FundamentalsofMultinationalFinance,3e(Moffett) Chapter4
1
The Balanceof Payments 4.1
Mul
1)
The
balanceofpaymentsasappliedtoacourseininternationalfinancemaybedefinedas A)
theamountstill owedbyanexportingfirmaftermakinganinitialdownpayment. B)
theamountsti
ch24
Student: _
1.
A warrant gives the owner:
A. the obligation to sell securities directly to the firm at a fixed price for a specified time.
B. the right to purchase securities directly from the firm at a fixed price for a specified time.
C. the obligat
ch26
Student:
1.
The length of time between the acquisition of inventory and the collection of cash from receivables is
called the:
A. operating cycle.
B. inventory period.
C. accounts receivable period.
D. accounts payable period.
E. cash cycle.
2.
The l
FundamentalsofMultinationalFinance,3e(Moffett) Chapter10
1
Operating Exposure 10.1
Multi
1)
Another nameforoperatingexposureis_exposure. A)
economic B)
competitive C)
strategic D)
alloftheabove Answer:
D
Topic:
Operating Exposure Skill:
Recognition
2)
W
ch22
Student: _
1.
A financial contract that gives its owner the right, but not the obligation, to buy or sell a specified asset at
an agreed-upon price on or before a given future date is called a(n) _ contract.
A. option
B. futures
C. forward
D. swap
E.
Appendix A
Some notes on examination technique
Each candidate should spend some time going over his or her notes, the textbook and (especially)
past examination papers, making a note of subjects and formulae of particular importance. For this
purpose a se
328
CHAPTER 19. PENSION FUNDS
(b) Value of benefits for the group is
(i+r)a
(i+r)a
302100 M25
70100 s R
Md
25
+
+ 11 30000 25
100
D25
100
s25
D25
D25
= 2977.37 + 54730.83 + 11811.67 = 69, 528
Value of future contributions is
70100 s
N 25
s25 D25
= 76, 7
19.16. SOLUTIONS
329
P
Value of Future Service Pension =
Value of return of contributions =
x
25
35
45
P
P
SAL
43,000
62,600
68,200
(n SAL)
163,100
752,300
1,044,000
SAL
sx
P60
SAL
100
sx
P.S.P.
7,776
55,421
103,230
166,427
(i+r)a
R
x
Dx
sj d+w
Rx
(where
SUPPLEMENT
Functions for valuing (at interest rate i per annum) refunds on death of contributions with
compound interest at interest rate j per annum
i = .04
j = 0.03
x
=
20
25
30
35
40
45
50
55
60
61
62
63
64
j
Md
P64 x j
d
Cy
3108.18
2878.57
2700.59
252
Appendix D
Some formulae for numerical integration
1.
Mid-point rule
Z
b
f (x)dx + (b a)f
a
a+b
2
2.
Trapezoidal rule
Z b
ba
f (x)dx +
[f (a) + f (b)]
2
a
3.
Simpsons rule
Z b
ba
a+b
f (x)dx +
f (a) + 4f
+ f (b)
6
2
a
4.
Three-eighths rule
Z b
2a + b
a +
326
CHAPTER 19. PENSION FUNDS
19.6
It is desired to set up a pension scheme for the group of employees described below. For each
member there is recorded his exact age, his exact length of service with the company, and his
annual rate of salary.
Age
Past
324
CHAPTER 19. PENSION FUNDS
Exercises
19.1
Contributions to a pension scheme by employees are made at a rate of 5% of salary when aged
under 35, 6% between ages 35 and 45, and 7 12 % when aged 45 or over. Calculate the present
value of the future contri
19.16. SOLUTIONS
331
Appendix: Formulae for valuing a return of contributions
Suppose employees contributions are to be returned on withdrawal with interest at rate j per
annum compound. Consider a member aged x whose current salary rate is SAL and whose
Appendix B
Some technical points about the tables used in examinations
1.
Avoid excessive reliance on commutation functions.
In theoretical/statistical questions, it is nearly always best to avoid the use of commutation functions.
2. In the A1967-70 secti
ch23
Student: _
1.
The option to abandon is:
A. a real option.
B. usually of little value because of the cost associated with abandonment.
C. irrelevant in capital budgeting analysis.
D. nearly always less relevant the option to expand.
E. All of these.
2
SUPPLEMENT
Functions for valuing (at interest rate i per annum) refunds on withdrawal of contributions with
compound interest at interest rate j per annum
i = .04
j=0
x
=
20
25
30
35
36
37
38
39
40
41
42
43
44
j
Mw
P64 x j
w
Cy
20579.08
7847.29
2916.96
97
SUPPLEMENT
Functions for valuing (at interest rate i per annum) refunds on death of contributions with
compound interest at interest rate j per annum
i = .04
j=0
x
=
20
25
30
35
40
45
50
55
60
61
62
63
64
j
Md
P64 x j
y=x
792.85
674.16
594.98
527.62
466.0
212
12.5
CHAPTER 12. CONTINGENT ASSURANCES
Extension to Three Lives
We briefly mention the following symbols and formulae:
q 1
xyz
= P rcfw_(x) dies first of (x), (y), (z)
Z
=
t px x+t t py t pz dt
(12.5.1)
0
q 2
xy z
= P rcfw_(x) dies second, (y) having
12.7. SOLUTIONS
215
Solutions
12.1
Only A is correct.
12.2 Let single premium be P . Z
P = 80000
0
10
v t t p50 50+t t p40 dt + 0.02P at 6% interest
Z
80000 10
f (t) dt where f (t) = v t t p50 50+t .t p40
0.98 0
80000 10
[f (0) + 4 f (5) + f (10)] using S
216
CHAPTER 12. CONTINGENT ASSURANCES
(iii) (a) Reserve = 10, 000A70:70 + 5, 000A
2
70:70
0.95P a
70:70
(b) Reserve = 5, 000A70
12.5
(i) 100, 000
R
0
v t t pxy x+t dt
(ii) (a) Annual premium, P =
100000
R
0
v t t pxy x+t dt
.
a
xy
(b) No, because premium
12.4. A PRACTICAL APPLICATION THE PURCHASE OF REVERSIONS
211
Lapse options
One should avoid having a negative prospective reserve at any duration, as this may lead to a lapse
option against the office. In particular, one should ensure that premiums cease
210
CHAPTER 12. CONTINGENT ASSURANCES
The variance of Z is
E(Z 2 ) [E(Z)]2
where
2 T
(v ) 1
0
T
(v ) 1
=E
0
= A1 at rate
E(Z 2 ) = E
xy
if T1 T2
if T1 > T2
if T1 T2
if T1 > T2
where v =
of interest i2 + 2i (or force of interest 2)
Hence
Var(Z) = A1 (A1
12.7. SOLUTIONS
12.8
217
Let chief = (y) = (47), brothers (x1 ) = (37), (x2 ) = (33).
(x2 ) becomes chief if and only if
(1) he survives for 3 years and (y) retires then, (x1 ) having died.
(2) (x1 ) becomes chief (by succeeding (y) on his death or retire
FundamentalsofMultinationalFinance,3e(Moffett) Chapter9
1
Transactio nExposure 9.1
Mul
1)
_ exposuredealswithcashflowsthatresultfromexistingcontractualobligations. A)
Operating B)
Transaction C)
Translation D)
Economic Answer:
B
Topic:
Transaction Exposu
12.6. EXERCISES
213
Exercises
12.1
Which (if any) of the following statements are correct?
A.
Axx = 2A1
xx
12.2
B.
C.
Axx = 2Ax
Axx = 2Ax A1
D.
Axx = A1 + A2
xx
xx
xx
Adams (aged 40) and Brown (aged 50) are two business partners. Adams wishes to provide
f