Putul only 2

Hello Putul,

 

Which of the following economic benefits do the foreign exchange markets provide?

 

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A mechanism for hedging the risk associated with currency fluctuations.

 

 

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All of these.

 

 

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A channel for businesses to acquire credit for international transactions.

 

 

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A mechanism to transfer purchasing power via exports and imports.

 

The spot rate is the cost of buying a foreign currency

 

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a year from today

 

 

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today

 

 

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a year ago

 

 

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a month from today

 

If the foreign exchange rate is the price in dollars for a foreign currency, then the exchange rate quote is called:

 

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a direct quote

 

 

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an indirect quote

 

 

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a cross quote

 

 

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a European quote

 

Bartman Corporation observes that the Swiss franc (SF) is being quoted at $0.6164/SF, while the Swedish krona (SK) is quoted at $0.1981/SK. What is the SK/SF cross rate?

 

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SK3.1116/SF

 

 

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SK0.3214/SF

 

 

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SK0.4183/SF

 

 

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SK2.1467/SF

 

Given that the spot rate is $1.5276/€ and the 90-day forward quote is $1.5174/€, we can say that:

 

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the dollar is at neither a premium nor a discount against the euro

 

 

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the U.S. dollar is at a forward discount against the euro

 

 

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the U.S. dollar is at a forward premium against the euro

 

 

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the euro is at a forward premium against the U.S. dollar

 

All of the following represent differences between Eurobonds and domestic US bonds except that

 

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many Eurobonds are sold without credit ratings.

 

 

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Eurobonds pay coupon interest annually.

 

 

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investors in Eurobonds regularly pay taxes on the interest they receive.

 

 

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Eurobonds are issued as bearer bonds and do not have to be registered.

 

All other things remaining constant, if the US$/£ exchange rate changes from $1.65/£ to $1.45/£ , which of the following will occur?

 

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Demand for British goods will increase.

 

 

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Demand for British goods will decrease.

 

 

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British demand for US goods will decrease.

 

 

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None of these.

 

Which of the following statements regarding the forward rate is false?

 

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Forward rates are important because business transactions may extend over long periods.

 

 

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The forward rate quoted on a particular date is very often equal to the spot rate on the same day.

 

 

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The forward rate is established on the day that the agreement is made and defines the exchange rate that will be used in the future.

 

 

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The forward rate is what one party agrees to pay for money in the future.

 

The most widely quoted Euro-currency interest rate is the

 

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CIBOR.

 

 

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SIBOR.

 

 

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HKIBOR.

 

 

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LIBOR.

 

All of the following represent differences between Eurobonds and domestic US bonds except that

 

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investors in Eurobonds regularly pay taxes on the interest they receive.

 

 

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Eurobonds pay coupon interest annually.

 

 

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many Eurobonds are sold without credit ratings.

 

 

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Eurobonds are issued as bearer bonds and do not have to be registered.

 

Which one of the following statements is TRUE about the effective annual rate (EAR)?

 

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The EAR conversion formula accounts for the number of compounding periods and, thus, effectively adjusts the annualized interest rate for the time value of money.

 

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The EAR is the true cost of borrowing and lending.

 

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All of these are true.

 

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The effective annual interest rate (EAR) is defined as the annual growth rate that takes compounding into account.

The true cost of lending is the

 

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annual percentage rate.

 

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quoted interest rate.

 

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effective annual rate.

 

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none of these.

Which of the following investment classes had the greatest variability in returns for recent historical data?

 

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Intermediate-Term Government Bonds

 

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Small U.S. Stocks

 

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Long-Term Government Bonds

 

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Large U.S. Stocks

If a bond’s coupon rate is equal to the market rate, then the bond will sell

 

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at a price greater than its face value.

 

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at a price less than its face value.

 

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none of these are true.

 

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at a price equal to its face value.

Payback: Kathleen Dancewear Co. has bought some new machinery at a cost of $1,250,000. The impact of the new machinery will be felt in the additional annual cash flows of $375,000 over the next five years. What is the payback period for this project? If their acceptance period is three years, will this project be accepted?

 

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2.67 years; yes

 

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3.33 years; yes

 

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3.33 years; no

 

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2.67 years; no

 

 

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