Deck 14: Global Financial Management

Question 1

The impact of random change in the value of one currency with respect to other currencies is called the _____.

A) transactions risk
B) exchange rate risk
C) economic risk
D) consolidated risk
E) accounting risk

Answer 1

B

Question 2

Bonds that are sold in any country outside the home country, but in the home country's currency, are called government bonds.

Answer 2

False

Question 3

The two types of short-term effects on currency movements are transactions risk and transformational risk.

Answer 3

False

Question 4

Bank and government loans used by exporters to finance working capital are called trade financing.

Question 5

Marked-to-market involves the trading of futures contracts in major currencies and offering price transparency and efficiency in addition to elimination of counterparty risk due to guaranteed payments on contract.

Question 6

An interest rate swap, often combined with a currency swap when the interest being swapped is in different currencies, is called a syndicate swap.

Question 7

On October 19, 1987 (Black Monday)stock prices in Hong Kong began collapsing and spread throughout the day into the Europe and then North America. This is an example of contagion.

Question 8

Marked-to-market refers to futures contracts in which gains are earned in cash at the end of each trading day.

Question 9

Moody's and Standard and Poor's provide bond ratings which are important in assuring the credit quality to foreign investors.

Question 10

Consolidated accounting statements consist of income statements and balance sheets of multinational corporations including all subsidiaries abroad and are due to the IMF's special drawing right.

Question 11

The cost of equity is required rate of return by stockholders in a firm and is estimated by means of the Capital Asset Pricing Model (CAPM).

Question 12

_____ risk refers to the ways in which long-term exchange rate movements affect firms.

A) Transactions
B) Translation
C) Economic
D) Consolidated
E) Accounting

Question 13

A group of banks that collectively make a loan to a firm is called a hedge.

Question 14

A basket of currencies consisting of dollars, euros, pounds, and yen created by the International Monetary Fund is known as the _____.

A) Trade Right
B) Value Factor Right
C) Currency Right
D) Export-Import Right
E) Special Drawing Right

Question 15

Currency swaps allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements.

Question 16

The sensitivity of a stock to market risk affected by currency movements is called the weighted average cost of capital.

Question 17

Two kinds of short-term effects of currency movements are _____ risk and _____ risk.

A) transactions; translation
B) transactions; exchange rate
C) economic; translation
D) consolidated; economic
E) accounting; translation

Question 18

If losses occur causing a market participant's balance to fall below the maintenance margin at the end of the trading day, a margin premium occurs that requires the bank to replenish the investor's trading account.

Question 19

Clearing House Interbank Payment System (CHIPS)is an organization that provides secure communication for contracts, invoices, and other trade documents that normally accompany cash payments.

Question 20

_____ risk arises from the import and export of goods and services.

A) Transactions
B) Translation
C) Economic
D) Consolidated
E) Accounting

Question 21

Debt contracts sold by firms domiciled in a country in the home currency are called _____.

A) open account
B) commercial letter of credit
C) banker's acceptance
D) domestic bonds
E) bond rating

Question 22

On October 19, 1987, stock prices in Hong Kong began collapsing and spread throughout the day into Europe and then North America as their stock markets opened for trading. Within one week, Hong Kong fell 46 percent, Australia 42 percent, the U.S. 23 percent, and Canada 23 percent. This is an example of an event called _____.

A) diversification
B) sensitivity
C) domestication
D) speculation
E) contagion

Question 23

Bonds that are sold in any country outside the home country, but in the home country's currency, are called _____.

A) closed
B) foreign
C) domestic
D) Eurobond
E) syndicate

Question 24

When a bank sells a LC into the financial marketplace as a money market instrument, it is called a(n)_____.

A) payment in advance
B) commercial letter of credit
C) banker's acceptance
D) syndicate
E) bond rating

Question 25

Futures contracts available in currencies of emerging-market countries by large banks in the OTC market are called _____.

A) margin contracts
B) margin call contracts
C) currency forward contracts
D) organized exchanges
E) marked-to-market exchanges

Question 26

Of the following, which is NOT true about the IMF and World Bank?

A) They were established in 1890.
B) Their purposes are to promote international monetary stability and international trade.
C) The IMF provides short-term loans to countries in financial crises.
D) More than 180 countries participate as members of the IMF.
E) The World Bank focuses upon long-term loans to developing countries seeking financing for economic reform purposes intended to raise the standard of living.

Question 27

The price paid by the buyer to the seller for an option contract is called a(n)_____.

A) call option
B) put option
C) premium
D) currency swap
E) marked-to-market

Question 28

Bonds that are issued by foreign firms in another country in the home currency of that country are called _____.

A) open account
B) commercial letter of credit
C) foreign bonds
D) domestic bonds
E) bond ratings

Question 29

Losses that are incurred and that cause the participant's balance to fall below the maintenance margin at the end of the trading day is called a _____.

A) margin sell
B) margin call
C) short position
D) long position
E) marked-to-market

Question 30

A derivatives market run by large banks is called a(n)_____.

A) margin contract
B) over-the-counter market
C) currency forward contracts
D) organized exchanges
E) marked-to-market

Question 31

_____ allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements.

A) Call options
B) Put options
C) Premiums
D) Currency swaps
E) Marked-to-market

Question 32

A simple agreement wherein the exporter sends an invoice with the goods and the exporter pays upon the receipt is called a(n)_____.

A) open account
B) commercial letter of credit
C) banker's acceptance
D) syndicate
E) bond rating

Question 33

Using currency derivatives to reduce potential transaction, translation, and economic risks of currency movements that could lead to losses for a firm or investor is called_____.

A) hedging
B) speculating
C) a short position
D) an organized exchange position
E) a marked-to-market position

Question 34

The safest method available to an exporter, but that which exposes the importer to some risk related to delivery of goods, is called _____.

A) payment in advance
B) a commercial letter of credit
C) a banker's acceptance
D) a syndicate
E) a bond rating

Question 35

_____ offers payment protection to both exporters and importers, as the importer's bank writes a guarantee of payment.

A) Payment in advance
B) A commercial letter of credit
C) A banker's acceptance
D) A syndicate
E) A bond rating

Question 36

A small commitment fee needed to purchase a futures contract is called a _____.

A) margin
B) speculator
C) short position
D) long position
E) marked-to-market

Question 37

Selling a currency in a currency futures contract and profiting on a decrease in the value of the currency over time is called _____.

A) hedging
B) syndicating
C) a short position
D) a long position
E) marked-to-market exchange position

Question 38

Buying a currency in a currency futures contract and profiting on an increase in the value of the currency over time is called _____.

A) hedging
B) syndicating
C) a short position
D) a long position
E) marked-to-market

Question 39

Buying securities in a portfolio with price patterns over time that are different from one another, which reduces the volatility of the portfolio, is called _____.

A) diversification
B) sensitivity
C) domestication
D) speculation
E) syndication

Question 40

Of the following, which is NOT true about international banking and payments?

A) Payment in advance is the safest method.
B) Payment in advance does not expose the importer to some risk concerning delivery of the goods.
C) A commercial letter of credit offers payment protection to both parties.
D) A commercial letter of credit is usually irrevocable.
E) An open account is a simple agreement wherein the exporter sends an invoice with the goods and the exporter pays upon the receipt.

Question 41

The small commitment fee needed to purchase a futures contract is a ______.

Question 42

Standardized agreements to buy or sell a specified amount of currency at a date in the future at a pre-determined price are called _________.

Question 43

_______ refers to selling a currency in a currency futures contract and profiting on a decrease in the value of the currency over time

Question 44

The sensitivity of a stock to market risk affected by currency movements is known as the _____.

A) net present value
B) value factor
C) exchange rate sensitivity
D) cost of capital
E) exchange risk beta

Question 45

The short- term effects of currency movements on the consolidated accounting statements of a firm represents a ______ risk.

Question 46

The weighted average of different interest rates paid on long-term borrowings is called the _____.

A) net present value
B) cost of debt
C) cost of equity
D) cost of capital
E) exchange risk beta

Question 47

__________ refers to a basket of currencies consisting of dollars, euros, pounds, and yen created by the International Monetary Fund (IMF).

Question 48

The trading of futures contracts in major currencies and offering price transparency and efficiency in addition to elimination of counterparty risk due to guaranteed payments on contacts is called _______.

Question 49

The required rate of return demanded by stock and bond investors and used in net present value capital budgeting analyses as the discount rate is called the _____.

A) net present value
B) cost of debt
C) cost of equity
D) cost of capital
E) exchange risk beta

Question 50

Whether a firm has growth or value and how this firm characteristic affects an estimate of the cost of equity is called the _____.

A) net present value
B) value factor
C) cost of equity
D) cost of capital
E) beta risk

Question 51

_______ accounting statements are the income statements and balance sheets of multinational corporations and of all subsidiaries abroad due to home tax requirements.

Question 52

Attempts in currencies and currency derivatives to earn profits from trading them and help to make prices efficient are referred to as _______.

Question 53

A stock value measured with the coefficient obtained by regressing the stock's return on a currency's return over time is known as the _____.

A) net present value
B) value factor
C) exchange rate sensitivity
D) cost of capital
E) beta risk

Question 54

________ is the practice of using currency derivatives to reduce potential transaction, translation, and economic risks of currency movements that could lead to losses for a firm or investor.

Question 55

How short-term changes in exchange rates can affect operating costs and revenues of firms engaged in international business activities is referred to as ________ risks.

Question 56

The buying of a currency in a currency futures contract and profiting on an increase in the value of the currency over time is called taking a _______.

Question 57

______ refers to losses that are incurred and that cause the participant's balance to fall below the maintenance margin at the end of the trading day.

Question 58

______ refers to futures contracts in which gains or losses are earned in cash at the end of each trading day.

Question 59

_______ risks are the ways in which long-term exchange rate movements impact firms.

Question 60

The _____ risk refers to the impact of random change in the value of one currency with respect to other currencies.

Question 61

______ are debt contracts sold by firms domiciled in a country in the home currency.

Question 62

______ is a simple agreement wherein the exporter sends an invoice with the goods and the exporter pays upon their receipt.

Question 63

Payment protection to both exporters and importers, as the importer's bank writes a guarantee of payment refers to ______.

Question 64

______ is an organization that provides secure communications for contracts, invoices, and other trade documents that normally accompany cash payments.

Question 65

______ is an organization in New York City that provides large, wholesale dollar payments services for businesses, banks, and governments.

Question 66

______ are bonds that are issued by foreign firms in another country in the home currency of that country.

Question 67

______ refers to an investor's right to buy an asset at a pre-determined price.

Question 68

______ refers to an interest rate swap, often combined with a currency swap, if the interest being swapped is in different currencies.

Question 69

_______ is the safest method available to an exporter, but that which exposes the importer to some risk related to delivery of goods.

Question 70

Moody's and Standard and Poor's rating services, which are important in assuring foreign investors of the credit quality of bond issues, refers to _____.

Question 71

Futures contracts available in currencies of emerging-market countries by large banks in the OTC market refers to _____.

Question 72

______ are bonds that are sold in any country outside the home country, but in the home country's currency.

Question 73

The price paid by the buyer to the seller for an option contract refers to the _____.

Question 74

_____ refers to a group of banks that collectively make a loan to a firm.

Question 75

______ refers to an investor's right to sell an asset at a pre-determined price.

Question 76

______ allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements.

Question 77

When a bank sells a LC into the financial marketplace as a money market instrument, this is called ______.

Question 78

Derivatives market run by large banks refers to _____.

Question 79

Large global banks are called _______ banks.

Question 80

Buying securities in a portfolio with price patterns over time that are different from one another, which reduces the volatility of the portfolio, refers to _____.