Question 1: From a trade basis, if U.S. trade deficits with Japan continues, and if U.S. inflation rates exceed that of Japan,
A- the yen is likely to appreciate against the dollar moving from 110 yen per dollar to 120 yen per dollar.
B- the yen is likely to appreciate against the dollar moving from 120 yen per dollar to 110 yen per dollar.
C- U.S. interest rates will be less than comparable rates in Japan.
D- the dollar is likely to appreciate against the yen.
Question 2: Which of the four secondary markets listed below minimizes price risk, but search costs are often high?
A- direct search
B- brokered
C- dealer
D- auction
Question 3: A Japanese auto in 1995 was priced at $15,000 when a yen cost $0.00625. Suppose the price in yen has not changed. What is the cost today if the exchange rate stands at ¥135/$?
A- ¥2,400,000
B- ¥2,025,000
C- $12,656
D- $17,778
Question 4: A stock purchased at $40 at the beginning of the year paid $10 in dividends and was sold for a net price of $42 at the end of the year. The total annual return is
A- 25 per cent
B- 100 per cent
C- 30 per cent
D- 28.6 per cent
Question 5: A Detroit bank pays 6% for a $100,000 six-month certificate of deposit, while a Windsor, Ontario bank advertises a rate of 7.5%. Which CD should the Detroit investor take? Refer to the foreign exchange rates below.
U.S. Equiv. Rates
Canada (dollar) $0.8345
180 day Forward $0.8225
A- Make the U.S. CD investment.
B- Make the Canadian CD investment.
C- The investor is indifferent between the two because of interest parity.
D- One is unable to make this calculation with the data provided
Question 6: Regulators provide a valuable function for the capital markets because they
A- try to keep the market participants honest.
B- try to prevent excessive speculation from destabilizing the market.
C- make sure all pertinent information about publicly traded securities is disclosed.
D- all of the above
Question 7: Using the security market line, calculate the required rate of return on a stock when the risk-free rate is 7%, the return on the market portfolio is 15%, and the beta is 1.5?
A- 12 %
B- 19%
C- 29.5%
D- 33%
Question 8: What is the relationship between spot market prices and forward market prices of a good or financial asset?
A- Spot prices represent expected forward prices.
B- Forward prices are always higher than spot prices.
C- Spot prices are always higher than forward prices.
D- Forward prices are expected future spot prices.
Question 9: A hedger in the financial futures market NOTE: the spot market is where assets are bought or sold with 'on-the-spot' delivery
A- seeks a position in the spot market to offset the price risk, which exists in the futures market.
B- will purchase financial futures if holding financial assets in the spot market.
C- seeks to offset the price risk in its spot market position with the nearly equal but opposite price risk of the futures position.
D- will always short financial futures to perfect the hedge.
Question 10 - If an American firm needs to pay 100,000 pounds in 90 days for British steel, it could protect itself against price risk by
A- selling pounds [in exchange for dollars] in the forward market for delivery in 90 days.
B- buying pounds [in exchange for dollars] in the futures market for delivery in 90 days.
C- selling pounds [in exchange for dollars] now.
D- wait 90 days and buy pounds [in exchange for dollars].