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mba_680_solutions 2 revision-for-final

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1. Suppose you borrow $95.24 for one year at 5% and invest $95.24 for two years at 7%. For the time period beginning one year from today, you have: (approximately);a. Borrowed at 7%;b. Invested at 7%;c. Borrowed at 9%;d. Invested at 9%;2. Firm A is paying a fixed $700,000 in interest payments, while Firm B is paying LIBOR plus 50 basis points on $10,000,000 loans. The current LIBOR rate is 6.25%. Firm A and B have agreed to swap interest payments, how much will be paid to which Firm this year?;a. A pays $750,000 to Firm B;b. B pays 25,000 to Firm A;c. B pays $50,000 to Firm A;d. A pays $25,000 to Firm B;3. First National Bank has made a 5-year, $100 million fixed-rate loan at 10%. Annual interest payments are $10 million, and all principal will be repaid in year 5. The bank wants to swap the fixed interest payment into floating-rate payments. If the bank could borrow at a fixed rate of 8% for 5 years, what is the notional principal of the swap?;a. $80 million;b. $100 million;c. $125 million;d. $180 million;4. Third National Bank has made 10-year, $25 million fixed-rate loan at 12%. Annual interest payments are $3 million, and all principal will be repaid in year 10. The bank wants to swap the fixed interest payments into floating-rate payments. If the bank could borrow at a fixed rate of 10% for 10 years, what is the notional principal of the swap?;a. $40 million;b. $20 million;c. $25 million;d. $30 million;1. If a Big Mac costs C$3.00in Canada and $2.31 in the USA, according to purchasing power parity, what is the implied exchange rate in C$/US$?;a. 1.2987;b. 0.725;c. 1.3276;d. None of the above;2. The Mexican economy is predicted to average double digit inflation over the next two years of 10% per annum. The inflation forecast for the US is 4% per annum. If the current exchange rate is $0.091/peso, what will be the exchange rate two years from now?;a. $0.0831;b. $0.08134;c. $0.1018;d. None of the above;3. Currency risk exposure can be categorized as;a. Transactions exposure;b. Economic exposure;c. Translation exposure;d. All of the above;4. XJ Company from the USA is evaluating a proposal to build a new plant in the United Kingdom. The expected cash flows in pounds are as follows: Year 0, -50, Year 1, 25, Year 2, 35, Year 3, 40. The discount rate in BP is 14% and the discount rate in the US$ is 12%. The spot rate is US$1.99/BP. Calculate the NPV of the project in BP;a. +28.69;b. +25.86;c. +42.67;5. XJ Company from the USA is evaluating a proposal to build a new plant in the United Kingdom. The expected cash flows in pounds are as follows: Year 0, -50, Year 1, 25, Year 2, 35, Year 3, 40. The discount rate in BP is 14% and the discount rate in the US$ is 12%. The spot rate is US$1.99/BP. Calculate the NPV in US$;a. +25.86;b. +28.69;c. +51.46;6. Assume that international capital markets are competitive and that the real interest rates are the same. The one-year interest rate is approximately 9% in the USA and 5% in Switzerland. If the expected inflation rate is 6% in the USA, what is the expected inflation rate in Switzerland? (Approximately);a. 16%;b. 10%;c. 2.1%;1. Which of the following statement(s) is(are) true about company financing in the U.S.A.? I) The U.S.A. has a large amount of bank loans outstanding II) The U.S.A. has a large stock market III) The U.S.A. has a large bond market;a. I only;b. II only;c. I,II and III;d. II and III only;2. Individual investors in the U.S.A. can play an important part in corporate governance because: I) A large fraction of households' portfolio is held directly in equity securities II) A large fraction of households' portfolio is held in pension funds III) A large fraction of households' portfolio is held directly in bank deposits;a. I only;b. II only;c. III only;d. II and III only;3. Large firms in Germany have: I) The board of directors II) The supervisory board III) The management board;a. I only;b. II only;c. III only;d. II and III only;4. The banking system in Germany is;a. Nationally chartered banking system;b. Dual banking system;c. Universal banking system;d. State chartered system;5. A firm whose only asset is controlling blocks of shares in other firms is called;a. A conglomerate;b. A holding company;c. A pyramid;d. Dual-class company;6. Large business combinations in Japan are normally carried out through reciprocal ownership of common stock. These networks, or keiretsu, involve a large number of diversified companies centered around a large bank, industrial firm, or trading firm. One of the main benefits of this structure is argued to be;a. The monopolistic control of economic segments;b. The reduction of financial distress costs;c. Large scale diversification that cannot be done by individual shareholders;d. Greater efficiency in management because the management skills are homogeneous even for;7. The idea that a corporation's financial goal is to "maximize stockholder value" is more prevalent in: I) the U.S.A II) the U.K. III) France IV) Japan;a. I and II only;b. II and III only;c. III and IV only;d. II and IV only;8. The following are sources of financing for corporations: I) Households II) Financial institutions III) Other corporations;a. I only;b. II only;c. III only;d. I, II, and III

 

Paper#73946 | Written in 18-Jul-2015

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