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Question 2. According to the international Fisher effect, two countries have different
nominal interest rates because
a. Different expected real interest rates
b. Different levels of expected inflation
c. Different economic structures
d. Expected real interest rates as well as expected inflation levels vary.
Question 3. The domestic cost of capital versus the international cost of capital for a
firm may be different because:
a. The company's ability to access international capital
b. Correlation of tax policies of the countries concerned
c. Exchange rate fluctuations between currencies involved
d. Both the a, b, c true
Question 4. Which of the following statements is true about the insured interest rate
equilibrium (IRP) condition?
a. The IRP shows the relationship between the rate of change in the exchange rate and
the spread in the inflation rate
b. The IRP shows the relationship between the change in maturity and the spread in
interest rates
c. The IRP shows the relationship between the rate of change and the spread in interest
rates
d. The IRP shows the relationship between the change in maturity and the difference in
the inflation rate
Question 11. Vietnam company AZ has a receivable of USD 200,000 in 60 days. The
company can hedge exchange rate risk by...
a. Selling foreign currency with term
b. Buy foreign currency with term
c. Buy foreign currency call options
d. Option to sell foreign currency
Question 12. Compared to domestic firms, MNCs may have a higher cost of capital
because of which of the following?
a. Large scale
b. Access to international capital markets
c. Exchange rate risk
d. Both a and c are correct
Question 13. In the APV model for domestic firms, which of the following is
discounted at the full cost of equity?
a. After-tax operating cash flow
b. The final value of the project
c. Tax shield from interest
d. Both a and b are correct
Question 15. Which of the following statements is not true according to the theory of
relative purchasing power parity:
a. The rate of change in the exchange rate over a period is roughly equal to the
difference in the inflation rate between the two economies
b. Which currency has a higher inflation rate, that currency will depreciate
c. At one point in time, the prices of the same basket of goods in different countries
will be equal when converted into a common currency.
d. Reflects the relative relationship between prices and exchange rates of countries
between two points in time
Question 16. Which of the following statements is true about the decentralized
financial governance model?
a. Decentralized financial governance model has low agency costs, may have
inappropriate decisions for subsidiaries
b. Decentralized financial management model with tower agency cost, can make
appropriate decisions for subsidiaries
c. Decentralized financial governance model has high agency costs, which may make
inappropriate decisions for subsidiaries
d. Decentralized financial management model has high agency costs, can make
appropriate decisions for subsidiaries
Question 17. Green Company in the US has the following cash inflows and outflows
for foreign currencies:
Inflows and outflows of foreign currencies
Currency Total inflows Total outflows
British Pound 5,000,000 3,000,000
Japanese Yen 3,000,000 4,000,000
The Green Company will benefit the most when which of the following situations
occurs?
a. British Pound Rises, Japanese Yen Fall
b. British Pound Rises, Japanese Yen Rises
c. British Pound Fall, Japanese Yen Rise
d. British Pound Falling, Japanese Yen Falling
Question 18. In the APV model of Donald Lessard (1985), the spot rate at time t (St) is
calculated based on which of the following theories?
a. The theory of purchasing power parity
b.The theory of interest rate parity
c. International Fisher Effect
d. Both the a, b, c are correct
Question 19. Representative costs of a multinational company arise when:
a. The company invests too much in fixed assets
b. The company has a conflict between the owner and the manager
c. The company invests too much in inventory
d. The company has too much debt
Question 20. The cost of debt of a multinational company differs from that of a
domestic company because:
a. Loan interest rate
b. Exchange rate fluctuations
c. Both a and b are correct
d. A and B are wrong
Question 22. Which of the following statements is true about the APV model from the
parent company's point of view:
a. Cash flows are discounted at the average cost of capital
b. Cash flows are discounted relative to the risk of those cash flows
c. Cash flows are discounted at the cost of equity
d. Cash flows are discounted at the cost of debt
Question 23. A change in exchange rate that affects the operating cash flow of a
multinational company is called:
a. Financial risk
b. Trading Risks
c. Economic risk
d. Conversion risk
Question 24. According to the international Fisler effect (IFC), the exchange rate of
the currency of the country with the lower interest rate to the currency of the country
with the higher interest rate will:
a. Discount
b. Price increase
c. Constant
d. Not enough information
Question 25. According to the theory of purchasing power parity (PPP), the price of
the currency of the country with high inflation relative to the currency of the country
with low inflation will:
a. Price increase
b. Discount
c. Constant
d. Not enough information
Question 26. SGD loan interest rate is 5%/year. The exchange rate on the date of
receiving the loan is 1 SGD = 16,790 VND. Expected rate on loan maturity date is 1
SGD = 15,250 VND. The effective interest rate on this loan is:
a. 4.63%
b. 5.62%
C. -4.63%
d. -5.62%
Question 27. Current spot rate 1 USD = 23,115 VND. US inflation is 2%/year and
Vietnam's is 5%/year. What is the exchange rate at purchasing power parity (1 SD-...
VND)?
a. 22,455
b. 23.225
c. 21,830
d. 23,795
Question 2 8. Suppose the current inflation rate in Vietnam is 4%, in the US it is 1.5%.
According to the theory of relative purchasing power parity, which of the following
statements is not true:
a. The exchange rate change between Vietnam and the US is close to 2.5%
b. US dollar will appreciate
c. The US dollar will depreciate
d. The exchange rate between the 2 currencies will change
Question 2: National corporation's cash flow tends not to change too much over
the years, what should the capital structure of the company?
a. Leaning towards the use of equity
b. Use the same ratio for debt and equity
c. There is no correct answer
d. Leaning towards debt use
Question 4 If the EUR appreciates more strongly against the USD, what will
happen to the French company?
a. Export operations will become more convenient
b. No effect
c. Importing will become more difficult
d. Exporting will become more difficult
Question 5 Napata (based in the US) has expected expected cash flow at the end of the
year as follows: On-site business earns 600,000 USD, subsidiaries in Switzerland, UK,
Japan are expected to move to the US the income stream is 5,000,000 CHF, 300,000
GBP and 5,000,000 JPY, respectively. Expected exchange rates S(CHF/USD)=0.85,
S(GBP/USD)=1.33 and S(JPY/USD)=0.45. If Napata's average cost of capital is
6%/year, what is the firm's value at the beginning of the year?
a. Other answers (write clearly)
b. 8,378,000 USD
c. 7,903,773 USD
d. 7,074,528 USD
Question 6 Which of the following statements is not true about the strength of
exporting goods?
to the international market rather than participating in the market in the form of
FDI?
a. Minimize investment costs
b. Increased agency costs
c. All is incorrect
d. Less political risk
Question 8 In the following situations of Pepsi company (based in the US), which
situation arises transaction risk?
a. All three situations above generate transaction risks
b. The company signs a contract to supply products to Lana company (based in the
UK), payment is made immediately upon delivery.
c. The Company signed a loan agreement in GBP, for a term of 1 year, to finance its
UK subsidiary.
d. The company signs a contract to import machinery with Loada company (based in
the US), the payment is made after 60 days in USD.
Question 10 A Samsung foreign investment project has a beta of 1.3, a risk-free rate of
8% and an expected market return of 16%, what is the cost of capital for this project?
a. 15.09%
b. 20.02%
c. 16.07%
d. 18.40%
Question 12 IBM Corporation (based in the US) has a payable amount of GBP 2
billion in the next 1 year. Which of the following measures cannot the company
hedge the aforesaid payable?
a. Execute on money market borrow USD, invest GBP
b. Execution of 1-year foreign currency forward sale contract
c. Exercising 1 year foreign currency call option contract
d. Executing a 1-year foreign currency forward contract
Question 13 Why is the Eurodollar interest rate higher than the USD deposit rate
in the US?:
a. Eurobanks not interested in raising Eurodollars
b. Eurobanks is not affected by the Fed's reserve requirement
c. Eurobanks not subject to central bank supervision
d. Eurobanks operates on a global scale
Question 17 Unilever (based in the US) issues shares in the domestic market of 5
million preferred shares at the price of 150 USD/share and is expected to pay a
dividend of 5%/year. The cost of issuing shares is 2% of the issue price. What is the
cost of preferred stock?
a. 5.087%
b. 5,109%
c. 5.055%
d. 5,102%
Question 20 IBM Corporation (based in the US) has a receivable of GBP 2 billion in
the next 1 year. Which of the following measures cannot the company hedge the above
receivables?
a. Exercising 1 year foreign currency call option contract
b. Execute on the money market borrow GBP, invest USD
c. Execution of 1-year foreign currency forward sale contract
d. Exercising 1 year foreign currency put option contract
Question 21 The one-year VND loan interest rate is 10%/year, the one-year term
exchange rate to 1 USD = 24,000 VND and the one-year USD loan interest rate is
5%/year. What is the current spot rate under CIP?
a. 22,909
b. 23,672
c. 24.060
d. 25.142
Which of the following theories shows that the difference in the inflation rates of the
two countries is offset by a change in the exchange rate?
a. International Fisher Effect
b. Absolute purchasing power parity
c. Fisher effect
d. Relative purchasing power parity
Question 26 Why is relative PPP (purchasing power parity) more acceptable than
absolute PPP?
a. Relative PPP is not based on assumptions
b. A and C are correct
c. PPP relatively accept the existence of freight
d. Relatively acceptable PPP factors related to trade barriers
Question 28 Suppose you have information on the foreign exchange market including:
Spot rate: 1GBP = 1.6230 USD, 1 year forward rate: 1GBP = 1.7830 USD. The 1-year
USD and GBP interest rates are 6%/year and 5.2%/year, respectively. Investors have
the ability to borrow 1,000,000GBP or the corresponding amount of USD. What is the
investor's profit from arbitrage (in USD)?
a. 366,240USD
b. There are no correct answers
c. 188,180 USD
d. 252,716 USD
Question 30 A&L company in the US imports a shipment from the UK worth 100,000
GBP, the payment is made after 3 months from the present time. The company wants
to hedge the above payable with a forward contract. Currently the market has
information
S(GBP/USD) = 1.3450-60; 3-month forward rate F_(3 months)^(GBP/USD)=1.3472-
80. How much does the company have to spend when legally implementing this
hedging measure? 100,000GBP*
a. 134,800 GBP
b. 134,720 USD
c. 134,720 GBP
d. 134,800 USD
Question 32 Unilever Vietnam needs to borrow USD 100,000 for 1 year at an interest
rate of 7%/year at Vietcombank Ho Chi Minh to finance foreign trade activities.
Currently spot exchange rate 1USD=22,000VND. Expected exchange rate on loan
maturity date 1USD=22,250VND. What is the effective interest rate on the above loan
(rounded to 2 decimal places)?
a. Other Answers
b. 8.22%
c. 8.30%
d. 8.20%
Question 35 The expected interest rate in Japan is 3%/year and in the US it is 5%/year.
The current spot rate is S(USD/JPY) = 102. Calculate the expected spot rate
Se(USD/JPY) one year from now using the international Fisher effect.
a. 102.07
b. 103.06
c. 99.96
d. 104.04
Question 36 What is one of the unique global risks that NCOs face today?
a. Transfer risk
b. Poverty and Cybersecurity
c. Protectionism
d. All of the above risks
Question 38 What is the relative purchasing power parity (Relative PPP) between two
time points?
a. The inflation rate of two countries may be different, but the exchange rate between
the two currencies does not change
b. A and C are correct
c. The rate of change in the exchange rate between two currencies is equal to the
inflation difference between the two economies
d. Which currency has higher inflation rate, that currency will appreciate
Question 39 Landa Company (based in Japan) has issued bonds denominated in EUR,
how can this business hedge its risks?
a. Require that all payments in the import contract be in EUR
b. Requires export invoices to be collected in EUR
c. Requires that all payments in the import contract are in JPY
d. Requires that all export invoices are collected in JPY
Question 40 Unilever (based in the US) issues shares in the domestic market of 10
million preferred shares at the price of US$200 per share and is expected to pay a
dividend of 5% per year. The cost of issuing shares is 2% of the issue price. What is
the cost of preferred stock?
a. 5.05%
b. 5.10%
c. 5.01%
d. 5.08%
Question 42: A&L company in the US imports a shipment from the UK worth 100,000
GBP, the payment is made after 3 months from the present time. The company wants
to hedge the aforementioned liability in the money market. Currently the market has
information S(GBP/USD) = 1.3450-60; LS USD 5.5-6%; LS GBP:4-4.5% . How
much does the company have to spend when legally implementing this hedging
measure? 135,266 USD
Question 43: Compared with domestic companies, the cost of capital of a national
corporation can be higher due to what factors? Exchange rate risk
Question 44: Lexus company (based in the US) had a sharp drop in sales in the UK
due to exchange rate changes affecting the effect of fierce competition with other car
manufacturers. Operational risk
Question 45: Unilever (based in the US) issues 10 million preferred shares in the
domestic market at the price of $200/share and is expected to pay a dividend of
5%/year. The cost of issuing shares is 2% of the issue price. What is the cost of
preferred stock? 5.10%
Question 46: A national corporation that wants to raise USD in Europe should issue it?
Eurobond
Question 47: Nike is based in the US, has a loan in the Eurocurrency market worth
EUR 300 million for 1 year, a membership fee of 1.5% of the loan value, deducted
from the loan. Negotiable interest rate LIBOR+2% on the market with LIBOR
6%/year. Loan cost? 8.12%
Question 48: Pepsi.Co (based in the US) will receive SGD 500,000 in the next 1 year.
The company predicts Se(SGD/USD) in the next 1 year to be 0.61; 0.65; 0.67 with
probabilities of 20%, respectively; 50%; 30%. On the market SGD 1-year put options
are available with a strike target of $0.63, a fee of $0.04/SGD. SGD 1-year call options
are available with a strike price of $0.61, premium of $0.035/1 SGD. If the company
hedges the above receivables with options contracts. What is the expected amount of
money the company can make? 306,000 USD
Rate at Exercise Fee for 1 Receivable Net Net Probability
maturity right unit rate for 1 amount amount
SGD received to be
for 1 collected
SGD
0.63 Have 0.04 0.63 0.59 295000 20%
0.65 Are not 0.04 0.65 0.61 305000 50%
0.67 Are not 0.04 0.67 0.63 315000 30%
Question 49: If a national corporation operates in a country with great political risks,
which side should the capital structure be in? In debt
Question 50: Expected inflation in the US is 2%, in the UK it is 4%. Spot rate 1.3
USD/GBP. When PPP exists, what is the expected spot rate (to be precise) (1GBP = x
USD) next year? 1.275
S(GBP/USD) = 1.3
Question 52: Why is relative PPP more acceptable than absolute PPP? Not based on
assumptions and accepting trade barrier elements
Question 53: Company ABC borrows USD 5,000,000 for a period of 1 year, LS
4%/year at BCF bank. The spot rate at the time of receiving the loan is 22,500
USD/VND, at maturity is 23,000 VND/USD. LSHD ? 6.31%
Amount to pay ABC company:
5,000,000 *23,000* (1+4%) = 119.600.000 VND
LSHD = = 6.31%
Question 54: The problem of representation? Separation of ownership and control.
Question 1. When the parent company analyzes an overseas investment project, which
of the following objectives is most important?
Maximize net profit transferred to parent company
Question 3. The Vietnam Development Bank needs to raise capital for a national
project of VND 1,000 billion, with a term of one year. Fundraising can be done by
issuing bonds in VND or borrowing USD at ADB. Know the market parameters as
follows:
The VND interest rate for your one-year period is: 7.5%/year,
Spot rate: 23,100 VND/USD
One-year forward rate: 23,700 VND/USD
The acceptable USD loan interest rate (accuracy) is:
a. 3.78%/year
b. 4.78%/year
c. 5.78%/year
d. 6.78%/year
Question 4. Covered Interest Rate Parity (CIP) states that: “equivalent investment
opportunities across countries should have…”
a. Equal amount of profit
b. Equal investment income countries
c. The nominal interest rate is the same
d. Loan interest is the same
Question 10. The current spot rate between CAD and USD is 1.1020 CAD/USD. The
1-year interest rate for CAD is 1% and USD is 5%. The CIP 1-year forward rate is:
S(USD/CAD) = 1.1020
Question 10. What are the advantages of international export compared to FDI?
Low cost of agency relationship agency
Set up production plants in new markets where production costs are low.
Question 12. The cost of capital for an investment project abroad will usually:
Greater than the cost of capital for a comparable domestic project
Greater than the cost of capital for a comparable project in the country.
Question 13. The current spot rate between CAD and USD is 1.1020 CAD/USD. The
1-year interest rate for CAD is 1% and USD is 5%. The CIP one-year forward rate is:
S(USD/CAD)=1.1020
F = [(1 + 1%)/(1+5%)]*1.1020=
a. 1,0600 CAD/USD
b. 1.1456 CAD/USD
c. 1.1130 CAD/USD
d. 1.15571 CAD/USD
Question 14. Intel chooses to borrow USD at an interest rate of 3.5%/year or borrow
JPY with an interest rate of 2%/year. The current exchange rate is ¥92= 1$. What is
the year-end rate (exactly) so that Intel does not care about borrowing in USD or in
IPY?
a. ¥93.35=1$
b. 92.49=1$
c. 91.53=1$
d. ¥90.67=1$
Question 15. Due to the integration of the capital market, the US and British RMB
require the same real return of 3%. Inflation is expected in the US 2% and the UK 5%.
Current spot rate £1.00=$1.80. Calculate the expected spot rate one year from now,
assuming the existence of the international Fisher effect:
S(EUR/USD) = 1.80
a. £1.00=$1,8000
b. £1.00=$1.8542
c. £1.00=$1,8540
d. £1.00=$1.7486
2. According to the PPP theory of relativity, if the domestic inflation rate is higher
than the
foreign exchange (direct quote), what happens?
A. The domestic currency appreciates.
B. The local currency depreciates.
C. Local currency remains unchanged.
D. The above sentences are all wrong.
3. Why is the equilibrium condition of purchasing power parity not maintained in the
long run?
A. Building on a lot of assumptions, while the assumptions are unrealistic or far away
reality.
B. The existence of goods that are not traded internationally, while these items account
for a significant proportion of the structure of the basket of consumer goods.
C. Different countries use different commodity weights to build their price indexes
D. Exchange rate is not only affected by price, but also by other factors
other factor.
Е. All of the above are true.
5. On what basis is the theory of expected purchasing power parity formed?
А. From the theory of relative purchasing power parity.
В. From the theory of absolute purchasing power parity.
C. From the theory of interest rate parity.
D. Analysis of the behavior of participants in the process of speculation in the market
international goods.
7. Inflation in Vietnam is 8%, inflation in the US is 2%. The Vietnamese Dong will
increase or decrease?
A. The local currency appreciates, up 6%.
В. Local currency depreciated, down 5.88% (8%-2%/1+2%)
C. Foreign currency appreciates, up 4%.
D. Foreign currency depreciated, down 4%.
8. U.S. investors demand a 3% real rate of return, expected inflation in the U.S.
is 5% and the risk is zero, the nominal interest rate is:
(According to the Fisher effect we have: i= )
А. 7% B. 8% С. 3% D. 5.06%
9. The law of one price states that: the world price of goods will ....... if
denominated in a common currency.
A. Approximate balance.
В. Difference.
C. Create professional opportunities.
D. Weighing tape.
10. Assuming spot rate USD/HKD = 7.9127, the expected inflation rate of USD is
5%, the expected inflation rate of HKD is 3%. Estimated spot rate according to
The PPP would be:
. _ 8.0660 won . 7.9624 won . 8.0662 D. 7.7620
16. According to the international Fisher effect, the formula for the actual rate of
return for
Foreign deposits are:
А. r= (1+if)(1+ef)-1
В. r=(1+if)(1-ef)+1
C. r=(1-if)(1+ef)-1
D. r=(1-if)(1-ef)-1.
17. Inflation in the US is 3%, in the UK it is 5%. Assuming the PPP hypotheses exist,
then
British pounds will:
A. Price increase, up 1.94%
. _ Discount, 1.9% off
. _ Discount, 1.94% off
D. Price increase, up 1.94%
(Inflation in the UK is higher than in the US, so the pound is depreciating, falling
18. The international Fisher effect is studied based on the following assumptions:
. _ Investors are in a completely liberalized investment environment.
. _ Purchasing Power Parity (PPP) exists
. _ A and B are wrong.
D. Both A and B are correct.
19. What relationship does the theory of expected purchasing power parity make?
A. Give the relationship between expected rate of change of exchange rate and
expected rate of inflation
of two coins.
. _ Give the relationship between the rate of change of interest rates and the rate of
inflation.
. _ Give the relationship between the rate of change of the exchange rate and the
interest rate.
D. All of the above statements are correct.
20. What is the theoretical model of the expected PPP also called?
. _ Model of the efficient market purchasing power parity.
. _ Model theory of conventional purchasing power parity
. _ Model of the theory of purchasing power parity of a monopoly market.
D. Both A and C are wrong.
22. Assuming the inflation rate in Vietnam in 2007 is 8%, and in the US it is 4%, then
How much % increase in USD/VND exchange rate?
A. 4.7% B. 5% C. 3% D. 3.8%
23. What relationship does absolute purchasing power parity theory consider?
A. Between commodity prices and exchange rates at a given time
. _ Between commodity prices and exchange rates at two points in time.
C. Between the rate of change of inflation and the rate of change of the exchange rate.
D. Between the rate of change of interest rates and commodity prices.
26. The relative PPP theory is easier to accept than the absolute PPP theory because
A. The PPP theory of relativity accepts the existence of a standard basket element in
domestic and foreign have different composition and structure.
В. The theory of relativistic PPP accepts the existence of an unreserved commodity
element
move freely.
C. The PPP theory of relativity accepts the existence of a freight factor and
trade barriers.
D. All of the above statements are correct.
27. Assume a spot rate of 0.9 USD/EUR. Estimated spot rate one year later
is 0.85 USD/EUR, % change in spot rate is:
. _ EUR up 5.56%
. _ EUR down 5.56%
. _ EUR up 5.88%
D. EUR down 5.88%
2. According to the definition of OECD (2008), the investment abroad is called foreign
direct investment if the company going to invest holds from ..... of the company
receiving the investment.
A. 10% or more of voting rights
B. 20% or more voting rights
C. 30% or more of voting rights
D. 40% or more voting rights
4. Green Company (Australia) has the following activities. Which activities generate
trading risks for Green Company?
A. Import 1 shipment to Europe, shipment value in AUD
B. Export 1 consignment to Japan, shipment value in JPY
C. Subsidiary pays debt in AUD
D. A and B are correct
6. Maxwell Company (USA) has two subsidiaries in France and in China. Maxwell's
risk management team predicts that EUR will depreciate and CHY will appreciate
against USD in the future. Which of the following strategies is appropriate to minimize
conversion risk?
A. Increase assets in France, increase debt in China
B. Increase assets in France, reduce debt in China
C. Increasing debt in France, increasing assets in China
D. Increasing debt in France, reducing assets in China
7. Lowa Company (China) has two subsidiaries in the US and Singapore. The risk
management department forecasts that the USD will appreciate against CHY and
interest rates in Singapore will increase in the future Capital structure of two
subsidiaries in the US and Singapore will change in the following direction
any?
A. Increase the proportion of debt in the US, increase the proportion of equity in
Singapore
B. Increase the proportion of debt in the US, reduce the proportion of equity in
Singapore
C. Increase the proportion of equity in the US, increase the proportion of debt in
Singapore
D. Increase the proportion of equity in the US, reduce the proportion of debt in
Singapore
8. Green Company (Switzerland) predicts spot exchange rate after 1 year CHF equal to
0.9546 USD; because, the current exchange rate CHF is 0.91USD; Inflation
expectations for Switzerland and the United States are 2% and 7%, respectively. The
assessment of Green Company is based on which of the following international
equilibrium conditions?
A. PPP
B. IRP
C. IFE
D. LOP
9. Golden Company (UK) imported 1 shipment to the US. Shipment is paid in USD.
To hedge this transaction, Golden Company will:
A. Borrow USD, invest USD
B. Borrow USD, invest GBP
C. Borrow GBP, invest USD
D. Borrow GBP, Invest GBP
10. Ohio Company (Canada) imports goods from the US and has 1 subsidiary in the
US. The company predicts CAD will depreciate against USD. To hedge exchange rate
risk, the Company will...
A. Paying for imported goods according to early payment strategy
B. Increase holdings of assets in CAD
C. Increase in USD liabilities
D. Sell USD forwards
11. The market has the following information: the interest rate in the US is 4%/year
and the interest rate in Japan is
2.5%/year; spot rate USD/JPY102 and 1-year forward rate USD/JPY100. Home
How does the investment perform covered interest arbitrage (CIA) in
this case?
A. Impossible because IRP exists
B . Borrow USD to invest in JPY
C. Borrow JPY to invest in USD
D. Borrow USD to invest in USD
12. The condition of purchasing power parity (PPP) often does not exist in practice.
Which of the following does not explain this?
A. Inefficient and imperfect markets
B. There is a difference in government protectionism
C. No transaction costs between markets
D. Differences in the range of standard goods by countries
13. Which of the following situations might illustrate early payoff hedging techniques?
A. Sunny Company (Singapore) predicts that SGD will increase in price, so it pays for
purchases ahead of time for Nottingham (UK).
B. Sunny Company (Singapore) predicts that the USD will increase in price, so it pays
for the purchase of goods ahead of time to Moon Company (USA).
C. Sunny Company (Singapore) predicts that JPY will decrease, so it pays for
purchases ahead of time for Lucky Company (Japan).
D. A and B are correct
14. Which of the following statements is true regarding the hedging of trading earnings
paid by options contracts?
A. Determine the maximum amount received
B. Determine the minimum amount to receive
C. The amount received is larger than hedging with a forward contract.
D. Guarantee the highest investment interest rate
Subject: Cloud Company (USA) offers goods worth 1,000,000 GBP to Flower
Company (UK). Payment deadline is after 90 days from today. The following
information is available on the market:
Spot rate GBP/USD1,3850.
The 90-day forward rate GBP/USD1.3855 and this is also the strike rate in the 90-day
forward option; The option premium is 0.0001 USD for 1 GBP.
The predicted spot rate for the next 90 days with the corresponding probabilities is as
follows:
GBP/USD 1.3845 (30% probability),
GBP/USD 1.3855 (40% probability),
GBP/USD 1.3860 (30% probability)
The 90-day USD and GBP interest rates are
6.0%/year 0.015/3 months
4.0%/year 0.01/3 months
Use the information above to answer the following questions.
Accounts Receivable
15. To hedge transaction risks, which of the following behaviors does Cloud Company
choose?
A. Buy Put Option GBP
B. Sell Call Options (Put Option) GBP
C. Buy Call Option GBP
D. Sell Call Option GBP
16. History Cloud Company has entered into an options contract, at what rate would
the Company trade if the spot rate 90 days later was GBP/USD 1.3845?
A. GBP/USD 1.3845
B. GBP/USD 1.3850
C. GBP/USD 1.3855
D. GBP/USD 1.3860
17. Given that Cloud Company has entered into an options contract, which of the
following would be considered appropriate behavior by the Company if the spot rate
90 days later was GBP/USD 1.3855?
A. Exercising (buying or selling GBP) an options contract and paying a premium
B. Don't exercise (buy or sell GBP) options and pay premium
C. Exercising (buying or selling GBP) options and no fees
D. Exercising or not exercising (buying or selling GBP) an options contract and paying
a premium
18. History of Cloud Company hedging currency market trading risks, what action
Which of the following is considered appropriate?
A. Borrow GBP Invest GBP
B. Borrow GBP to invest USD
C. Borrow USD to invest in GBP
D. Borrow USD to invest USD
19. History of Cloud Company hedging currency trading risks, how much money does
the Company need to borrow today?
A. 990,099 GBP
B. 990,099 USD
C. 1,000,000 GBP
D. 1,000,000 USD
20. History of Cloud Company hedging the risk of futures contracts, how much money
will the Company receive after 90 days?
A. 1,010,000 GBP
B. 1,385,000 USD
C. 1,385,400 USD
D. 1,385,500 USD