2 If'a USS. firm desires to avoid the days, it could: a. obtain a 90-day forward purchase contract on euros b, obtain a 90-day forward sale contract on euros, purchase euros 90 days from now at the spot rate d._ sell euros 90 days from now at the spot rate from exchange rate fluctuations, and it is receiving 100,000 in 90 Ifa U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need CS200,000 in 90 days to make payment on imports from Canada, it could: a. obtain a 90-day forward purchase contract on Canadian dollars. b. obtain a 90-day forward sale contract on Canadian dollars, purchase Canadian dollars 90 days from now at the spot rate. d._ sell Canadian dollars 90 days from now at the spot rate. A forward contract can be used to lock in the __of a specified currency for a future point in time. a. purchase price b._ sale price ©. AorB d. none of the above ‘The international money market primarily concentrates on: a. short-term lending (one year or less. b, medium-term lending, c. long-term lending d._ placing bonds with investors €. placing newly issued stock in foreign markets, ‘The international credit market primarily concentrates on: a. short-term lending (less than one year). b, medium-term lending. ¢. providing an exchange of foreign currencies for firms who need them. d._ placing newly issued stock in foreign markets, ‘The main participants in the intemational money market are: b. small firms. ©. large corporations, d__ small European firms needing European currencies for international trade. LIBOR is: a. the interest rate commonly charged for loans between banks. the average inflation rate in European countries, the maximum loan rate ceiling on loans in the international money market. the maximum deposit rate ceiling on deposits in the international money market. the maximum interest rate offered on bonds that are issued in London8 13, 15, A syndicated loan: a. represents a loan by a single bank to a syndicate of corporations. b. represents a loan by a single bank to a syndicate of country governments. ¢. represents a direct loan by a syndicate of oil-producing exporters to a less developed country. 4d. represents a loan by a group of banks to a borrower. © AandB ‘The international money market is primarily served by: a, the governments of European countries, which directly intervene in foreign currency markets, b, government agencies such as the International Monetary Fund that enhance development of countries. c. several large banks that accept deposits and provide loans in various currencies. small banks that convert foreign currency for tourists and business visitors. International money market transactions normally represent: the equivalent of $1 million or more. b, the equivalent of $1,000 to $10,000. ¢. the equivalent of between $10,000 and $100,000, 4. the equivalent of between $100,000 and $200,000. A put option is the amount or percentage by which the existing spot rate exceeds the forward rate a. True b. False From 1944 to 1971, the exchange rate between any two currencies was typically: a. fixed within narrow boundaries. b. floating, but subject to central bank intervention. ¢. floating, and not subject to central bank intervention. 4d. nonexistent; that is currencies were not exchanged, but gold was used to pay for all foreign transactions. As a result of the Smithsonian Agreement, the U.S. dollar was: a. the currency to be used by all countries as a medium of exchange for international trade. b, forced to be freely floating relative to all currencies without any boundaries. ¢. devalued relative to major currencies, 4. revalued (upward) relative to major currencies. According to the text, the average foreign exchange trading around the world __per day. ‘a, equals about $200 billion b, equals about $400 billion fc. equals about $700 billion dd. exceeds $1 trillion Assume a Japanese firm invoices exports to the U.S. in U.S. dollars. Assume that the forward rate and spot rate of the Japanese yen are equal. If the Japanese firm expects the U.S. dollar to against the yen, it would likely wish to hedge. It could hedge by dollars forward, a. depreciate; buying b. depreciate; selling ©. appreciate; selling 4. appreciate; buying18, 20. 21 22, 23. Futures contracts are typically __; forward contracts are typically a, sold on an exchange; sold on an exchange b. offered by commercial banks; sold on an exchange c. sold on an exchange; offered by commercial banks d.__ offered by commercial banks; offered by commercial banks Eurobonds: are usually issued in bearer form. b. typically carry several protective covenants. cannot contain call provisions. AandB Which of the following is true? a. Non-US. firms may desire to issue bonds in the U.S. due to less regulations in the U.S. b. US. firms may desire to issue bonds in the U.S. due to less regulations in the US. c. UL. firms may desire to issue bonds in the non-U.S. markets due to less regulations in non-U.S. countries. d. AandB Eurobonds: can be issued only by European firms, b. can be sold only to European investors. c AandB d. none of the above Which currency is used the most to denominate Eurobonds? a. the British pound. b. the Japanese yen, c. the U.S. dollar. d._ the Swiss frane. When the foreign exchange market opens in the U.S. each morning, the opening exchange rate quotations will be based on the: ‘a, closing prices in the U.S. during the previous day. b. closing prices in Canada during the previous day. ¢. prevailing prices in locations where the foreign exchange markets have been open. d._ officially set by central banks before the U.S. market opens. The U.S. dollar is not ever used as a medium of exchange in: a. industrialized countries outside the U.S. b. inany Latin American countries. ©. in Eastern European countries where foreign exchange restrictions exist. 4. none of the above Under the gold standard, each currency was convertible into gold at a specified rate, and the exchange rate between two currencies was determined by their relative convertibility rates per ounce of gold. a. True b, False24, 25 26. 27. 28, 29. 30, 31 32. 33. A curreney put option provides the right, but not the obligation, to buy a specific currency at a specific price within a specific period of time. a. True b. False The strike price is also known as the premium price a, True b. False The Bretton Woods Agreement is an agreement to standardize banks’ capital requirements across countries; the resulting capital ratios are computed using risk-weighted assets. a True b. False A futures contract is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date, a. True b. False Eurobonds are certificates representing bundles of stock. a. True b. False Large commercial banks play a major role in the international money market by accepting short-term deposits in large amounts (such as the equivalent of $1 million or more) and in various currencies, and channeling the money to corporations and government agencies that need to borrow those short-term funds in the desired currencies. a, True b. False Institutional investors such as commercial banks, mutual funds, insurance companies, and pension funds from many countries are major participants in the international bond market. a. Tue b, False An obligation to purchase a specific amount of currency at a future point in time is called a: a. call option b. spot contract ©. put option 4. forward contract e. both Band D When obtaining a loan, the risk premium paid above LIBOR depends on the: a. risk-free interest rate of the borrower. b. credit risk of the borrower. c. borrower's stock price. d._ lender's stock price. The largest global exchange is:34, 38. 36, 37. 38. 39, 40. a. NASDAQ b. Tokyo Stock Exchange ¢. NYSE Euronext 4d. London Stock Exchange Which of the following is not true about syndicated loans? a. Aborrower that receives a syndicated loan incurs various fees besides the interest rate. The loans are only denominated in U.S. dollars. ‘The loans are provided by a group of banks to a borrower. ‘The loans are usually formed in 6 weeks or less. Assume a U.S. firm has to pay for Korean imports in 60 days. It expects that Korean won will depreciate, but it still wants to hedge its risk. What type of hedging is more appropriate in this situati a. Buy dollars forward b, Sell dollars forward ¢. Purchase call option 4d, Purchase put option A currency put option provides the right, but not the obligation, to buy a specific currency at a specific price within a specific period of time. a. True b. False The LIBOR varies among currencies because the market supply of and demand for funds vary among currencies. a. True b. False ‘The intemational money market is frequently accessed by MNCs for short-term investment and financing decisions, while longer term financing decisions are made in the intemational credit market or the international bond market and in international stock markets. a. True b. False Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by selling Japanese yen forward, The current spot rate of the yen is $.0089, while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if you sell yen forward? a, $44,500 b. $45,000 fc. $526 million $47,500 fe. $556 million Which of the following is probably not an example of the use of forward contracts by an MNC? Hedging pound payables by selling pounds forward Hedging peso receivables by selling pesos forward Hedging yen payables by purchasing yen forward Hedging peso payables by purchasing pesos forward All of the above are examples of using forward contracts.AL 42. 43, Which of the following is probably not appropriate for an MNC wishing to reduce its exposure to British pound payables? a. Purchase pounds forward b. Buy a pound futures contract ©. Buy a pound put option 4. Buy a pound call option market, while its medium debt Futures contracts are sold on exchanges and are consequently ___ than forward contracts, which can be __to satisfy an MNC's needs. a. more standardized; standardized b. more standardized; custom-tailored ©. more custom-tailored; standardized d. more custom-tailored: custom-tailored ©. less standardized; custom-tailored ANS: B PTS: 1 An MNC's short-term financing decisions are satisfied in the financing decisions are satisfied in the __ market. a. international money; international credit b. international money; international bond ¢. international credit; intemational money 4d. international bond; intemational credit €. international money; international stock