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IBF301 SP26 B5 FE RE

IBF301_SP26_B5RE | Multiple Choice Question 1

(Choose 1 answer)

Comparing "forward" and "futures" exchange contracts, we can say that

A. (i) they are both "marked-to-market daily

B. ( ) their major difference is in the way the underlying asset is priced for future purchase or sale: futures settle daily and forwards settle at maturity

C. () a futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC

D. both (ii) and (iii).

IBF301_SP26_B5RE | Multiple Choice Question 2

(Choose 1 answer)

The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a short position on €1,000. At maturity, the spot exchange rate is $1.60/€ How much have you made or lost?

A. Lost $100

B. Made $100

C. Lost $50

D. Made $150

IBF301_SP26_B5RE | Multiple Choice Question 3

(Choose 1 answer)

The current spot exchange rate is $1.1345 = €1.00 and the three-month forward rate is $1.1477 = €1.00. Consider a three-month American call option on €62,500 with a strike price of $1.10 = €1.00. What is the immediate profit from exercising this option?

A. $2,156

B. $3,125

C. $825

D. $2,981

IBF301_SP26_B5RE | Multiple Choice Question 4

(Choose 1 answer)

Which of the following best describes arbitrage?

A. Buying and selling assets at different times to maximize profits

B. Simultaneously buying and selling equivalent assets for certain profits

C. Selling assets with a risk of loss to gain profits

D. Holding onto assets without any intention of selling them

IBF301_SP26_B5RE | Multiple Choice Question 5

(Choose 1 answer)

Balance of payments

A. is defined as the statistical record of a country's international transactions over a certain period of time presented in the form of a double-entry bookkeeping

B. provides detailed information concerning the demand and supply of a country's currency

C. can be used to evaluate the performance of a country in international economic competition.

D. all of the above

IBF301_SP26_B5RE | Multiple Choice Question 6

(Choose 1 answer)

A CME contract on €125,000 with September delivery

A. is an example of a forward contract

B. is an example of a futures contract

C. is an example of a put option

D. is an example of a call option.

IBF301_SP26_B5RE | Multiple Choice Question 7

(Choose 1 answer)

A depreciation will begin to improve the trade balance immediately if

A. (i) imports and exports are responsive to the exchange rate changes.

B. ( ) imports and exports are inelastic to the exchange rate changes

C. ( ) consumers exhibit brand loyalty and price inelasticity

D. (ii) and (iii)

IBF301_SP26_B5RE | Multiple Choice Question 8

(Choose 1 answer)

A country may link its exchange rate to the value of a major currency, often the US dollar. This is called

A. a currency par

B. a currency peg

C. a currency composite

D. a currency basket

E. None of the above

IBF301_SP26_B5RE | Multiple Choice Question 9

(Choose 1 answer)

After Ford Motor Company purchases €500,000 through its U.S. bank at $1.10/€, what adjustment occurs to the U.S. bank's euro-denominated account with its eurozone correspondent bank?

A. Its correspondent bank account in Europe is debited by €500,000

B. Its correspondent bank account in Europe is credited by €550,000

C. Its correspondent bank account in Europe is credited by $550,000

D. None of the options

IBF301_SP26_B5RE | Multiple Choice Question 10

(Choose 1 answer)

Which of the following contributed most directly to the emergence of globalized financial markets in the 1980s and 1990s?

A. Protectionist policies in major economies

B. Introduction of universal basic income

C. Deregulation of foreign exchange and capital markets

D. Rise in global tariffs and trade restrictions

IBF301_SP26_B5RE | Multiple Choice Question 11 (Finance context)

(Choose 1 answer)

Which of the following is true?

A. The competitive effect is defined as the impact that a currency depreciation may have on the operating cash flow in the foreign currency by altering the firm's competitive position in the marketplace

B. The conversion effect is defined as a given accounting cash value in a foreign currency will be converted into a lower dollar amount after currency depreciation.

C. The competitive effect is defined as a given operating cash flow in a foreign currency will be converted into a lower dollar amount after a currency depreciation.

D. none of the options

(Note: There is another Question 11 on page 12 regarding HTML)

Question 11 (HTML context)

(Choose 1 answer)

Which HTML tag is used to define an internal style sheet?

A. <style>

B. <script>

C. <css>

D. <link>

IBF301_SP26_B5RE | Multiple Choice Question 12 (Finance context)

(Choose 1 answer)

According to the IRP relationship, if U.S. interest rates increase relative to Eurozone rates, what is the immediate expected effect on the spot exchange rate of the dollar?

A. Investors are risk-averse

B. Governments impose capital controls.

C. Investors are risk-neutral and the FX market is informationally efficient

D. All of the options

Question 12 (HTML/CSS context)

(Choose 1 answer)

Choose the right statement about the code below: @media only screen and (max-width: 700px) { .class { width: 100%; } }

A. When the screen (browser window) gets smaller than 700px, each column should have a width of 100%

B. When the screen (browser window) gets greater than 700px, each column should have a width of 100%

C. Each column should have a width of 100% for any screen width

D. When the screen (browser window) or mobile gets smaller than 700px, each column should have a width of 100%

IBF301_SP26_B5RE | Multiple Choice Question 13 (Finance context)

(Choose 1 answer)

Which of the following accurately describes the roles of speculators and hedgers in a derivatives market?

A. Speculators aim to minimize price variation by locking in a purchase price, while hedgers seek to profit from changes in futures prices

B. Speculators attempt to profit from changes in futures prices, while hedgers aim to avoid price variation by locking in purchase or sale prices

C. Speculators aim to stabilize market prices, while hedgers attempt to maximize price volatility

D. Speculators and hedgers both seek to profit from changes in futures prices, with no distinction in their roles

Question 13 (HTML context)

(Choose 1 answer)

What are the elements to help organize the data and structure of a table?

A. <caption>, <head>, <body>, <foot>

B. <caption>, <thead>, <tbody>, <foot>

C. <caption>, <thead>, <tbody>, <tfoot>

D. <caption>, <thead>, <body>, <foot>

IBF301_SP26_B5RE | Multiple Choice Question 14

(Choose 1 answer)

Apple plans to use a lead/lag strategy to manage its payables and receivables in foreign currencies. Which of the following best describes this strategy?

A. Adjusting the timing of cross-border payments to benefit from projected exchange rate movements

B. Entering forward contracts with financial institutions to lock in a specific exchange rate for a future foreign currency transaction

C. Consolidating and offsetting currency exposures among different subsidiaries to reduce the firm's overall foreign exchange risk

D. Purchasing currency options that provide the right, but not the obligation, to exchange currencies at a predetermined rate to hedge against potential losses

IBF301_SP26_B5RE | Multiple Choice Question 15

(Choose 1 answer)

The management of translation exposure is best described as

A. selecting a mechanical means for handling the consolidation process for MNCs that logically deals with exchange rate changes

B. selecting a mechanical means for handling the consolidation process for MNCs that makes this quarter's accounting numbers as attractive as possible.

C. selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as LIFO on the income statement and FIFO on the balance sheet.

D. selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as FIFO on the income statement and LIFO on the balance sheet.

IBF301_SP26_B5RE | Multiple Choice Question 16

(Choose 1 answer)

Which of the following best explains why mature companies with abundant free cash flow often face more severe agency problems?

A. Regulatory burdens reduce transparency and monitoring strength

B. Frequent capital raising constrains inefficient managerial choices

C. Limited investment opportunities increase the temptation to fund value-reducing projects

D. Low levels of regulation allow these firms to hide losses from external investors

IBF301_SP26_B5RE | Multiple Choice Question 17

(Choose 1 answer)

Which of the following is not a possible outcome when Tesla uses a put option to hedge its contingent exposure?

A. Bid accepted, spot rate below exercise rate, Tesla exercises the put

B. Bid rejected, spot rate above exercise rate, Tesla lets the put expire

C. Bid accepted, spot rate above exercise rate, Tesla exercises the put to lock in rate

D. Bid rejected, spot rate below exercise rate, Tesla exercises the put and profits

IBF301_SP26_B5RE | Multiple Choice Question 18

(Choose 1 answer)

Exposure to currency risk can be measured by the sensitivities of

A. (i) the future home currency values of the firm's assets and liabilities

B. (ii) the firm's operating cash flows to random changes in exchange rates

C. Both (i) and (ii)

D. None of the above

IBF301_SP26_B5RE | Multiple Choice Question 19

(Choose 1 answer)

Which of the following best describes a "Crawling Peg" exchange rate arrangement?

A. A regime where the currency floats freely with minimal intervention.

B. A fixed exchange rate that adjusts gradually based on quantitative indicators.

C. A system with no separate legal tender.

D. A currency regime with horizontal fluctuation bands wider than ±2%

IBF301_SP26_B5RE | Multiple Choice Question 20

(Choose 1 answer)

What is the underlying asset for a currency futures option traded on the CME Group?

A. The foreign currency

B. A futures contract on the foreign currency

C. A forward contract on the foreign currency

D. The purchasing price of the foreign currency

IBF301_SP26_B5RE | Multiple Choice Question 21

(Choose 1 answer)

A derivatives hedge that seeks to eliminate translation exposure

A. eliminates any mismatch of the rate of change in net assets and the rate of change in net liabilities denominated in the same currency

B. really involves speculation about foreign exchange rate changes

C. simultaneously goes long and short in currency futures contracts

D. none of the options

IBF301_SP26_B5RE | Multiple Choice Question 22

(Choose 1 answer)

PepsiCo has significant peso-denominated assets in Mexico. The peso depreciates, causing a $100,000 translation loss. However, the Mexican affiliate raises prices and improves margins. What best describes this situation?

A. Operating exposure loss and translation exposure gain

B. Translation loss and operating gain

C. Transaction exposure loss only

D. Hedging failure under both balance sheet and derivatives method

IBF301_SP26_B5RE | Multiple Choice Question 23

(Choose 1 answer)

Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Suppose the futures price closes today at $1.46. How much have you made/lost?

A. Depends on your margin balance

B. You have made $2,500

C. You have lost $2,500

D. You have neither made nor lost money, yet

IBF301_SP26_B5RE | Multiple Choice Question 24

(Choose 1 answer)

The current account is divided into four finer categories:

A. goods trade, services, primary income, and statistical discrepancy

B. goods trade, services, primary income, and secondary income.

C. goods trade, services, portfolio investment, and secondary income.

D. goods trade, services, primary income, and direct investment.

IBF301_SP26_B5RE | Multiple Choice Question 25

(Choose 1 answer)

The decline of the US dollar value in the late 1980s was mainly attributable to the following agreement

A. Louvre Accord

B. Plaza Accord

C. Smithsonian Agreement

D. Jamaica Agreement

E. None of the above

IBF301_SP26_B5RE | Multiple Choice Question 26

(Choose 1 answer)

Suppose you observe the following exchange rates: €1 = $1.80; £1 = $2.40. Calculate the euro-pound exchange rate.

A. €1.3333 = £1.00

B. €0.6667 = £1

C. £1.3333 = €1.00

D. €0.75 = £1.00

IBF301_SP26_B5RE | Multiple Choice Question 27

(Choose 1 answer)

Two studies found a link between exchange rates and the stock prices of U.S. firms,

A. (i) this suggests that exchange rate changes can systematically affect the value of the firm by influencing its operating cash flows.

B. (ii) this suggests that exchange rate changes can systematically affect the value of the firm by influencing the domestic currency values of its assets and liabilities

C. Both (i) and (ii)

D. none of the above

IBF301_SP26_B5RE | Multiple Choice Question 29

(Choose 1 answer)

When exchange rates change,

A. (i) U.S. firms that produce domestically and sell only to domestic customers will be unaffected

B. (ii) U.S. firms that produce domestically and sell only to domestic customers can be affected if they compete against imports

C. (iii) U.S. firms that produce domestically and sell only to domestic customers will be affected, but only if they borrow in foreign currency to finance their domestic operations.

D. Both (i) and (ii)

IBF301_SP26_B5RE | Multiple Choice Question 30

(Choose 1 answer)

Suppose that Britain pegs the pound to gold at six pounds per ounce, whereas the exchange rate between pounds and U.S. dollars is $5 = £1. What should an ounce of gold be worth in US dollars?

A. $29.40

B. $30.00

C. $0.83

D. $1.20

IBF301_SP26_B5RE | Multiple Choice Question 31

(Choose 1 answer)

The annual inflation rate in the United States is 3.0%, while in the United Kingdom it stands at 3.5%. If the British pound appreciates by 2.0% against the U.S. dollar over the same period, what is the approximate real exchange rate (q), and what does this imply about the competitiveness of US goods?

A. 1.02, US goods have become less competitive

B. 0.98, US goods have become more competitive

C. 1.00, No change in competitiveness

D. 1.05, U.S. goods have become significantly less competitive

IBF301_SP26_B5RE | Multiple Choice Question 32

(Choose 1 answer)

The sensitivity of the firm's consolidated financial statements to unexpected changes in the exchange rate is

A. transaction exposure.

B. translation exposure.

C. economic exposure

D. none of the above

IBF301_SP26_B5RE | Multiple Choice Question 33

(Choose 1 answer)

Suppose the US dollar substantially depreciates against the Japanese yen. The change in exchange rate

A. will tend to weaken the competitive position of import-competing US car makers.

B. will tend to strengthen the competitive position of import-competing US car makers

C. will tend to strengthen the competitive position of Japanese car makers at the expense of US makers.

D. none of the above

IBF301_SP26_B5RE | Multiple Choice Question 34

(Choose 1 answer)

Which of the following is not directly attributable to the collapse of the fixed exchange rate system?

A. U.S. balance of payments deficits

B. the decrease in the U.S. dollar value

C. the decline of international reserves

D. Japan's trade surplus

E. none of the above

IBF301_SP26_B5RE | Multiple Choice Question 35

(Choose 1 answer)

General Electric (GE), a U.S.-based multinational corporation, is planning to purchase industrial automation equipment from Japan. To fund the transaction, GE intends to convert residual euro cash flow from one of its European affiliates into Japanese yen. The company's treasury team obtains the following spot exchange rates from its commercial bank in U.S.: the spot rate for the euro to U.S. dollar is quoted as S($/€) = 1.1362 and the spot rate for the Japanese yen to U.S. dollar is quoted as S(¥/$) = 145.26. Based on these exchange rates, what is the implied cross-rate S(¥/€) that GE should use to determine how many Japanese yen it will receive per euro? (Round your answer to two decimal places)

A. 127.85

B. 132.00

C. 98.50

D. 140.20

IBF301_SP26_B5RE | Multiple Choice Question 36

(Choose 1 answer)

When a currency trades at a discount in the forward market

A. the forward exchange rate is less than one dollar (e.g. €1.00 = $0.928)

B. the exchange rate is less than it was yesterday.

C. the forward rate is less than the spot rate.

D. the forward rate is more than the spot rate.

IBF301_SP26_B5RE | Multiple Choice Question 37

(Choose 1 answer)

What was the main purpose of the "snake" exchange rate arrangement adopted by EEC countries in the early 1970s?

A. To replace the Bretton Woods system globally

B. To align all European currencies with the US dollar

C. To stabilize exchange rates among EEC countries and promote integration

D. To create a common European currency immediately

IBF301_SP26_B5RE | Multiple Choice Question 38

(Choose 1 answer)

The benefit to forecasting exchange rates

A. are greatest during periods of fixed exchange rates.

B. are nonexistent now that the euro and dollar are the biggest game in town.

C. accrue to, and are a vital concern for, MNCs formulating international sourcing, production, financing and marketing strategies.

D. none of these

IBF301_SP26_B5RE | Multiple Choice Question 39

(Choose 1 answer)

The link between a firm's future operating cash flows and exchange rate fluctuations is

A. (i) asset exposure

B. (ii) operating exposure

C. (i) and (ii)

D. None of these

IBF301_SP26_B5RE | Multiple Choice Question 40

(Choose 1 answer)

Which of the following best illustrates the benefit of market diversification for a firm like Boeing that sells aircraft in both Brazil and Japan?

A. Sales in both Japan and Brazil tend to increase when the US dollar appreciates against their local currencies, due to stronger purchasing power

B. Declining sales in Japan due to a stronger dollar are offset by rising sales in Brazil due to a weaker dollar

C. Boeing minimizes its exposure to foreign exchange risk by invoicing all international customers exclusively in US. dollars

D. Boeing's overall sales grow at the same rate in both countries, regardless of fluctuations in exchange rates or currency values

IBF301_SP26_B5RE | Multiple Choice Question 41

(Choose 1 answer)

Consider a US. MNC with operations in Great Britain. Which of the following are potential risks following a strengthening of the dollar?

A. (i) A pound sterling depreciation may affect operating cash flow in pounds by altering the firm's competitive position in the marketplace.

B. (ii) A given operating cash flow in pounds will be converted into a lower dollar amount after the pound depreciation

C. Both (i) and (ii)

D. None of these

IBF301_SP26_B5RE | Multiple Choice Question 42

(Choose 1 answer)

Purchasing Power Parity (PPP) theory states that

A. (i) the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels.

B. (ii) as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.

C. (iii) the prices of standard commodity baskets in two countries are not relate

D. both (i) and (ii)

IBF301_SP26_B5RE | Multiple Choice Question 43

(Choose 1 answer)

Suppose you observe a spot exchange rate of $1.50/€. If interest rates are 3% APR in the U.S. and 5% APR in the euro zone, what is the no-arbitrage 1-year forward rate?

A. €1.5291/$

B. $1.5291/€

C. €1.4714/$

D. $1.4714/€

IBF301_SP26_B5RE | Multiple Choice Question 44

(Choose 1 answer)

The "functional currency" is defined in FASB 52 as

A. the currency of the primary economic environment in which the entity operates

B. the currency in which the MNC prepares its consolidated financial statements.

C. a currency that is not the parent firm's home country currency.

D. the currency in which the MNC prepares its consolidated financial statements, as well as a currency that is not the parent firm's home country currency.

IBF301_SP26_B5RE | Multiple Choice Question 45

(Choose 1 answer)

Which of the following components is included in the primary income account of the current account?

A. Export of software services to Europe

B. Foreign aid to developing countries

C. Dividends received from a foreign equity investment

D. Import of machinery from Japan

IBF301_SP26_B5RE | Multiple Choice Question 46

(Choose 1 answer)

What does it mean to have redenominated an asset in terms of the dollar?

A. You have undertaken a hedging strategy that gives the asset a constant dollar value:

B. Multiply the foreign currency value of the asset by the spot exchange rate.

C. Undertaken accounting changes to eliminate translation exposure

D. none of the options

IBF301_SP26_B5RE | Multiple Choice Question 47

(Choose 1 answer)

Under the purely fluctuating exchange rate system, the balance of payments imbalances are automatically corrected by the following mechanism

A. Speculation

B. government intervention

C. interest rate changes

D. supply and demand in exchange markets

E. None of the above

IBF301_SP26_B5RE | Multiple Choice Question 48

(Choose 1 answer)

If the United States imports more than it exports, then this means that

A. (i) the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus

B. Both (ii) and (iii) are correct

C. (ii) the demand for dollars is likely to exceed the supply in the foreign exchange market, ceteris paribus.

D. (iii) the U.S. dollar would be under pressure to appreciate against other currencies

IBF301_SP26_B5RE | Multiple Choice Question 49

(Choose 1 answer)

Financial Accounting Standards Board (FASB) Statements 8 and 52 relate to the translation methods. The following outlines the objectives and descriptions of the two statements:

(i) Measure in dollars an enterprise's assets, liabilities, revenues, or expenses that are denominated in a foreign currency according to generally accepted accounting principles.

(ii) is essentially the temporal method of translation (with some subtle differences).

(iii) Provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity.

(iv) Reflect in consolidated statements the financial results and relationships of the individual consolidated entities as measured in their functional currencies in conformity with U.S. generally accepted accounting principles.

Which of the above statements pertain to FASB 8?

A. (i)

B. (i) and (ii)

C. (ii) and (iv)

D. (i), (ii), and (iii)

IBF301_SP26_B5RE | Multiple Choice Question 50

(Choose 1 answer)

Debt can reduce agency costs between shareholders and management, but

A. only if the firm is totally up to its eyeballs in debt.

B. excessive debt can create its own agency conflicts.

C. only to the extent that the firm can commit all of its free cash flow.

D. debt is best used as a corporate governance mechanism by young companies with limited cash reserves.