In the case of a structural #alance of payments deficit) policy makers attempt to implement a num#er of correcti!e policies) excluding .
!. %ight monetary 'olicy *. %ight fiscal 'olicy 0. "xchange controls

".Higher go!ernment spending

". Wage controls

63.%hich of the following is not a force that affects exchange rates,

!. *. 0. =. ;. %rade 'atterns (nterest 5ate differentials %he gold standard (nternational relations $apital flows

65. orecasts.
!. B. 0. =. ". *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.@ne purpose of short<range forecasts is to determine !. 'roduction 'lanning *. in#entory budgets 0. research and de#elo'ment 'lans =. facility location ;. *o# assignments 988. orecasts are usually classified #y time hori:on into three categories
A. *. 0. =. ". 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

989.A forecast with a time hori:on of a#out . months to . years is typically called a
!. 4ong-range forecast B. Medium<range forecast 0. hort-range forecast =. Weather forecast ". trategic forecast

98-. orecasts used for new product planning) capital expenditures) facility location or expansion) and +I" typically utili:e a
!. *. $. =. ". 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..&he three ma*or types of forecasts used #y #usiness organi:ations are

!. B. 0. =. ". trategic< tactical< and o'erational ;conomic) technological) and demand "x'onential smoothing< =el'hi< and regression 0ausal< time-series< and seasonal =e'artmental< organi?ational< and territorial

98/.%hich of the following is not a step in the forecasting process4

!. B. 0. =. ". =etermine the use of the forecast ;liminate any assumptions =etermine the time hori?on elect a forecasting model(s) #alidate and im'lement the results

980.&he two general approaches to forecasting are

A. *. 0. =. ". Jualitati!e and (uantitati!e 2athematical and statistical Iudgmental and ,ualitati#e >istorical and associati#e Iudgmental and associati#e

981.%hich of the following uses three types of participants, decision makers) staff personnel) and respondents4
!. "xecuti#e o'inions

*. ales force com'osites $. &he "elphi method =. 0onsumer sur#eys ". %ime series analysis

983.%hich of the following is not a type of (ualitati!e forecasting4

!. *. 0. =. ;. "xecuti#e o'inions ales force com'osites 0onsumer sur#eys %he =el'hi method Mo!ing a!erage

985.&he forecasting model that pools the opinions of a group of experts or managers is known as the
!. *. $. =. ". ales force com'osition model 2ulti'le regression ?ury of executi!e opinion model 0onsumer mar&et sur#ey model 2anagement coefficients model

986.%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. *. 0. =. ". Associati!e models "x'onential smoothing Weighted mo#ing a#erage im'le mo#ing a#erage %ime series

998.%hich of the following statements a#out time<series forecasting is true4

!. *. 0. =. (t is based on the assum'tion that future demand will be the same as 'ast demand. (t ma&es extensi#e use of the data collected in the ,ualitati#e a''roach. %he analysis of 'ast demand hel's 'redict future demand. *ecause it accounts for trends< cycles< and seasonal 'atterns< it is more 'owerful than causal forecasting.

999.&ime<series data may exhi#it which of the following #eha!iors4

!. %rend *. 5andom #ariations 0. easonality

=. 0ycles ". !ll of the abo#e

99-.'radual) long<term mo!ement in time<series data is called

!. *. 0. =. ". easonal #ariation 0ycles %rends "x'onential #ariation 5andom #ariation

99..%hich of the following is not present in a time series4

!. *. 0. =. ". easonality 9'erational #ariations %rend 0ycles 5andom #ariations

99/.&he fundamental difference #etween cycles and seasonality is the

!. *. 0. =. =uration of the re'eating 'atterns 2agnitude of the #ariation !bility to attribute the 'attern to a cause !ll of the abo#e

990.In time series) which of the following cannot #e predicted4

!. *. 0. =. ". 4arge increases in demand %echnological trends easonal fluctuations 5andom fluctuations 4arge decreases in demand

991.%hich time series model #elow assumes that demand in the next period will #e e(ual to the most recent period7s demand4
!. *. 0. =. ". 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.%hich of the following is not a characteristic of simple mo!ing a!erages4

!. *. 0. =.

(t smoothes random #ariations in the data (t has minimal data storage re,uirements (t weights each historical #alue e,ually (t smoothes real #ariations in the data

995.A six<month mo!ing a!erage forecast is #etter than a three<month mo!ing a!erage forecast if demand
!. *. 0. =. (s rather stable >as been changing due to recent 'romotional efforts Follows a downward trend Follows an u'ward trend

996.Increasing the num#er of periods in a mo!ing a!erage will accomplish greater smoothing) #ut at the expense of
!. 2anager understanding *. !ccuracy 0. tability =. 5es'onsi#eness to changes

9-8.%hich of the following statements comparing the weighted mo!ing a!erage techni(ue and exponential smoothing is true4
!. *. 0. =. "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. "x'onential smoothing is considerably more difficult to im'lement on a com'uter. "x'onential smoothing ty'ically re,uires less record-&ee'ing of 'ast data.

9-9.%hich time series model uses past forecasts and past demand data to generate a new forecast4
!. *. 0. =. Aai#e 2o#ing a#erage Weighted mo#ing a#erage "x'onential smoothing

9--.%hich is not a characteristic of exponential smoothing4

!. moothes random #ariations in the data *. "asily altered weighting scheme 0. Weights each historical #alue e,ually =. >as minimal data storage re,uirements

9-..A forecast #ased on the pre!ious forecast plus a percentage of the forecast error (pre!ious) is a(n)
!. *. 0. =. ". Lualitati#e forecast Aai#e forecast 2o#ing a#erage forecast Weighted mo#ing a#erage forecast "x'onentially smoothed forecast

124.The capital budget for the year is approved by a company s

F. G. H. I. J. a) !oard of directors b) Capital budgeting committee c) Officers d) Stockholders

12". The capital budgeting decision depends in part on the

K. #. &. (. O. ). +. $. S. a) !ailabilit" of funds b) $elationships among proposed pro%ects c) $isk associated 'ith a particular pro%ect d) #ll of these

12$. 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'. (hich of the follo)ing ignores the time value of money*

,. a) Internal rate of return *. b) )rofitabilit" inde.. c) (et present !alue /. d) Cash paybac&

12+. ,f pro-ect # has a lo)er paybac& period than pro-ect !. this may indicate that pro-ect # may have a
0. a) #o'er (). and be less profitable 1. b) Higher (). and be less profitable 2. c) /igher 012 and be more profitable . d) #o'er (). and be more profitable

123. ,f an asset costs 4215.555 and is expected to have a 465.555 salvage value at the end of its ten7 year life. and generates annual net cash inflo)s of 465.555 each year. the cash paybac& period is
33. CC. 55. 77. FF. a) 4 "ears b) ' years c) 6 "ears d) 8 "ears

165.# disadvantage of the cash paybac& techni8ue is that it

GG. a) Ignores obsolescence factors HH. b) Ignores the cost of an in!estment II. c) Is complicated to use JJ. d) ,gnores the time value of money KK.

161. ,f a company s re8uired rate of return is 159 and. in using the net present value method. a pro-ect s net present value is :ero. this indicates that the
##.a) )ro%ect9s rate of return e-ceeds :;< &&. b) )ro%ect9s rate of return is less than the minimum rate re=uired ((. c) 1ro-ect earns a rate of return of 159 OO. d) )ro%ect earns a rate of return of ;< )).

162. The primary capital budgeting method that uses discounted cash flo) techni8ues is the
++. $$. SS. ,,. **. a) b) c) d) 0et present value method Cash pa"back techni=ue nnual rate of return method )rofitabilit" inde- method

166. (hen a capital budgeting pro-ect generates a positive net present value. this means that the pro-ect earns a return higher than the
a) Internal rate of return b) nnual rate of return c) ;e8uired rate of return d) )rofitabilit" inde-

... //. 00. 11. 22.

164. ,ntangible benefits in capital budgeting )ould include all of the follo)ing except increased
. 333. CCC. 555. 777. a) )roduct =ualit" b) 7mplo"ee lo"alt" c) <alvage value d) )roduct safet"

16". The profitability index is computed by dividing the

FFF. a) ,otal cash flo's b" the initial in!estment GGG. b) 1resent value of cash flo)s by the initial investment HHH. c) Initial in!estment b" the total cash flo's III. d) Initial in!estment b" the present !alue of cash flo's JJJ.

===. 16$. 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
###. &&&. (((. OOO. ))). a) Cash pa"back method b) Internal rate of return method c) (et present !alue method d) 1rofitability index

16'. Capital budgeting must be placed on an incremental basis. This means that >>>>>> must be ignored and >>>>>>> must be considered.
+++. $$$. SSS. ,,,. ***. a) <un& cost? opportunity cost b) Sunk cost> financing cost c) Cannibali?ation> opportunit" cost d) Opportunit" cost> net 'orking capital

16+. The relevant purposes is the@

.... ///. 000. 111. 222.

tax

rate

for

capital

budgeting

a) !erage ta- rate b) &a-imum ta- rate c) &inimum ta- rate d) Marginal tax rate

163. The capital budgeting process involves

. a) Identif"ing potential in!estments 3333. b) nal"?ing the set of in!estment opportunities@ and identif"ing those that 'ill create CCCC. shareholder !alue 5555. c) Implementing and monitoring the selected in!estment pro%ects

EEEE. FFFF.

dA #ll of the above

145. The preferred techni8ue capital investments is

GGGG. HHHH. IIII. JJJJ. KKKK. a) )a"back period b) 5iscount pa"back period c) Internal rate of return d) 0et present value

for

evaluating

most

141. # pro-ect may have multiple ,;;s )hen

####. a) The pro-ect generates an alternating series of net cash inflo)s and outflo)s &&&&. b) ,he pro%ect generates an immediate cash inflo' follo'ed b" cash outflo' ((((. c) ,he pro%ect has a negati!e (). OOOO. d) ,he pro%ect is of considerabl" large scale )))).

142. 1otential problems in using the ,;; as a capital budgeting techni8ue include@
++++. $$$$. SSSS. TTTT. ****. a) ,he timing problem b) &ultiple I$$s c) ,he scale problem dA #ll of the above

146. The process of identifying )hich long7lived investment pro-ects a firm should underta&e is &no)n as@
..... a) Capital spending ////. b) Capital budgeting 0000. c) Capital hedging 1111. d) Capital in!estment

BBBB. 144. Capital budgeting techni8ues should@

. a) Full account for e-pected risk and return 33333. b) $ecogni?e the time !alue of mone" CCCCC. c) #ead to higher stock prices 'hen applied CCCCC. dA #ll of the above 77777.

14". The paybac& method@

FFFFF. GGGGG. HHHHH. IIIII. JJJJJ.

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- pro%ects d) Is ne!er used b" businesses toda"

14$. #s the discount rate increases. the 012 of a pro-ect@

KKKKK. a) Increases #####. b) Cecreases &&&&&. c) Is unaffected (((((. d) Cannot be determined 'ithout kno'ing the discount rate OOOOO.

14' #s the discount rate increases. the ,;; of a pro-ect@

14+. The 012 method focuses on@

*****. a) Sales ...... b) ccounting returns /////. c) )rofits 00000. d) Cash flo)s 11111. 22222. a) Sales .b) ccounting returns 333333.c) )rofits CCCCCC. d) Cash flo)s 555555.

))))). a) Increases +++++. b) 5ecreases $$$$$. c) ,s unaffected SSSSS. d) Cannot be determined 'ithout kno'ing the discount rate ,,,,,.

143. The ,;; method focuses on@

EEEEEE. 1"5. (hich method directly estimates the change in shareholder )ealth*
FFFFFF. a) )a"back GGGGGG. b) I$$ HHHHHH. c) 012 IIIIII. d) )I

EEEEEE. 1"1. (hen the ,;; is e8ual to the discount rate. the 012 is@
KKKKKK. a) )ositi!e ######. b) E8ual to :ero &&&&&&. c) (egati!e ((((((. d) Cannot be determined 'ithout kno'ing the discount rate OOOOOO.

1"2. The compound annual return on a pro-ect is &no)n as its@

)))))). a) (). ++++++. b) )I $$$$$$.c) )a"back SSSSSS. d) ,;; ,,,,,,.

1"6. The hurdle rate used in ,;; analysis should be@

******. a) ,he riskAfree rate .......b) ,he current corporate bond rate //////. c) ,he prime rate 000000.d) The discount rate used in 012 analysis 111111.

1"4. (hich of the follo)ing is a problem )ith the ,nternal ;ate of ;eturn*

222222.a) ppropriate ad%ustment for the time !alue of mone" . b) Focus on cash flo's 3333333. c) Multiple ,;;s CCCCCCC. dA ll of the abo!e are problems 'ith the Internal $ate of $eturn 5555555.

1"". 012 and ,;; may give conflicting decisions for mutually exclusive pro-ects because@

7777777. a) ,he risk of the pro%ects ma" differ FFFFFFF. b) The scale of the pro-ects may differ GGGGGGG. c) ,he discount rates on the pro%ects ma" differ HHHHHHH. dA ll of the abo!e IIIIIII. JJJJJJJ. a) #arge firms KKKKKKK. b) )ublicl" traded firms #######. c) Firms run b" CFOs 'ith &3 s MMMMMMM. dA #ll of the above (((((((.

1"$. The 012 method is most li&ely to be used in@

%%%%%%%. 1111111. 1"'. The paybac& method is more li&ely to be used by@
+++++++. $$$$$$$. SSSSSSS. TTTTTTT. FFFFFFF. aA 1ounger CFOs bA Older CFOs cA CFOs 'ithout an &3 dA b. and c

1"+. ,f the calculated 012 is negative. then )hich of the follo)ing must be true* The discount rate used is
........ a) 7=ual to the internal rate of return ///////. b) ,oo high 0000000. c) Greater than the internal rate of return 1111111. d) ,oo lo' 2222222. e) #ess than the internal rate of return .

1"3. Capital !udgeting is a part of@

33333333. CCCCCCCC. 55555555. 77777777.

a) ,nvestment Cecision b) /orking Capital &anagement c) &arketing &anagement d) Capital Structure

1$5 Capital !udgeting deals )ith@

FFFFFFFF. a) Hong7term Cecisions GGGGGGGG. b) ShortAterm 5ecisions HHHHHHHH. c) 3oth Ba) and Bb) IIIIIIII. d) (either Ba) nor Bb)

1$1. (hich of the follo)ing is not used in Capital !udgeting*

JJJJJJJJ. a) ,ime .alue of &one" KKKKKKKK. b) Sensiti!it" nal"sis ########. c) 0et #ssets Method &&&&&&&&. d) Cash Flo's

1$2. Capital !udgeting Cecisions are@

((((((((. OOOOOOOO. )))))))). ++++++++. a) $e!ersible b) ,rreversible c) *nimportant d) ll of the abo!e

1$6. (hich of the follo)ing is not incorporated in Capital !udgeting*

$$$$$$$$. SSSSSSSS. ,,,,,,,,. ********. a) ,a-A7ffect b) ,ime .alue of &one" c) $e=uired $ate of $eturn d) ;ate of Cash Ciscount