Questionnaire

Chapter7: FUTURES and OPTIONS on Foreign Exchange

1. A person or entity that trades securities essentially as bets that the price will go up or down.
a. Hedgers b. Traders c. Speculators d. Market Participants

2. An agreement between a buyer and a seller that gives the purchaser of the option the right
to buy or sell a particular asset at a later date at an agreed upon price.
a. Forward contract b. Futures contract c. Options contract d. Foreign contract

3. It is a legal agreement to buy or sell something at a predetermined price at a specified time in

the future.
a. Forward contract b. Futures contract c. Options contract d. Foreign contract

4. The deliverable quantity of a stock, commodity, or other financial instrument that underlies a
futures or options contract is called _____.
a. Quantity size b. Commodity c. Contract size d. Market size

5. The predetermined price the parties agree to buy and sell the asset for is known as:
a. Forward price b. Upward price c. Futures price d. Change in price

6. It is a contract giving the owner the right, but not the obligation, to buy or sell a given
quantity of an asset at a specified price at some time in the future.
a. Option b. Contract c. Call d. Put

7. It is a type of contract that can be exercised at any time at the will of the holder of the option
before the expiration date.
a. European Option b. Foreign Option c. Asian Option d. American Option

8. A type of option that can be exercised only on its expiration date.

a. European Option b. Foreign Option c. Asian Option d. American Option

9. An option to sell the underlying asset.

a. Contact b. Put c. Option d. Call

10. An option to buy an underlying asset.

a. Contact b. Put c. Option d. Call
TRUE or FALSE

1. A futures market requires speculators and hedgers to effectively operate.

2. Hedgers attempt to avoid the risk of price change of the underlying asset, and speculators
attempt to profit from anticipating the direction of future price change.
3. An American Option is a type of option that can be exercised only on its expiration date.
4. European Option is a type of option that can be exercised at any time at the will of the
holder of the option before the expiration date.
5. A European option-pricing model for put and call options was also presented and explained
using actual market data.

1. TRUE
2. TRUE
3. FALSE
4. FALSE
5. TRUE

Chapter 9: Economic Exposure

Test I : Multiple choice.

1. It can be defined as the extent to which the value the firm would be affected by
anticipated changes in exchange rates.
a. Operating Exposure c. Economic Exposure
b. Asset Exposure d. Firm value

2. The extent to which the firm operating cash flow are affected by the exchange rate.

a. Operating Exposure c. Economic Exposure

b. Asset Exposure d. Firm value

3. A lower dollar prices of imports due to foreign currency exchange rate depreciation.

a. Diversification of the market c. The Conversion Effect

b. Flexible Sourcing Policy d. Financial Hedging

4. Sourcing does not apply only to components , but also to “guest worker”

a. Flexible Sourcing Policy c. The Conversion Effect

 b. Diversification of the Market d. Financial Hedging

5. It involves use of derivatives securities such as currency swaps, future forward,

currency option, among others.

a. Diversification of the Market c. The Conversion Effect

b. Flexible Sourcing Policy d. Financial Hedging

6. A selling in multiple market to take advantage of economies of scale and diversification

og exchange rate risk

a. Diversification of the Market c. The Conversion Effect

b. Selecting low Cost Production Sites d. Financial Hedging

7. A firm may wish to diversify the location of their production site to mitigate the effect of
exchange rate movements.

a. Flexible Sourcing Policy c. The Conversion Effect

b. Selecting low Cost Production Sites d. Financial Hedging

8. The firm ability to adjust its market, product mix, and sourcing in response to exchange
rate changes.
a. Selecting low Cost Production Sites c. R & D and Product Differentiation
b. Determinants Operating Exposure d. Financial Hedging

9. It’s freely against one another, which means they are in constant fluctuation.
a. Exchange Rate c. Firm Value
b.
c. Exchange Rate Fluctuation d. Asset Exposure

10. It is general term that can refer to the total market of a position, the total amount of
possible risk at any given point or a portion of a fund invested in particular asset.

a. Asset Exposure c. Operating Exposure

b. Economic Exposure d. Exposure

Test II : Write True or False.

True 1. The two components of exposure is the Competitive Effect and Difficulties
and increased cost of shipping.

False 2. Asset exposure is the sensitivity of future home currency value of firm asset
and liabilities and the firm operating cash flow to random changes in exchange rate.
 True 3. Sensitivity of the firm’s operating cash flow to random changes in exchange
rates.

False 4. The exposure of coefficient show that there are two sources of economic
exposure: the variance and covariance.

False 5. The exposure coefficient formula is:

Cor (P,S)
B= Var (S)

CHAPTER 10
Questionnaire
Multiple Choice
1. It is also frequently called accounting exposure, refers to the effect that an
unanticipated change in exchange rates will have on the consolidated financial reports
of a MNC.
a. Translation exposure
b. Transaction exposure
c. Economic exposure

2. A “plug” equity account named ________ is used to make the balance sheet balance,
since translation gains or losses do not go through the income statement according to
this method.
a. Current Rate Method
b. Cumulative Translation Adjustment
c. Temporal method

3. Under _________, most income statement items are translated at the average exchange
rate for the period.
a. Current Rate Method
b. Cumulative Translation Adjustment
c. Temporal method

4. Under the __________, all balance sheet accounts are translated at the current
exchange rate, except for stockholders’ equity. This is the simplest of all translation
methods to apply.

a. Current Rate Method

b. Cumulative Translation Adjustment
 c. Temporal method

5. The underlying principle of this method is that assets and liabilities should be translated
based on their maturity.
a. Monetary Method
b. current/noncurrent method
c. Temporal method

6. Under this method, most income statement accounts are translated at the average
exchange rate for the period
a. current/noncurrent method
b. Temporal method
c. Monetary/Nonmonetary Method

7. Its objective was to measure in dollars an enterprise’s assets, liabilities, revenues, or

expenses that are denominated in a foreign currency according to generally accepted
accounting principles.
a. FASB 8
b. FASB 32
c. AIS 21

8. The ________ is defined in FASB 52 as “the currency of the primary economic

environment in which the entity operates.”
a. National currency
b. Functional currency
c. reporting currency

9. The _________ is defined as the currency in which the MNC prepares its consolidated
financial statements.
a. National currency
b. functional currency
c. reporting currency

10. _______ calls for recognizing translation gains or losses in the cumulative translation
adjustment account on the balance sheet.
a. FASB 52
b. FASB 8
c. AIS 21
True or False:
TRUE 1. Under the current rate method, all balance sheet accounts are translated at the
current exchange rate, except for stockholders’ equity. This is the simplest of all
translation methods to apply.
FALSE 2. FASB 32 calls for recognizing translation gains or losses immediately in net
income.
TRUE 3. Garlicki, Fabozzi, and Fonfeder (1987) empirically tested a sample of MNCs to
determine if there was a change in value when the firms were required to switch from
FASB 8 to FASB 52.
FALSE 4. We use the word “attempt” because as the following example demonstrates,
using a balance sheet hedge to control translation exposure really involves speculation
about foreign exchange rate changes.
TRUE 5. There are two methods for dealing with this remaining exposure, if one
desires to attempt to control accounting changes in the historical value of net
investment. These methods are a balance sheet hedge or a derivatives hedge.
Chapter 11
Part 1: Multiple Choice

1. A bank that provides services on behalf of another, equal or unequal, financial

institution. Answer D

A. Representative offices
B. Foreign branches
C. Subsidiary and Affiliated banks

D. Correspondent Bank
2. A small service facility staffed by parent bank personnel that is designed to assist MNC clients
of the parent bank in dealings with the bank’s correspondents. Answer A.
A. Representative offices
B. Foreign branches
C. Subsidiary and Affiliated banks

D. Correspondent Bank
3. A bank that is only partially owned but not controlled by its foreign parent. Answer B.
 A. Representative offices
B. Affiliated banks
C. Subsidiary Bank
D. Correspondent Bank
4. It refers to the amount of equity capital and other securities a bank holds as reserves against
risky assets to reduce the probability of a bank failure. Answer C.
A. Tier1 Core capital
B. Tier 2 Capital
C. capital adequacy

D. Correspondent Bank

5. It serves as the primary daily benchmark used by banks, securities houses, and investors to
set payment on at least $350 trillion in the international money, derivatives, and capital
markets around the world. Answer D.
A. Tier1 Core capital
B. Tier 2 Capital
C. Forward rate agreement

D. BBA LIBOR
6. It is an unsecured short-term promissory note issued by a corporation or a bank and placed
directly with the investment public through a dealer. Answer A.
a. Eurocommercial paper
b. Euronotes
c. Eurocredits
d. BBA Libor
7. It is an interbank contract that allows the Eurobank to hedge the interest rate risk in
mismatched deposits and credits. Answer B.
a. Eurocommercial paper
b. Forward rate agreement
 c. Option Contract
d. Swap interest rate
8. It is a crisis that began in mid-1997 when Thailand devalued the baht. As noted in Chapter 2.
Answer C.
a. Global Finance Crisis
b. Europe Credit Crunch
c. Asian Crisis
d. Thailand Financial Crisis

9. It refers to a decline in lending activity by financial institutions brought on by a sudden

shortage of funds. Answer D.
a. Economic Stimulus
b. Global Finance Crisis
c. Asian Crisis
d. Credit Crunch
10. It is the use of monetary or fiscal policy changes to kick start growth during a recession.
Answer A.
a. Economic Stimulus
b. Dynamic Economy
c. Economic Change
d. Credit Crunch
Part 2: True or False

1. An affiliate bank is locally incorporated bank that is either wholly owned or owned in
major part by a foreign parent. Answer False.

2. Tier 2 capital is designated as supplementary capital and is composed of items such as

revaluation reserves, undisclosed reserves, hybrid instruments, and subordinated term
debt. Answer True.

3. Eurocurrency Market is a market where international currency transactions between

numerous central banks of countries are carried on. Answer False.
 4. EUROCREDITS Are short-to-medium-term loans of eurocurrency extended by eurobanks
to corporations, souvereign governments, nonprime banks, or international
organizations. Answer True.

5. The usual consequence of a credit crunch is a prolonged inflation which occurs as a

result of the shrinking credit supply. Answer False.

Chapter 12
1) Offered by a foreign borrower to the investors in a national capital market and
denominated in that nation’s currency.

a. Eurobond
b. Bearer bond
c. Registered bond
d. Foreign bond

2) The owner’s name is on the bond and it is also recorded by the issuer, or else the
owner’s name is assigned to a bond serial number recorded by the issuer.

a. Owner’s bond
b. Registered bond
c. Eurobond
d. Convertible bond

3) A market in which firm’s sell new stocks and bonds to the public for the first time?

a. Primary market
b. Secondary market
c. Stock market
d. Bond market

4) These are typically medium-term bonds with coupon payments indexed to some
reference rate?
 a. Convertible bonds
b. Floating-Rate notes
c. Coupon bonds
d. Eurobond

5) A person who arranges transactions between a buyer and a seller for a commission
when the deal is executed?

a. Creditor
b. Manager
c. Broker
d. Debtor
6) A collection of investment bankers who participate in the distribution of new issues to
potential investors?

a. Selling group
b. Investors
c. Underwriter
d. Broker

7) Fixed-rate notes issued by a corporation with maturities ranging from less than a year to
about 10 years?

a. Floating-Rate notes
b. Long-term notes
c. Short-term notes
d. Euro-medium-term notes

8) A bond which is issued in several countries at the same time?

a. Eurobond
b. Foreign bonds
c. Global bonds
d. Bearer bond
 9) Denominated in a particular currency but sold to investors in national capital markets
other than the country that issued the denominating currency?

a. Stocks
b. Eurobond
c. Global bonds
d. Currency

10) A person of a company that underwriters an insurance risk?

a. Manager
b. Underwriter
c. Broker
d. Secretary

TRUE OR FALSE

1) A borrower desiring to raise funds by issuing Eurobonds to the investing public will
contact an investment banker and ask it to serve as the lead manager of an underwriting
syndicate that will bring the bonds to market.

Answer : TRUE

2) The secondary market for Eurobonds is an over-the-counter market with principal

trading in London.

Answer : TRUE
 3) The four major currencies that are used to denominate bonds are the euro, Mexican
peso, British pound sterling, and Japanese yen.

Answer : FALSE. (U.S. Dollar)

4) When a registered bond is sold, a new bond certificate is issued with the new
owner’s name, or the new owner’s name is assigned to the bond serial number.

Answer : TRUE

5) The international bond market has been much more innovative than the domestic bond
market in the types of instruments offered to investors.

Answer : TRUE