國(guó)際財(cái)務(wù)管理選擇題題庫(kù) Multiple Choice Quiz Chapter 9-21

MultipleChoiceQuizchapter9-21MultipleChoiceQuizchapter9-21CH91Economicexposuremeasurestheextenttowhichthevalueofthefirmwillbeaffectedbyanticipatedchangesinexchangerates.A)theextenttowhichthevalueofthefirmwillbeaffectedbyunexpectedchangesinexchangerates.B)theeffectthatchangesinexchangerateswillhaveontheconsolidatedfinancialreportsofaMNC.C)theeffectthatunanticipatedchangesinexchangerateswillhaveonthevalueofcontractualobligationsD)denominatedinaforeigncurrency.Feedback:EconomicexposuremeasurestheextenttowhichthevalueofthefirmwillbeaffectedbyUNanticipatedchangesinexchangerates.2Operatingexposuremeasurestheextenttowhichtheforeigncurrencyvalueofafirm'sassetsisaffectedbyunanticipatedchangesinexchangerates.theextenttowhichafirm'soperatingcashflowswillbeaffectedbyunexpectedchangesinexchangerates.theeffectthatchangesinexchangerateswillhaveontheconsolidatedfinancialreportsofaMNC.C)theeffectthatunanticipatedchangesinexchangerateswillhaveonthedollarvalueofcontractualD)obligationsdenominatedinaforeigncurrency.Feedback:Operatingexposuremeasurestheextenttowhichafirm'soperatingcashflowswillbeaffected,nottheforeigncurrencyvalueofitsassets.Apurelydomesticfirmthatsourcesandsellsonlydomesticallyfacesexchangeraterisktotheextentthatithasinternationalcompetitorsinthedomesticmarket.A)facesnoexchangeraterisk.B)shouldneverhedgesincethiscouldactuallyincreaseitscurrencyexposure.C)D)BothBandCarecorrect.Feedback:Correct!Afirmwithahighlyelasticdemandforitsproductswillbeunabletopassincreasedcostsfollowingunfavorablechangesintheexchangeratewithoutsignificantlyloweringthequantitysold.abletoraisepricesfollowingunfavorablechangesintheexchangeratewithoutsignificantlyloweringthequantitysold.abletoeasilypassincreasedcostsontoconsumers.C)D)abletosellaboutthesameamountofproductregardlessofprice.Feedback:Correct!5SupposeaU.S.firmhasanassetinBritain,whoselocalcurrencypriceisrandom.Forsimplicity,supposethereareonlythreestatesoftheworldasshowninthetablebelow,andeachstateisequallylikelytooccur.ThefuturelocalcurrencypriceofthisBritishassetaswellasthefutureexchangeratewillbedetermineddependingontherealizedstateoftheworld.Whichofthefollowingstatementsismostcorrect?Thefirmfacesnoexchangeraterisksincethelocalcurrencypriceoftheassetandtheexchangeratearenegativelycorrelated.Thefirmfacessubstantialexchangeraterisksincethelocalcurrencypriceoftheassetandtheexchangeratearepositivelycorrelated.Thefirm'sexchangerateexposurecanbecompletelyhedgedwithderivativeswrittenontheBritishpound.Sincerandomnessisinvolved,nohedgingispossible.Feedback:Thisisincorrect.SeeExhibit9.3.6SupposeaU.S.firmhasanassetinBritain,whoselocalcurrencypriceisrandom.Forsimplicity,supposethereareonlythreestatesoftheworldasshowninthetablebelow,andeachstateisequallylikelytooccur.ThefuturelocalcurrencypriceofthisBritishassetaswellasthefutureexchangeratewillbedetermineddependingontherealizedstateoftheworld.Whichofthefollowingstatementsismostcorrect?Thefirmfacesnoexchangeraterisksincethelocalcurrencypriceoftheassetandtheexchangeratearenegativelycorrelated.Thefirmfacessubstantialexchangeraterisksincethelocalcurrencypriceoftheassetandtheexchangeratearepositivelycorrelated.Thefirm'sexchangerateexposurecanbecompletelyhedgedwithderivativeswrittenontheBritishpound.Sincerandomnessisinvolved,nohedgingispossible.Feedback:Thisisincorrect.SeeExhibit9.3.SupposeaU.S.firmhasanassetinBritain,whoselocalcurrencypriceisrandom.Forsimplicity,supposethereareonlythreestatesoftheworldasshowninthetablebelow,andeachstateisequallylikelytooccur.ThefuturelocalcurrencypriceofthisBritishassetaswellasthefutureexchangeratewillbedetermined,dependingontherealizedstateoftheworld.Whichofthefollowingstatementsismostcorrect?Thefirmfacesnoexchangeraterisksincethelocalcurrencypriceoftheassetandtheexchangeratearenegativelycorrelated.Thefirmfacessubstantialexchangeraterisksincethelocalcurrencypriceoftheassetandtheexchangeratearepositivelycorrelated.Thefirm'sexchangerateexposurecanbecompletelyhedgedwithderivativeswrittenontheBritishpound.Sincerandomnessisinvolved,nohedgingispossible.Feedback:Correct!Whichofthefollowingistrueregardingoperationalhedgingversusfinancialhedging?Operationalhedgingprovidesamorestablelong-termapproachthanfinancialhedgingdoes.A)Financialhedging,wheninstitutedonarolloverbasis,isasuperiorlong-termapproachtooperationalhedging.Sincetheybothhavethesamegoal,whichisstabilizingthefirm'scashflowsindomesticcurrency,theyarefungibleinuse.Noneoftheabove.Feedback:Correct!9Whichofthefollowingliststhestrategiesformanagingoperatingexposureasidentifiedinthistextbook?Selectinglow-costproductionsites,diversificationofthemarket,andfinancialhedging.A)Flexiblesourcingpolicy,productiondifferentiation,andR&Defforts.B)Selectinglow-costproductionsites,productdifferentiation,R&Defforts,andfinancialhedging.C)Selectinglow-costproductionsites,flexiblesourcingpolicy,diversificationofthemarket,productD)differentiation,R&Defforts,andfinancialhedging.Feedback:Thisisincorrect.10Ifthedomesticcurrencyisstrongorexpectedtobecomestrong,afirmcanandshouldchoosetolocateproductionfacilitiesinaforeigncountrywherecostsarelowduetoeithertheA) undervaluedcurrencyorunderpricedfactorsofproduction.curtailR&Deffortsuntiltheexchangeratesituationimproves.B)abandoninternationalsalesandfocusondomesticmarketshare.C)D)focusonprofitinginthecurrencyfuturesmarketbasedonitsforecasts.Feedback:Correct!CH101Translationexposuremeasurestheextenttowhichthevalueofthefirmwillbeaffectedbyanticipatedchangesinexchangerates.A)theextenttowhichthevalueofthefirmwillbeaffectedbyunexpectedchangesinexchangerates.B)theeffectthatchangesinexchangerateswillhaveontheconsolidatedfinancialreportsofaMNC.C)theeffectthatunanticipatedchangesinexchangerateswillhaveonthevalueofcontractualobligationsD)denominatedinaforeigncurrency.Feedback:Thisisincorrect.Seethechapterintroductiononpage252.2Underthe methodofconsolidatingthefinancialreportsofaMNC,thegainorlossduetotranslationadjustmentdoesnotaffectthereportedcashflows.current/noncurrentA)currentrateB)monetary/nonmonetaryC)D)temporalFeedback:Thisisincorrect.SeethefirstsectionofthechaptertitledTranslationMethods.3Inmanycasesitisnotpossibletocompletelyeliminatealltypesofexposure.Ifaconflictsuchasthisarises,whichexposureshouldbeviewedasthemostimportanttoeffectivelymanage?Translationexposure.A)Transactionexposure.B)Economicexposure.C)D)Noneoftheabove.Feedback:Thisisincorrect.Cashismoreimportantthanaccountingnumbers.Seepage263.4Underthe methodmonetaryaccountssuchascash,receivables,andpayables(bothcurrentandnoncurrent)aretranslatedatthecurrentexchangerate;otherbalancesheetaccountsaretranslatedatthecurrentrateiftheyarecarriedonthebooksatcurrentvalueandtranslatedathistoricalratesiftheyarecarriedathistoricalcosts.current/noncurrentA)currentrateB)monetary/nonmonetaryC)D)temporalFeedback:Thisisincorrect.SeethefirstsectionofthechaptertitledTranslationMethods.5Underthe methodallmonetaryaccountssuchascash,receivables,andpayables(bothcurrentandnoncurrent)aretranslatedatthecurrentexchangerateandallotherbalancesheetaccountsaretranslatedatthehistoricalexchangerate.current/noncurrentA)currentrateB)monetary/nonmonetaryC)D)temporalmethodFeedback:Thisisincorrect.SeethefirstsectionofthechaptertitledTranslationMethods.6Underwhichmethodareallbalancesheetaccounts(exceptstockholdersequity)translatedatthecurrentexchangerate?Current/noncurrent.A)Currentrate.B)Monetary/nonmonetary.C)D)Temporal.Feedback:Thisisincorrect.SeethefirstsectionofthechaptertitledTranslationMethods.7Underwhichmethoddoesacumulativetranslationadjustmentappear?Current/noncurrent.A)Currentrate.B)Monetary/nonmonetary.C)D)Temporal.Feedback:Thisisincorrect.SeethefirstsectionofthechaptertitledTranslationMethods.Thetwomethodsusedtomanage(hedge)translationexposurearethebalancesheethedgeandderivativeshedge.A)currentratehedgeandderivativeshedge.B)derivativeshedgeandtemporalhedge.C)D)transactionshedgeandbalancesheethedge.Feedback:Correct!Usingderivativestohedgetranslationexposureamountstospeculatinginforeignexchangeratechanges.A)isaresponsiblethingtodowhenconcernedwiththeeffectofunanticipatedchangesinexchangerates.B)worksbestifyourfirmisworsethanthemarketatforecastingexchangerates.C)D)BothAandBarecorrect.Feedback:Correct!10Underwhichmethodareassetsandliabilitiestranslatedbasedupontheirmaturity?Current/noncurrent.A)Currentrate.B)Monetary/nonmonetary.C)D)Temporal.Feedback:Correct!CH12Whichofthefollowingistrueregardingownershipofabearerbond?Possessionisevidenceofownership.A)Theowner'snameisonthebondandregisteredwiththeissuer.B)Theowner'snameisregisteredwiththeissuerbutnotonthebond.C)D)Theowner'snameisassignedtotheserialnumberonthebond.Feedback:Correct!2Eurobondsareusuallyregisteredbonds.A)bearerbonds.B)floating-rate,callablemandconvertible.C)D)denominatedinthecurrencyofthecountrythattheyaresoldin.Feedback:Thisisincorrect.SeethefirstsectionofthechaptertitledForeignBondsandEurobonds.3Otherthingsequal,investorswillgenerally onbearerbondsthanonregisteredbondsofcomparableterms.demandahighercreditratingA)demandahigheryieldB)acceptaloweryieldC)D)demandahighercreditratingandhigheryieldFeedback:Otherthingsequal,investorswillgenerallyacceptaloweryieldonbearerbondsthanonregisteredbondsofcomparabletermsbecausetheycanhidetheincomefromthetaxman.SeethefirstsectionofthechaptertitledForeignBondsandEurobonds.4Six-monthU.S.dollarLIBORiscurrently4.375%,andyourfirmissuesfloating-ratenotesindexedtosix-monthU.S.dollarLIBORplus50basispoints.Whatistheamountofthenextsemi-annualcouponpaymentperU.S.$1,000offacevalue?$43.75A)$48.75B)$24.375C)D)$46.875Feedback:Thecorrectequationis0.5×$1,000×(0.04375+0.005)=$24.375.Considera10percenteuro/Britishpounddualcurrencybondthatpays€2,000atmaturityper￡1,000ofparvalue.Whatistheimplicit€/￡exchangerateatmaturity?€2.00=￡1.00A)€0.50=￡1.00B)€2.10=￡1.00C)D)€1.8182=￡1.00Feedback:Thisiscorrect.6Supposeyourfirmissuesa€100,000,000bondwithacouponrateof8percentperannum.Theunderwritingspreadis2percent.Whatisyouractualcostofthisdebt?8%A)10%B)10.2%C)D)Noneoftheabove.Feedback:Thisisincorrect.Cashflowitout.Yourfirmreceives€98,000,000andinoneyearowes€108,000,000.TheIRR=10.2%.SeethesectiontitledEurobondMarketStructureandPractices.7ForyearsStandard&Poor'shasprovidedcreditratingsoninternationalbonds.TheseratingsreflectthesafetyofprincipalforaU.S.investor.A)reflectthecreditworthinessoftheborrowerandnotexchangerateuncertainty.B)reflectthecreditworthinessofthelenderandpredicttheexchangerateexpectedtoprevailatmaturity.C)D)arebiased,since40percentofEurobondissuesareratedAAAand30percentareAA.Feedback:Thisisincorrect.SeethesectiontitledInternationalBondMarketCreditRatings.8Thecreditratingofaninternationalborrowerdependsonthevolatilityoftheexchangerate.A)dependsonthevolatility,butnotabsolutelevel,oftheexchangerate.B)isusuallyneverhigherthantheratingassignedtothesovereigngovernmentofthecountryinwhichitresides.isunrelatedtotheratingassignedtothesovereigngovernmentofthecountryinwhichitresides.Feedback:Thisisincorrect.SeethesectiontitledInternationalBondMarketCreditRatings.9Whichofthefollowingistrueregardingdual-currencybondsversuscomparablestraightfixed-ratebonds?DualcurrencybondsusuallytradeatapremiumtoreflectthevalueoftheforwardcontractimplicitinA) theirrepaymentschedule.Theinterestondual-currencybondsisusuallylowerthanoncomparablestraightfixed-ratedebt.B)Theinterestondual-currencybondsisusuallyhigherthanoncomparablestraightfixed-ratedebt.C)D)Noneoftheabove.Feedback:Thisisincorrect.Seethesub-sectiontitledDual-CurrencyBonds.10Dualcurrencybondsaremostappropriateforaborrowerwhowantstospeculateintheexchangeratemarkets.A)hasalong-termprojectthathaslargecashoutflowsatmaturity.B)hasalong-termprojectthatwillbefinancedwiththehomecurrencybutisexpectedtoproduceenoughforeigncurrencyprofitstorepaytheprincipalatmaturity.isaJapanesebank.Feedback:Thisisincorrect.Seethesub-sectionofthechaptertitledDual-CurrencyBonds.Feedback:Thisisincorrect.Seethesub-sectionofthechaptertitledDual-CurrencyBonds.CH13Acountry'sprimarymarketisthemarketthathasthelargestnumberofsharestradedthroughit.A)thelargesttotalvalueofsharestradedthroughit.B)thelargestnumberandvalueofsharestradedthroughit.C)D)thesaleofsecuritiesbycorporationstoinitialinvestors.Feedback:Thisisincorrect.SeethesectiontitledMarketStructure,TradingPractices,andCosts.Inacallmarkettradersknowaheadoftimethepricethattheirorderswillbeexecutedat.A)anagentoftheexchangeaccumulates,overaperiodoftime,abatchofordersthatareperiodicallyexecuted.anagentoftheexchangeperiodicallycallsoutthenameoftheissue.Atthispoint,tradersannouncetheirbidandaskpricesfortheissue,andseekcounterpartstoatrade.marketandlimitordersmaybeexecutedatanytimeduringbusinesshours.Feedback:Thisisincorrect.SeethesectiontitledMarketStructure,TradingPractices,andCosts.Crosslistingreferstoafirmhavingitsequityshareslistedononeormoreforeignexchanges,inadditiontotheA) homecountrystockexchange.isnotanoptionfornon-MNCs.B)isonlyanoptionforMNCs.C)D)BothBandCarecorrect.Feedback:Correct!AnAmericanDepositoryReceipt(ADR)isamechanismfortheavoidanceoftaxes,especiallycapitalgainstaxes,onsharesofforeignstocks.A)bearersecurity,notaregisteredsecurity.B)receiptrepresentinganumberofforeignsharesthataredepositedinaU.S.bank.C)D)Noneoftheabove.Feedback:Thisisincorrect.SeethesectiontitledTradinginInternationalEquities.Changesinexchangeratesgenerallyexplainalargerportionofthevariabilityofforeignbondindexesthanforeignequityindexes.A)explainalargerportionofthevariabilityofforeignequityindexesthanforeignbondindexes.B)donotaffectthevariabilityofforeignequityindexesorforeignbondindexes.C)D)affectallforeignstockmarketsequally.Feedback:Correct!6Marketcapitalizationisgenerallyhigherindevelopingcountries.A)dependsontheexchangerate.B)isgenerallyhigherindevelopedcountries.C)D)Noneoftheabove.OntheParisboursesharesofAvionelletradeat€45.Thespotexchangerateis$1.00=€0.800.Whatistheno-arbitrageU.S.dollarpriceofanADR?Assumethattransactionscostsarenegligible.$56.25A)$36.00B)$45.00C)$45.50D)Feedback:Thecorrectequationis€45×$1/€.80=$56.25.Thestockisworth€45andtheeuroisworthmorethanadollar.OntheParisboursesharesofAvionelletradeat€45,whileinNewYorkasanADRat$60.Thespotexchangerateis$1.40=€1.00.Whatcanyoudotoearnaprofit?Assumethattransactionscostsarenegligible.BuytheADR,shortsellthesharesonParis.A)ShortselltheADR,golonginParis.B)BuytheADRandthesharesinParis.C)D)Selltheeuro.Feedback:Correct!ExchangemarketsintheUnitedStatesarecallmarkets.A)crowdmarkets.B)agency/auctionmarkets.C)D)OTC.Feedback:TheexchangemarketsintheU.S.areagency/auctionmarkets.YourbrokerisyouragentandtheopenoutcryontheflooroftheNYSEisanauction.SeethesectiontitledMarketStructure,TradingPracticesandCosts.10Aspecialistisaninvestorwhoonlyholdssharesissuedbyonecompany.A)isadealerintheOTCmarket.B)makesamarketbyholdinganinventoryofasecurity.C)D)Noneoftheabove.Feedback:Feedback:Thisisincorrect.SeethesectiontitledMarketStructure,TradingPracticesandCosts.CH141Consideraplainvanillainterestrateswap.CorporationABCcanborrowat8%fixedorcanborrowfloatingatLIBOR.CorporationXYZissomewhatlesscreditworthyandcanborrowat10%fixedorcanborrowfloatingatLIBOR+1%.ABCpreferstoborrowfloatingandXYZpreferstoborrowfixed.Bothcorporationswishtoborrow$10millionfor5years.Whichofthefollowingswapsismutuallybeneficialtoeachpartyandmeetstheirfinancingneeds?ABCborrows$10millionexternallyfor5yearsatLIBORandagreestoswapLIBORtoXYZfor8.5%fixedfor5yearsonanotationalprincipalof$5million.XYZborrows$10millionexternallyat10%.ABCborrows$10millionexternallyfor5yearsatLIBORandagreestopay8.5%toXYZforLIBORfixedfor5yearsonanotationalprincipalof$5million.XYZborrows$10millionexternallyat10%.SincetheQSD=0thereisnomutuallybeneficialswap.C)ABCborrows$10millionexternallyat8%fixedfor5yearsandagreestoswapLIBORtoXYZfor8.5%D)fixedfor5yearsonanotationalprincipalof$5million.XYZborrows$10millionexternallyatLIBOR+1%.Feedback:NoticethatwhileXYZislesscreditworthythanABC,XYZgetsbeatuplessforthatinthefloatingmarket(a1%penaltyinfloatingversusa2%penaltyinthefixedratemarket).SoXYZhasacomparativeadvantageinborrowingfloatingandABChasacomparativeadvantageinborrowingfixed.DrawoutachartlikeExhibit14.7.Considerthisfixedforfixedcurrencyswap.TheDowCorporationisaU.S.-basedmultinational.TheJonesCorporationisaU.K.-basedmultinational.DowwantstofinanceamillionexpansioninGreatBritain.ssoea4nnne.etee0=.wborrowdollarsat10%andpoundssterlingat12%.Jonescanborrowdollarsat9%andpoundssterlingat11%.Whichofthefollowingswapsismutuallybeneficialtoeachpartyandmeetstheirfinancingneeds?Neitherpartyshouldfaceexchangeraterisk.Thereisnomutuallybeneficialswapthathasneitherpartyfacingexchangeraterisk.A)ws4nnsds%nso,onns2npoundsandpays8%indollarstoDow.ws2nnsds%nso,onns4npoundsandpays8%indollarstoDow.ws4nnsds%nso,onns2nD)poundsandpays10%indollarstoDow.Feedback:Correct!3Considerabankthathasenteredintoafive-yearswaponanotationalbalanceof$10,000,000withacorporatecustomerwhohasagreedtopayafixedpaymentof10percentinexchangeforLIBOR.Asofthefourthresetdate,whatisthepriceoftheswapfromthebank'spointofview,assumingthatthefixed-ratesideoftheswaphasincreasedto11percent,LIBORisat5percent,andtheswapincludesbothinterestandprincipal?$909,090.91gain.A)$90,090.09loss.B)Nolossornogainsincematurityhasnotarrived.C)D)$90,090.09gain.Feedback:Asofthefourthresetdate,thereisoneyeartogoontheswap.Thebankisowedafixedpaymentof$11,000,000=$10,000,000+Therelevantdiscountrateis11percentandthepresentvalueis$9,909,090.91.Onanyresetdate,thepresentvalueofthefuturefloating-ratepaymentsthebankwillreceivefromthecustomerbasedonthenotationalvaluewillalwaysbe$10,000,000.Thus,thenetpositionofthebankis$9,909,090.91–$10,000,000=–$90,090.09(loss).Considerafixedforfixedcurrencyswap.TheDowCorporationisaU.S.-basedmultinational.TheJonesCorporationisaU.K.-basedmultinational.DowwantstofinanceamillionexpansioninGreatBritain.ssoea4nnne.etee0=.wwst%dsgt.snwst%dsatAssumingthattheswapbankiswillingtotakeonexchangeraterisk,buttheothercounterpartiesarenot,whichofthefollowingswapsismutuallybeneficialtoeachpartyandmeetstheirfinancingneeds?Dowborrows$4millionindollarsexternallyat$10%andinpoundstotheswapbankonanotationalprincipalofmillion.Dowreceive$10%fromtheswapbankonanotationalprincipalof$4million.Jonesborrowsmillionpoundsexternallyatandpays$8.75%totheswapbankonallf4.ss%nsmepknaprincipalofmillion.ws4nnsyt%ds%nsoepkanotationalprincipalofmillion.Dowreceive$10%fromtheswapbankonanotationalprincipalof$4million.Jonesborrowsmillionpoundsexternallyatandpays$8.5%totheswapbankonallf4.ss%nsmepknaprincipalofmillion.ws4nnsyt%ds%nsoepknanotationalprincipalofmillion.Dowreceive$8%fromtheswapbankonanotationalprincipalof$4million.Jonesborrowsmillionpoundsexternallyatandpays$10%totheswapbankonanotationalprincipalof$4million.Jonesreceivesinpoundsfromtheswapbankonanotationalprincipalofmillion.Thereisnoswapthatismutuallybeneficialtoeachparty.Feedback:Correct!Whenaswapbankservesasadealer,theswapbankstandswillingtoaccepteithersideofaswap.A)matchescounterpartiesbutdoesnotassumeanyriskoftheswap.B)receivesacommissionformatchingbuyersandsellers.C)D)Noneoftheabove.Feedback:Correct!6Whenaswapbankservesasabroker,theswapbankstandswillingtoaccepteithersideofaswap.A)matchescounterpartiesbutdoesnotassumeanyriskoftheswap.B)receivesaportionofthecashflowspassedthroughit.C)D)Noneoftheabove.Feedback:Thisdescribesdealership,notbrokerage.SeethesectiontitledTheSwapBank.7Whatistheall-incostofaswaptoapartythathasagreedtoborrow$5millionat5percentexternallyandpaysLIBOR+0.5percentonanotationalprincipalof$5millioninexchangeforfixedratepaymentsof6percent?LIBOR+0.5percent.A)LIBOR.B)LIBOR–0.5percent.C)D)Noneoftheabove.Feedback:Thecorrectequationis[LIBOR+0.5percent]+5%–6%=LIBOR–0.5percent8Withregardtoaswapbankactingasadealerinswaptransactions,interestrateriskreferstotheriskthaterestrateswillchangeunfavorablybeforetheswapbankcanlayofftoanopposingcounterpartyontheothersideofaninterestrateswapenteredintowiththefirstcounterparty.theswapbankfacesfromfluctuatingexchangeratesduringthetimeittakesforthebanktolayoffaswapitundertakeswithonecounterpartywithanopposingtransaction.acounterpartywilldefault.Feedback:Thisisincorrect.9Withregardtoaswapbankactingasadealerinswaptransactions,mismatchriskreferstotheriskthaterestrateswillchangebeforetheswapbankcanlayofftoanopposingcounterpartyontheothersideofaninterestrateswapenteredintowiththefirstcounterparty.theswapbankfacesfromfluctuatingexchangeratesduringthetimeittakesforthebanktolayoffaswapitundertakeswithonecounterpartywithanopposingtransaction.itmaybedifficultorimpossibletofindanexactoppositematchforaswapthebankhasagreedtake.Feedback:Thisisincorrect.SeethesectiontitledRisksofInterestRateandCurrencySwaps.10Youarethedebtmanagerforamultinational.Youneedtoborrow€100,000,000forfiveyears.Youcaneitherborrowthe€100,000,000directlyinGermanyorborrowdollarsU.S.andenterintoacombinedinterestrateandcurrencyswapwithaswapbank.Oneriskthatyoufacebyusingtheswapthatyoudonotfacebyborrowingeurosdirectlyisexchangeraterisk.A)anincreaseinsovereignrisk.B)creditrisk.C)D)interestrateriskFeedback:Whiletheswapdealermayfaceexchangeraterisk,youwillnot.SeethesectiontitledRisksofInterestRateandCurrencySwaps.CH151euth0dykr0neees1=.er,thestockrisestoYouarehappywithyour20%poundsterlingdenominatedreturnonthestock,butwhenyousellthestockandexchangeyourfordollars,youonlyget$45sincethepoundhasfallento=$0.75.Whatisyourdollar-denominatedpercentagereturn?55%loss.A)45%gain.B)42.5%loss.C)D)Weaknessinthedollar.Feedback:ThecorrectequationisHPR=gain/pain=$100)/$100=–55/$100=–0.55,or55%loss.Ifyoupreferpainfulformulae,=(1+Ri)(1–1=(1.20)(0.375)–1=0.45–1=–0.55.2AU.S.-basedinvestorhasjusttradedhisdollarsforeurostoinvestin1,000sharesofaGermancompanyat€50pershare.Inoneyear,heexpectshisstocktobeworth€60pershare.Hisinvestmenthorizonisoneyearandhedoesnotwishtofaceexchangeraterisk,sohesells€60,000forward.Thespotandforwardexchangerateis€1.00=$1.50.Whichoftheexplainstherisk(orrisks)hefaces?Hefacestheconsequentialriskthathissharesmaydeclineinvalueandtheriskthattheexchangeratecouldchange.Hisonlyriskisthathissharesdeclineinvalue,sincehehashedgedhisexchangeraterisk.B)Heisexposedtotheriskthatthedollarcouldweaken.C)Heisexposedtotheriskthathissharescouldgohigherthan€60.Feedback:Thisisincorrect.Hecanlosemoneyonboththestockandtheforwardcontract.Supposethestockfinishesat€40pershareandtheexchangeratemovesagainsthim.Helosesmoneyonthestockandtheforwardcontract.3Thebusinesscyclesindifferentcountriesareofteninsyncwitheachotherduetotheintegratednatureofcapitalmarkets.A)highly,butnotperfectly,correlated.B)asynchronous.C)D)uncorrelated.Feedback:Thisisincorrect.SeeExhibit15.2.4ConsiderthefollowingdatainU.S.dollarterms:Thecorrelationcoefficientbetweenthetwomarketsis0.20.NotethattheU.K.stockmarkethaslowerreturns,butlowerrisk.Supposethatyouinvesthalfofyourmoneyineachmarket.Whatisyourexpectedreturnandstandarddeviation?Expectedreturnof1.15percentpermonth;standarddeviationof3.5%.A)Expectedreturnof1.15percentpermonth;standarddeviationof4.5%.B)Expectedreturnof1.15percentpermonth;standarddeviationof31.8%.C)D)Expectedreturnof1.15percentpermonth;standarddeviationof0.12%.Feedback:Thisisincorrect.Foratwoassetportfolio,varianceisgivenbyp)=x12σ1+x22σ2+2x12x22σ12.5Systematicriskreferstotheriskthatremainsevenafterinvestorsfullydiversifytheirportfolioholdings.A)unanticipatedchangesintheexchangeratemayreducethediversificationpotentialofernationaldiversificationofferstodomesticportfolios.C)Noneoftheabove.Feedback:Thisisincorrect.Systematicriskisalsoknownasnondiversifiablerisk.Labelthecurvesonthedrawing.CurveArepresentsinternationalstocks;CurveBrepresentsU.S.stocks.A)CurveArepresentsU.S.stocks;CurveBrepresentsinternationalstocks.B)CurveArepresentstotalrisk;CurveBrepresentssystematicrisk.C)D)Noneoftheabove.Feedback:Correct!7Whenexchangerateriskishedgedusingforwardcontracts,internationalbondportfoliostendto internationalstockportfoliosintermsofrisk-returnefficiency.lagbehindA)behavethesameasB)dominateC)D)Noneoftheabove.Feedback:Thisisincorrect.SeethesectiontitledInternationalBondInvestment.8Manyinvestors'portfoliosexhibithomebiasasareflectionofexcessivetransaction/informationcostsA)imperfectionsintheinternationalfinancialmarkets.B)discriminatorytaxesforforeigners.C)D)Alloftheabove.Feedback:Thisiscorrect,butsoareAandC.SeethesectiontitledWhyHomeBiasinPortfolioHoldings?9Empiricalevidencesuggeststhatwhichofthefoll