1. Which of the following represents an inflow in a bond refunding decision?
Two of the options are correct
The write-off of underwriting cost
The cost savings from lower interest rates
The call premium
2. Which of the following is NOT true?
If a firm does not have foreign subsidiaries, it is not subject to translation exposure.
Genetech Inc. (a U.S. based firm) has a fully owned subsidiary in Germany that generates substantial earnings in Germany. The German subsidiary never remits earnings but reinvests them in Germany. Consequently, Genetech is not exposed to translation exposure.
Translation exposure refers to accounting exposure.
Translation exposure refers to the effect that an unanticipated change in exchange rates will have on the consolidated financial reports of an MNC.
3. Which of the following is true?
If the interest rate parity is holding, the two hedging methods, money market hedge and options hedge, are equivalent.
If the purchasing power parity is holding, the two hedging methods, money market hedge and forward hedge, are equivalent.
If the interest rate parity is holding, the two hedging methods, money market hedge and forward hedge, are equivalent.
If the purchasing power parity is holding, the two hedging methods, money market hedge and options hedge, are equivalent.