1. Which of the following statement is correct?
a. All the answers are incorrect.
b. Unlike failure to make a scheduled interest or principal payment to common stockholders, failure to pay a scheduled dividend to preferred stockholders is a reason for making the company bankrupt.
c. The conversion ratio is the number of profit shares that an investor would get if the callable bond were converted.
d. Bonds rated Baa3 or above by Moody’s and BBB2 or above by Standard & Poor’s are called junk bonds.
e. Eurobonds are bonds denominated in the currency of the issuing company’s home country and sold in another country.
2. Which of the following statement is correct?
a. The relative purchasing power parity theory posits that exchange rates are determined by the differences in the prices of a given market basket of traded goods and services when there are transportation costs, tariffs, quotas, and other trade barriers.
b. The American depository receipts (ADRs) are never traded on the New York Stock Exchange and the Nasdaq over-the-counter market and cannot be created by buying foreign stock and placing in special trusts.
c. In general, the diversification benefits are smaller for a portfolio that contains both domestic and foreign securities, rather than domestic securities alone.
d. All the answers are incorrect.
e. If a company holds stocks or bonds denominated in the U.S. dollars in other countries, the fluctuations in the value of the U.S. dollar will affect the dollar value of the stocks and bonds.