Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you
have seen the entire question and all the answers before choosing an answer.
1. Using the table below for spot and forward exchange rates, what should the six-month forward rate be for the Swiss franc if U.S. six-month interest rates are 0.22 percent and Swiss six-month rates are 0.18 percent?
A. 1.0723
B. 1.0842
C. 1.0743
D. 0.9784
2. The concept of interest rate parity suggests that the
A. law of one price is valid between two countries.
B. direct quotes and cross rates differ between two countries.
C. exchange rates change over time between two countries.
D. differences in interest rate, forward currency, and spot currency between two countries are equal.
3. _______ monitor(s) a firm from the inside.
A. A board of directors
B. Investment banks
C. Auditors
D. Investment analysts
4. Helping money flow from individuals who want to improve their financial future to businesses that want to expand the scale or scope of their operations relies on the successful application of
A. the time value of money (TVM).
B. financial management.
C. financial theories.
D. economies of scale.
5. Which one of the following is not a benefit of using a credit-scoring model?
A. Reducing the likelihood of bankruptcy
B. Improving the pricing of bankruptcy risk
C. Screening high-risk firms
D. Numerically establishing which factors are important in explaining bankruptcy risk
6. Which one of the following is a type of financial distress?
A. Technical insolvency
B. Economies of scope
C. Workout
D. Misallocation of capital
7. What's meant by the term exchange rate risk?
A. The ability to profit by predicting the movement of exchange rates
B. The potential for exchange rates to change unfavorably over time
C. The potential that a fixed peg arrangement will fail
D. The possibility that direct quotes and cross rates will differ
8. Acme Builders is considering merging with Joe's Construction to achieve economies of scope sufficient to drive the combined firms' costs down by at least $500,000. Acme Builders has costs of $5,000,000 on sales of $8,000,000, and Joe's Construction has costs of $3,000,000 and sales of $5,000,000. What would be the minimum combined average cost of sales expressed as a percentage necessary to achieve the cost reduction goal?
A. 57.69 percent
B. 59.43 percent
C. 55.82 percent
D. 59 percent
9. A merger that involves combining a firm with a supplier or distributer is known as a _______ merger.
A. vertical
B. market extension
C. horizontal
D. conglomerate
10. Calculate the change in HHI following a merger between firm B and firm D in an industry with the following market share
levels:
A. 814
B. 721
C. 685
D. 498
11. Which of the following is an example of an economy of scope?
A. Two firms become larger by a merger, allowing them to lower operating costs by reducing or eliminating overlapping resources.
B. The management team of the acquired firm is highly skilled and helps boost the overall performance of the merged firm.
C. Two firms jointly use their input resources, such as capital and labor, to produce a set of goods or services at a lower cost than if the two firms operated independently of each other.
D. Two firms merge, with the surviving firm's growth rate augmented by the faster growth experienced by the acquired firm.
12. Which one of the following types of international expansion involves the highest level of participation in the form of capital at risk and potential for profit?
A. Direct ownership
B. Sales subsidiary
C. Joint venture
D. Licensing agreement
13. A multinational corporation has purchased a manufacturing plant in a foreign country with an exchange rate of $0.3435 of the foreign currency = $1 U.S., for a total cost of $12,500,000 U.S. Soon after the purchase, the country's leadership orders that the
plant be nationalized and mandates that the MNC sell the plant at a discounted exchange rate of $0.2241. How much in U.S. dollars will the MNC lose on the transaction?
A. $4,345,561.25
B. $2,638,750.22
C. $5,214,424.50
D. $6,154,438.75
14. What type of business organization would give your investors limited liability but you, as the owner and operator, unlimited liability?
A. Corporation
B. Limited liability corporation (LLC)
C. Limited partnership (LP)
D. General partnership
15. Determine the cross rate between Australian and Canadian dollars if $1.0344 Australian will buy $1 U.S. and $0.9788 Canadian will buy $1 U.S.
A. $1.0568
B. $0.9921
C. $1.0424
D. $0.9854
16. Adam Smith attributed his belief that individuals pursuing their own economic self-interest would result in the greatest good for society over the long term to
A. securitization.
B. economies of scale.
C. the invisible hand.
D. the time value of money (TVM).
17. Cash flows for a foreign project will be in the foreign currency while the discount rate is usually evaluated from the domestic currency perspective. Which one of the following is a method for resolving the problem?
A. Engage in arbitrage to make up for any potential foreign exchange losses
B. Convert all cash flows from the foreign currency in question to another foreign currency
C. Use purchasing power parity to determine the discount rate
D. Convert the domestic discount rate to an equivalent in the foreign currency
18. Which one of the following is used in restructuring a firm's debt?
A. Assignment
B. Liquidation
C. Composition
D. Hedging
19. What's the subarea of finance that involves methods and techniques for marking decisions about what types of securities to own?
A. Financial institutions
B. International finance
C. Investments
D. Financial management
20. What technique can be used to profit if direct quotes and cross rates differ?
A. Arbitrage
B. Hedging
C. Discounting
D. Currency swaps
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