Q1: While deciding on asset allocation, an investor must consider
Answer: All these—The stage of his life Answer
The purpose of making investment
His risk appetite
Q2: Why is a discount rate used to calculate net present value
Answer: Money has diminishing valueAnswer
Q3: With a capital lease, the amount recorded on the asset side of the balance sheet is___
Answer: The present value of the minimum lease payments over the lease periodAnswer
Q4: With respect to the effect of the number of years to maturity on bond values, which of the following is true
Answer: All These—When the reqd rate of return is less than the coupon rate, the discount on the bond declines as maturity approachesAnswer
When the reqd rate of return is less than the coupon rate, the premium on the bond declines as maturity approaches
The shorter the maturity of a bond, the greater its price change in response to a given change in the reqd rate of return
Q5: Working capital represents
Answer: capital required to meet day to day expensesAnswer
Q6: Xlink Company has an expected ROE of 15%. The dividend growth rate will be___if the firm follows a policy of plowing back 75% of earnings
Answer: 0.04%Answer
Q7: You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both USD2.50 in dividends and USD28 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is___if you wanted to earn a 15% return
Answer: USD26.52Answer
Q8: You are considering investing USD 1,500 at an interest rate of 5% compounded annually for 2 years or investing the USD1,500 at 7% per year simple interest rate for 2 years. Which option is better
Answer: Simple Interest by USD56.25Answer
Q9: You have just won a huge sum in a lottery. What should you ideal allocation be
Answer: Both c and dAnswer
Q10: You invest Rs. 25,000 in a mutual fund. After 2 years you redeem your units at Rs. 32, 000. Ignoring indexation and surcharges, what is the capital gain tax on this transaction
Answer: Note: Longterm capital gain is nil (after 1 year)Answer
Q11: You need to understand financial management even if you have no intention of becoming a financial manager. One reason is that the successful manager of the not-too-distant future will need to be much more of a___who has the knowledge and ability to move not just vertically within an organization but horizontally as well. Developing___will be the rule, not the exception
Answer: Team player; cross-functional capabilitiesAnswer
Q12: You wish to earn a return of 11% on each of two stocks, C and D. Stock C is expected to pay a dividend of USD3 in the upcoming year while Stock D is expected to pay a dividend of USD4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock C___
Answer: will be less than the intrinsic value of stock DAnswer
Q13: You wish to earn a return of 13% on each of two stocks, X and Y. Stock X is expected to pay a dividend of USD3 in the upcoming year while Stock Y is expected to pay a dividend of USD4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock X___
Answer: will be less than the intrinsic value of stock YAnswer
Q14: Your firm currently has a current ratio of 1.90 on USD9.5 million of current assets. You are changing the financing mix of your firm and plan on converting financing of USD1,000,000 in a 6-month loan into a 5-year term loan. The purpose of this move is to finance a more permanent portion of inventories with a longer maturity alternative. If the firm issues the term loan, new restrictive covenants will require that the current ratio remain at or above 2.00. Should the firm make this change or is there some obvious problem caused by this proposed change
Answer: YesAnswer
Q15: Your firm currently has a current ratio of 2.10 on USD5 million of current liabilities. You are financing a USD500,000 machine (fixed asset) and USD500,000 of additional inventories with a 5-year term loan. Alternatively, the firm can finance the additions with a 6-month loan that they will need to get approval to renew every six months. Existing restrictive covenants require that the current ratio remain at or above 2.00. Which alternative will keep the current ratio above 2.00
Answer: 5-year term loanAnswer
Q16: Your friend in Dubai wants to invest in a mutual fund. She should be advised to read
Answer: Offer documentAnswer
Q17: Zero coupon bonds has its origin in
Answer: U.S. security marketAnswer
Q18: ___analyse the changes in the project NPV on account of a given change in one of the input variables of the project
Answer: Sensitivity analysisAnswer
Q19: ___and revenue generation are the two important categories of capital budgeting
Answer: Cost reductionAnswer
Q20: ___appraisal examines the project from the social point of view
Answer: EconomicAnswer
Q21: ___are financial assets
Answer: All These—a. Bonds Answer
c. Stocks
Q22: ___are the economies Central nervous system
Answer: Financial InstrumentsAnswer
Q23: ___decisions could be grouped into two categories
Answer: Capital budgetingAnswer
Q24: ___is a long-term, unsecured debt instrument with a lower claim on assets and income than other classes of debt; while a/(an)___bond issue is secured by the issuer’s property
Answer: A subordinated debenture; mortgageAnswer
Q25: ___is concerned with the acquisition, financing, and management of assets with some overall goal in mind
Answer: Financial ManagementAnswer
Q26: ___is concerned with the maximization of a firm’s earnings after taxes
Answer: Profit maximizationAnswer
Q27: ___is considered to be superior to RADR
Answer: CEAnswer
Q28: ___is equal to the total market value of the firm’s common stock divided by (the replacement cost of the firm’s assets less liabilities)
Answer: Tobin’s QAnswer
Q29: ___is length of time between firm’s actual cash expenditure and its own receipt
Answer: Cash cycleAnswer
Q30: ___is not a bank characteristic important to customers in need of foreign exchange
Answer: All of the these are important bank characteristics to customers in need of foreign exchange—a. Speed of executionAnswer
b. Forecasting advice
c. Advice about current market conditions
Q31: ___is the average length of time required to convert the firm’s receivables into cash
Answer: Receivables conversion periodAnswer
Q32: ___is the average length of time required to produce and sell the product
Answer: Inventory conversion periodAnswer
Q33: ___is the integration and organization of information and logistics across firms n a supply chain for the purpose of creating and delivering goods and services that provide value to consumers
Answer: Supply chain managementAnswer
Q34: ___is used to estimate working capital requirement of a firm
Answer: Operating cycleAnswer
Q35: ___lease is a lease where the lessee maintains and insures the leased asset rather than the lessor in a full-service lease
Answer: A netAnswer
Q36: ___lease is a long-term lease that is not cancelable and its life often matches the useful life of the asset
Answer: A financialAnswer
Q37: ___lease refers to a short-term lease that is often cancelable. For example, a lease for office space represents this type of lease where the lease life is less than the useful life of the asset
Answer: An operatingAnswer
Q38: ___of a project is examined by financial appraisal
Answer: Financial viabilityAnswer
Q39: ___of an investment bank
Answer: Each of the above is an exampleAnswer
Q40: ___Receiving a required inventory item at the exact time needed, is
Answer: JITAnswer
Q41: Assume that a bank’s bid rate on Swiss francs is USD.45 and its ask rate is USD.47. Its bid-ask percentage spread is
Answer: About 4.26%Answer
Q42: Assume that a bank’s bid rate on Japanese yen is USD.0041 and its ask rate is USD.0043. Its bid-ask percentage spread is
Answer: About 4.65%Answer
Q43: The bid/ask spread for small retail transactions is commonly in the range of___percent
Answer: 3 to 7Answer
Q44: ____is not a factor that affects the bid/ask spread
Answer: All of the above factors affect the bid/ask spreadAnswer
Q45: The forward rate is the exchange rate is used for immediate exchange of currencies
Answer: Wrong – FalseAnswer
Q46: The ask quote is the price for which a bank offers to sell a currency
Answer: Correct – TrueAnswer
Q47: According to the text, the forward rate is commonly used for
Answer: HedgingAnswer
Q48: If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in 90 days, it could
Answer: Obtain a 90-day forward sale contract on eurosAnswer
Q49: If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need C USD200,00 in 90 days to make a payment on imports from Canada, it could
Answer: Obtain a 90-day forward purchase contract on Canadian dollarsAnswer
Q50: Assume the Canadian dollar is equal to USD.88 and the Peruvian Sol is equal to USD.35. The value of Peruvian Sol in Canadian dollars is
Answer: about .3977 Canadian dollarsAnswer
Q51: Which of the following is not true with respect to spot market liquidity
Answer: If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rateAnswer
Q52: Forward markets for currencies of developing countries are
Answer: Less liquid than markets for developed countriesAnswer
Q53: A forward contract can be used to lock in the____of a specified currency for a future point in time
Answer: A or B (Purchase Price/Sales Price)Answer
Q54: The forward market
Answer: Does not exist for some currenciesAnswer
Q55: The Basel II accord is focused on eliminating inconsistencies in____across countries
Answer: Capital requirementsAnswer
Q56: The international money market primarily concentrates on
Answer: Short-term lending (one year or less)Answer
Q57: The international credit market primarily concentrates on
Answer: Medium-term lendingAnswer
Q58: The main participants in the international money markets are
Answer: Large corporationsAnswer
Q59: LIBOR is
Answer: The interest rate commonly charged for loans between banksAnswer
Q60: A syndicated loan
Answer: Represents a loan by a group of banks to a borrowerAnswer
Q61: The international money market is primarily served by
Answer: Several large banks that accept deposits and provide loans in various currenciesAnswer
Q62: International money market transactions normally represents
Answer: The equivalents of USD1 million or moreAnswer
Q63: A put option is the amount or percentage by which the existing spot rate exceeds the forward rate
Answer: Wrong – FalseAnswer
Q64: From 1944 to 1971, the exchange rate between currencies was typically
Answer: Fixed within narrow boundariesAnswer
Q65: As a result of the Smithsonian Agreement, the U.S. dollar was
Answer: Devalued relative to major currenciesAnswer
Q66: According to the text, the average foreign exchange trading around the world___per day
Answer: Exceeds USD1 trillionAnswer
Q67: 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
Answer: Depreciate; SellingAnswer
Q68: The bid-ask spread on an exchange rate can be used to directly determine
Answer: The transaction cost of foreign exchangeAnswer
Q69: Futures contracts are typically____; forward contracts are typically____
Answer: Sold on an exchange; offered by commercial banksAnswer
Q70: Eurobonds
Answer: are usually issued in bearer formAnswer
Q71: U.S. firms may desire to issue bonds in the non-U.S. markets due to less regulations in non-U.S. countries
Answer: Correct – TrueAnswer
Q72: Eurobonds means
Answer: A and B (Can be issued only by European firms/Can be sold only to European investorsAnswer
Q73: Which currency is used the most to denominate Eurobonds
Answer: The U.S. dollarAnswer
Q74: When the foreign exchange market opens in the U.S. each morning, the opening exchange rate quotations will be based on the
Answer: Prevailing prices in locations where the foreign exchange markets have been openAnswer
Q75: The U.S. dollar is not ever used as a medium of exchange in
Answer: None of these—a. industrialized countries outside the U.S.Answer
b. in any Latin American countries.
c. in Eastern European countries where foreign exchange restrictions exist.
Q76: Which of the following is not true regarding the Bretton Woods Agreement
Answer: Each country used gold to back its currencyAnswer
Q77: A Japanese yen is worth USD.0080, and a Fijian dollar (FUSD) is worth USD.5900. What is the value of the yen in Fijian dollars (i.e., how many Fijian dollars do you need to buy a yen)
Answer: 0.014Answer
Q78: The existence of imperfect markets has prevented the internationalization of financial markets
Answer: Wrong – FalseAnswer
Q79: 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
Answer: Correct – TrueAnswer
Q80: An investor engaging in a transaction whereby he or she contracts to purchase British pounds one year from now is an example of a spot market transaction
Answer: Wrong – FalseAnswer
Q81: The Single European Act prevented a trend toward increased globalization in the banking industry
Answer: Wrong – FalseAnswer
Q82: A cross exchange rate expresses the amount of one foreign currency per unit of another foreign currency
Answer: Correct – TrueAnswer
Q83: The strike price is also known as the premium price
Answer: Wrong – FalseAnswer
Q84: The interest rate commonly charged for loans between banks is called the cross rate
Answer: Wrong – FalseAnswer
Q85: The Bretton Woods Agreement is an agreement to standardize banks’ capital requirements across countries; the resulting capital ratios are computed using risk-weighted assets
Answer: Wrong – FalseAnswer
Q86: The Basel Accord is an agreement among the major European countries to make regulations more uniform across European countries and to reduce taxes on goods traded between these countries
Answer: Wrong – FalseAnswer
Q87: A Futures contract is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date
Answer: Correct – TrueAnswer
Q88: Eurobonds are certificates representing bundles of stock
Answer: Wrong – FalseAnswer
Q89: A share of the ADR of a Dutch firm represents one share of that firm’s stock that is traded on a Dutch stock exchange. The share price of the firm was 15 euros when the Dutch market close. As the U.S. market opens, the euro is worth USD1.10. Thus, the price of the ADR should be USD____
Answer: USD16.50Answer
Q90: The ADR of a British firm is convertible into 3 shares of stock. The share price of the firm was 30 pounds when the British market close. When the U.S. market opens, the pound is worth USD1.63. The price of this ADR should be USD____
Answer: 146.7Answer
Q91: If there is a large supply of savings relative to the demand for short-term funds, the interest rate for that country will be relatively low
Answer: Correct – TrueAnswer
Q92: If there is a strong demand to borrow a currency, and a low supply of savings in that currency, the interest rate will be relatively low
Answer: Wrong – FalseAnswer
Q93: The preferences of corporations and governments to borrow in foreign currencies and of investors to make short-term investments in foreign currencies resulted in the creation of the international bond market
Answer: Wrong – FalseAnswer
Q94: Large commercial banks play a major role international money market by accepting short-term deposits in large amounts (such as the equivalent of USD 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
Answer: Correct – TrueAnswer
Q95: The term “eurobond” is widely used to reflect the interbank offer rate on euros
Answer: Correct – TrueAnswer
Q96: The term “eurobor” is widely used to reflect the total amount of euros borrowed by the firms in Europe per month to finance their growth
Answer: Wrong – FalseAnswer
Q97: Institutional investors such as commercial banks, mutual funds, insurance companies, and pension funds from many countries are major participant in the international bond market
Answer: Correct – TrueAnswer
Q98: In response to the Sarbanes-Oxley Act, the reporting costs were reduced, and many non-U.S. firms that issued new shares of stock decided to place their stock in the United States
Answer: Wrong – FalseAnswer
Q99: Global regulations require that shareholders in all countries have the same rights wherever there are stock markets
Answer: Wrong – FalseAnswer
Q100: Shareholders have more voting power in some countries than others
Answer: Correct – TrueAnswer
