Question 1
Which one of the following best describes an agreement you make today to exchange U.S. dollars for British pounds three months from now?
Multiple Choice
Forward trade
Spot trade
Arbitrage transaction
Cross-rate exchange
Eurocurrency transaction
Question 2
Eurobonds are best defined as international bonds issued in _____ and denominated in ____.
Multiple Choice
a single country; multiple currencies
a single country; a single currency
multiple countries; multiple currencies
multiple countries; a single currency
Euroland; euros
Question 3
Assume you can exchange $1 for either €.8031 euro or £.6390. What is the cross-rate between the pound and the euro?
Multiple Choice
£.7519/€1
£.8356/€1
£.7957/€1
£1.0852/€1
£1.5577/€1
Question 4
Which one of the following is an example of the political risks associated with foreign operations?
Multiple Choice
Technological changes
Exchange rate fluctuations
Translation exposure to exchange rate risk
Changes in foreign tax laws
Changes in relative wage rates between the home country and the foreign country
Question 5
An American Depositary Receipt is defined as a security:
Multiple Choice
that has been deposited in an interest-bearing account at a U.S. bank.
issued outside the U.S. that represents shares of a U.S. stock.
issued in the U.S. that represents shares of a foreign stock.
that has a guarantee of payment from a U.S. bank.
issued in multiple countries but denominated in U.S. currency.
Question 6
Which statement is correct?
Multiple Choice
Exchange rates are adjusted each morning and held constant until the following morning.
The four most commonly traded currencies in the foreign exchange markets are the U.S. dollar, French franc, European euro, and Brazilian real.
All South American countries use the peso as their currency.
New Zealand uses the same currency as Australia and that is the A$.
The foreign exchange market is the largest financial market in the world.
Question 7
Short-run exposure to exchange rate risk is best illustrated by which one of the following?
Multiple Choice
Change in book value when the market value of an asset remains constant
Daily fluctuations in the spot rate
Increases in the forward rate as the time to settlement increases
Changes in relative economic conditions between two countries
Unrealized foreign exchange gains
Question 8
Which one of the following terms is used to identify the concept that exchange rates vary to keep purchasing power constant among currencies?
Multiple Choice
Exchange rate equilibrium
Exchange rate parity
Universal parity
Market equilibrium
Purchasing power parity
Question 9
Suppose a U.S. firm builds a factory in China, staffs it with Chinese workers, uses materials supplied by Chinese companies, and finances the entire operation with a loan from a Chinese bank located in the same town as the factory. This firm is most likely trying to greatly reduce, or eliminate, which one of the following?
Multiple Choice
Interest rate disparities
Short-run exposure to exchange rate risk
Long-run exposure to exchange rate risk
Political risk associated with the foreign operations
Translation exposure to exchange rate risk
Question 10
The market where euros, pesos, dollars, and pounds are traded is referred to as the:
Multiple Choice
ADR market.
LIBOR market.
gilt market.
euromarket.
foreign exchange market.
Question 11
Which country is correctly matched with its currency?
Multiple Choice
Canada—pound
China—yuan
Mexico—real
Japan—lira
United Kingdom—euro
Question 12
A trader in Switzerland just agreed to trade Swiss francs for British pounds based on today's exchange rate. The trade is expected to settle tomorrow. What term best describes this exchange?
Multiple Choice
Arbitrage transaction
Forward trade
Spot trade
Purchasing power parity
Interest rate parity
Question 13
An agreement to exchange currencies sometime in the future is referred to as which one of the following?
Multiple Choice
Forward trade
Hedge
Gilt
Forward exchange rate
Spot trade
Question 14
Which one of the following is the rate that most international banks charge when they loan Eurodollars to other banks?
Multiple Choice
ADR
LIBOR
Cross-rate
Gilt rate
Swap rate
Question 15
You are given the exchange rate between the U.S. dollar and the Canadian dollar. You are also given the exchange rate between the U.S. dollar and the Mexican peso. What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?
Multiple Choice
Swap rate
Depositary rate
Forward rate
London Interbank rate
Cross-rate
Question 16
Assume the exchange rates in New York for $1 are C$1.1382 and £.6387 while in Toronto, C$1 will buy £.5612. How much profit can you earn on $10,000 using triangle arbitrage?
Multiple Choice
$.91
$1.08
$.97
$1.03
$1.11
Question 17
Assume the exchange rate is 1.05 Swiss francs per U.S. dollar. How many U.S. dollars are needed to purchase 1,250 Swiss francs?
Multiple Choice
$1,315.79
$1,190.48
$1,128.80
$1,140.00
$1,318.46
Question 18
Which of these is defined as an agreement to exchange two securities or two currencies?
Multiple Choice
Hedge
Swap
SWIFT
Gilt
Arbitrage
Question 19
Assume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue?
Multiple Choice
The red herrings can finally be distributed as their distribution was awaiting SEC approval.
The waiting period started when the approval was received this morning.
The SEC believes the issue will be a profitable investment for all purchases made at the offer price.
The issuer is following all the required rules and regulations in regard to this issue.
The final prospectuses have all been delivered or the SEC would not have approved the issue.
Question 20
Which one of the following is probably the most effective means of increasing investors' interest in an IPO?
Multiple Choice
Extending the lockup period
Issuing the IPO through a rights offering
Underpricing the IPO
Eliminating the quiet period
Eliminating the Green Shoe option
Question 21
An initial public offering refers to:
Multiple Choice
the shares held by a firm's founder.
the most recently issued shares that were offered to the firm's existing shareholders.
any shares issued to the public on a cash basis.
the first sale of equity shares to the general public.
all shares issued prior to the firm going public.
Question 22
Currently, you own 1.2 percent of the outstanding shares of Home Security. The firm has decided to issue additional shares of stock and has given you the first option to purchase 1.2 percent of those additional shares. What type of offer is this?
Multiple Choice
Rights offer
Red herring offer
Private placement
IPO
General cash offer
Question 23
What is the legal document called that is provided to potential investors and describes a new security offering?
Multiple Choice
Security agreement
Prospectus
Public statement
Registration statement
Formal filing
Question 24
GW Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called?
Multiple Choice
Markup
Commission
Rights price
Spread
Offer
Question 25
What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering?
Multiple Choice
Syndicate
Underwriting cartel
Firm commitment group
Dutch auction group
Venture capitalists
