INTERNATIONAL FINANCIAL MANAGEMENT
13TH EDITION FINAL PAPER EXAM PREP
QUESTIONS AND ANSWERS GUARANTEED
TO PASS
◉ The advantages of a market order include the fact that
Answer: you are pretty much guaranteed that your order will be
executed, and a market order typically has lower commissions than
a limit order.
◉ Over-the-counter stocks are generally
Answer: unlisted stocks
◉ On the Tokyo Stock Exchange, Honda Motor Company stock closed
at ¥2,907 per share on Monday, June 6, 2016. Honda trades as an
ADR on the NYSE. One underlying Honda share equals one ADR. On
June 6, 2016, the ¥/$ exchange rate was ¥107.57/$1.00. (Round
your answer to 2 decimal places.)
At this exchange rate, what is the no-arbitrage U.S. dollar price of
one ADR?
Answer: 27.02
,◉ The sale of previously issued common stock traded between
investors occurs in
Answer: the secondary market
◉ In the Frankfurt market, Aldi stock closed at €5 per share. On the
same day, the euro-U.S. dollar spot exchange rate was €.625/$1.00.
Aldi trades as an ADR in the OTC market in the United States. Five
underlying Aldi shares are packaged into one ADR. The no-arbitrage
U.S. price of one ADR is
Answer: $40.00
◉ A limit order
Answer: is an instruction from a customer to a broker to buy or sell
in at a particular price (or better).
can be a "day order"—that is the order is cancelled if not executed
during that day's trading.
can be "good-till-cancelled."
◉ On the Paris bourse, shares of Avionelle trade at €45. The spot
exchange rate is $1.40 = €1.00. What is the no-arbitrage U.S. dollar
price of an Avionelle ADR? Assume that transactions costs are
negligible and that one ADR represent one underlying share.
Answer: $63.00
, ◉ A U.S. parent firm, as result of its business activities in Germany,
has a net exposure of €1,000,000. The consolidated reports were
prepared at the year-end for the last two successive years. If the
exchange rates on these reporting dates changed from $1.00 = €1.10
to $1.00 = €1.00, then the translation exposure report will indicate a
"reporting currency imbalance" of
Answer: $90,910.
◉ A balance sheet hedge seeks to
Answer: eliminate any mismatch of net assets and net liabilities
denominated in the same currency.
◉ Consider a U.S.-based MNC with manufacturing activities in Japan.
The result of a change in the ¥-$ exchange rate on the assets and
liabilities of the consolidated balance sheet is
Exposed assets ¥700,000,000 Exposed liabilities ¥500,000,000
Ignoring transaction exposure in the yen, the translation exposure
will indicate a possible need for a "balance sheet hedge" of
Answer: ¥200,000,000 less assets denominated in yen.,
¥200,000,000 more liabilities denominated in yen.
13TH EDITION FINAL PAPER EXAM PREP
QUESTIONS AND ANSWERS GUARANTEED
TO PASS
◉ The advantages of a market order include the fact that
Answer: you are pretty much guaranteed that your order will be
executed, and a market order typically has lower commissions than
a limit order.
◉ Over-the-counter stocks are generally
Answer: unlisted stocks
◉ On the Tokyo Stock Exchange, Honda Motor Company stock closed
at ¥2,907 per share on Monday, June 6, 2016. Honda trades as an
ADR on the NYSE. One underlying Honda share equals one ADR. On
June 6, 2016, the ¥/$ exchange rate was ¥107.57/$1.00. (Round
your answer to 2 decimal places.)
At this exchange rate, what is the no-arbitrage U.S. dollar price of
one ADR?
Answer: 27.02
,◉ The sale of previously issued common stock traded between
investors occurs in
Answer: the secondary market
◉ In the Frankfurt market, Aldi stock closed at €5 per share. On the
same day, the euro-U.S. dollar spot exchange rate was €.625/$1.00.
Aldi trades as an ADR in the OTC market in the United States. Five
underlying Aldi shares are packaged into one ADR. The no-arbitrage
U.S. price of one ADR is
Answer: $40.00
◉ A limit order
Answer: is an instruction from a customer to a broker to buy or sell
in at a particular price (or better).
can be a "day order"—that is the order is cancelled if not executed
during that day's trading.
can be "good-till-cancelled."
◉ On the Paris bourse, shares of Avionelle trade at €45. The spot
exchange rate is $1.40 = €1.00. What is the no-arbitrage U.S. dollar
price of an Avionelle ADR? Assume that transactions costs are
negligible and that one ADR represent one underlying share.
Answer: $63.00
, ◉ A U.S. parent firm, as result of its business activities in Germany,
has a net exposure of €1,000,000. The consolidated reports were
prepared at the year-end for the last two successive years. If the
exchange rates on these reporting dates changed from $1.00 = €1.10
to $1.00 = €1.00, then the translation exposure report will indicate a
"reporting currency imbalance" of
Answer: $90,910.
◉ A balance sheet hedge seeks to
Answer: eliminate any mismatch of net assets and net liabilities
denominated in the same currency.
◉ Consider a U.S.-based MNC with manufacturing activities in Japan.
The result of a change in the ¥-$ exchange rate on the assets and
liabilities of the consolidated balance sheet is
Exposed assets ¥700,000,000 Exposed liabilities ¥500,000,000
Ignoring transaction exposure in the yen, the translation exposure
will indicate a possible need for a "balance sheet hedge" of
Answer: ¥200,000,000 less assets denominated in yen.,
¥200,000,000 more liabilities denominated in yen.
