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FINS 3616 International Business Finance Sample Final Examination Solutions Session 1, 2011 1. * Frictionless financial markets could have which of

For problem/question 2, letter c...how do you get the answer of 8636.7?

FINS 3616 International Business Finance Sample Final Examination Solutions Session 1, 2011 1. Frictionless financial markets could have which of the following? a . a g e n c y c o s t s b . b i d - a s k s p r e a d s c . b r o k e r a g e f e e s d . c o s t s o f f i n a n c i a l d i s t r e s s * e. irrational investors 2. Which of a) through d) is unlikely to result in a decision to hedge currency risk? * a. bid-ask spreads on foreign exchange b . c o s t s o f f i n a n c i a l d i s t r e s s c . t a x c o n v e x i t y d . s t a k e h o l d e r g a m e - p l a y i n g e . A l l o f t h e a b o v e a r e i n c e n t i v e s t o h e d g e 3. The United Kingdom and the United States use a ____ law system that relies heavily on the decisions of judges in previous court cases. a . c i v i l * b. common c . l a i s s e z f a i r e d . N a p o l e o n i c e . T e u t o n i c 4. With payment through ____, the seller delivers goods directly to the buyer and then bills the buyer for the goods under agreed-upon payment terms. a . a p a c k i n g l i s t b . c a s h i n a d v a n c e c . d o c u m e n t a r y c o l l e c t i o n s d . d o c u m e n t a r y c r e d i t s * e. open account 5. Cash in advance is ____ for most exporters and ____ for most importers, all else constant. a . a t t r a c t i v e ; a t t r a c t i v e * b. attractive; unattractive c . u n a t t r a c t i v e ; a t t r a c t i v e d . u n a t t r a c t i v e ; u n a t t r a c t i v e e . N o n e o f t h e a b o v e 6. Internal methods of reducing the MNC’s transaction exposure to currency risk include each of a) through c) except ____. a . m u l t i n a t i o n a l n e t t i n g b . l e a d i n g a n d l a g g i n g o f i n t r a c o m p a n y t r a n s a c t i o n s * c. hedging in the currency forward markets d . E a c h o f t h e a b o v e i s a w a y t o r e d u c e t r a n s a c t i o n exposure internally e . N o n e o f t h e a b o v e a r e a w a y o f r e d u c i n g t r a n s a c tion exposure internally
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7. The preferred way to hedge transaction exposure to currency risk is ____. * a. by offsetting exposures within the firm b . t h r o u g h f o r w a r d c u r r e n c y c o n t r a c t s c . t h r o u g h f u t u r e s c o n t r a c t s d . t h r o u g h s w a p c o n t r a c t s e . N o n e o f t h e a b o v e - e x p o s u r e s s h o u l d b e l e f t u n hedged 8. Financial market hedges work best for ____ exposures to currency risk. a . a c c o u n t i n g b . e c o n o m i c c . o p e r a t i n g * d. transaction e . t r a n s l a t i o n 9. A “disaster hedge” against adverse currency movements can be obtained with a ____. a . c u r r e n c y f o r w a r d b . c u r r e n c y f u t u r e c . m o n e y m a r k e t h e d g e * d. currency option e . c u r r e n c y s w a p 10. Change in financial accounting statements arising from unexpected changes in currency values is called ____ to currency risk. a . e c o n o m i c e x p o s u r e b . o p e r a t i n g e x p o s u r e c . t r a n s a c t i o n e x p o s u r e * d. translation exposure e . N o n e o f t h e a b o v e 11. When goods markets are segmented from other markets, goods prices are determined ____. a . i n f o r e i g n m a r k e t s b . i n t h e g l o b a l m a r k e t * c. in the local market d . A l l o f t h e a b o v e e . N o n e o f t h e a b o v e 12. The classic importer has ____. a . b o t h r e v e n u e s a n d e x p e n s e s t h a t a r e d e t e r m i n e d globally b b o t h r e v e n u e s a n d e x p e n s e s t h a t a r e d e t e r m i n e d l ocally * c revenues that are determined locally and expenses that are determined globally d r e v e n u e s t h a t a r e d e t e r m i n e d g l o b a l l y a n d e x p e n s es that are determined locally e N o n e o f t h e a b o v e 13. The domestic currency value of an expected future operating cash flow denominated in a foreign currency changes ____ with a change in the value of the foreign currency. a . d i s p r o p o r t i o n a t e l y b . t h e c u r r e n c y o f d e n o m i n a t i o n c . n o t a t a l l d . o n e f o r o n e * e. None of the above 14. An exporter’s financial market hedging alternatives include each of a) through c) except ____. * a. Buy the foreign currency with long-dated forward contracts. b . U s e c u r r e n c y s w a p s t o a c q u i r e f i n a n c i a l l i a b i l i ties in the foreign currency. c . U s e a r o l l i n g h e d g e t o r e p e a t e d l y s e l l t h e f o r e ign currency.
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