Financial Management Objective Set 7

Q1: Shareholders can have influence on wider variety of management issues in some countries 

Answer

Answer: Correct – True

Q2: The legal protection of shareholders is the same among countries 

Answer

Answer: Wrong – False

Q3: Shareholders in some countries may have more power to effectively sue publicly-traded firms if their executives or directors commit financial fraud 

Answer

Answer: Correct – True

Q4: In general, common law countries such as the U.S., Canada, and the United Kingdom allow for more legal protection than French civil law countries such as France or Italy 

Answer

Answer: Correct – True

Q5: The government enforcement of securities laws varies among countries 

Answer

Answer: Correct – True

Q6: The degree of financial information that must be provided by public companies is the same among countries 

Answer

Answer: Wrong – False

Q7: In general, stock markets allow for more price efficiency and attract more investors when they have all of the following except 

Answer

Answer: Less stringent accounting requirements

Q8: In general, companies are attracted to the stock market in which they are very limited voting rights for shareholders 

Answer

Answer: Wrong – False

Q9: If companies can rely on stock markets to obtain funds, they will have to rely more heavily on the____market to raise long-term funds 

Answer

Answer: Long-Term credit

Q10: The strike price on a currency option is also known as an exercise price 

Answer

Answer: Correct – True

Q11: Assume that the bank’s bid quote of Mexican peso is USD.126 and ask price is USD.129. If you have Mexican pesos, what is the amount of pesos that you need to purchases USD100,000 

Answer

Answer: 793651

Q12: When receiving quotations on a currency’s exchange rate, the bank’s bid quote is the rate at which the bank is willing to sell currency 

Answer

Answer: Wrong – False

Q13: An obligation to purchase a specific amount of currency at a future point in time is called a 

Answer

Answer: Forward contract

Q14: Which of the following is not a method that can be used to invest internationally 

Answer

Answer: All of the above are methods that can be used to invest internationally

Q15: The interest rate in developing countries is usually very low 

Answer

Answer: Wrong – False

Q16: Assume that USD1 is equal to .85 Euros and 98 yen 

Answer

Answer: The value of yen in euros is .0087

Q17: When obtaining a loan, the risk premium paid above LIBOR depends on the 

Answer

Answer: Credit risk of the borrower

Q18: The largest global exchange is 

Answer

Answer: NYSE Euronext

Q19: Which of the following is not true about syndicated loans 

Answer

Answer: The loans are only denominated in U.S. dollars

Q20: The interest rate on the syndicated loan depends on the 

Answer

Answer: All the above (Currency denominating the loan/Maturity of the loan/Creditworthiness of the borrower/Interbank lending rate)

Q21: 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 situation 

Answer

Answer: Purchase call option

Q22: Certificates representing bundles of stock of non-U.S. firms are called 

Answer

Answer: ADRs

Q23: Assume that the spot rate of the Singapore dollar is USD.664. The ADR of a Singapore firm is convertible into 3 shares of stock. The price of an ADR is USD20. What is the share price of the firm in Singapore dollars 

Answer

Answer: 10

Q24: Which of the following is not true regarding ADRs 

Answer

Answer: ADRs are denominated in the currency of the stock’s home country

Q25: The more intense the competition for the traded currency, the large the bid/ask spread 

Answer

Answer: Wrong – False

Q26: Banks charge larger bid/ask spread than they would on less liquid, less traded currencies 

Answer

Answer: Wrong – False

Q27: At any given point in time, a bank’s bid quote will be greater than its ask quote 

Answer

Answer: Wrong – False

Q28: An MNC with receivables in Japanese Yen purchases yen forward to hedge its exposure to exchange rate fluctuations 

Answer

Answer: Wrong – False

Q29: 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 

Answer

Answer: Wrong – False

Q30: The LIBOR varies among currencies because the market supply of and demand for funds vary among currencies 

Answer

Answer: Correct – True

Q31: The international money market is frequently accessed by MNCs for short-term investment and financing decisions, while longer term financing decisions are made in the international credit market or the international bond market and in international stock markets 

Answer

Answer: Correct – True

Q32: Which of the following is not a possible bid/ask quotation for the Barbados dollar 

Answer

Answer: USD.52/USD.51

Q33: 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 USD.0089, while the forward rate is USD.0095. You expect the spot rate in 60 days to be USD.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if you sell yen forward 

Answer

Answer: USD47,500

Q34: Which of the following is probably not an example of the use of forward contracts by an MNC 

Answer

Answer: Hedging pound payable by selling pounds forward

Q35: ___quoatation; a quotation representing the number of units of a foreign currency per dollar is referred to as a(n)___quotation 

Answer

Answer: Direct; Indirect

Q36: You observe a quotation of the Japanese yen (¥) of USD0.007. You are, however interested in the number of yen per dollar. Thus, you calculate the____quotation of____¥/&dollar 

Answer

Answer: Indirect; 142.86

Q37: Which of the following is not true regarding electronic communications networks (ECNs) 

Answer

Answer: They have a visible trading floor

Q38: Which of the following is probably not appropriate for an MNC wishing to reduce its exposure to British pound payables 

Answer

Answer: Buy a pound put option

Q39: Futures contracts are sold on exchanges and are consequently____than forward contracts, which can be____to satisfy an MNC’s needs 

Answer

Answer: More standardized; Custom-tailored

Q40: An MNC’s short-term financing decisions are satisfied in the____market, while its medium debt financing decisions are satisfied in the____market 

Answer

Answer: International money; International credit

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