Assuming that a firm has done all it can to stimulate customers to pay promptly and to select vendors offering the most attractive and flexible credit terms, it can further speed collections and slow disbursements by taking advantage of the “float&qu existing in the collection and payment systems. Indicate whether the statement is true or […]
Because systematic risk measures how much an asset’s return co-moves with the market, it ________. A) can be diversified away with the appropriate hedging B) cannot be diversified away C) is partially driven by idiosyncratic risk D) can be completely eliminated using international securities ANSWER Answer: B
Identify an external currency market and how it operates? What will be an ideal response? ANSWER Answer: An external currency market is an interbank market for deposits and loans that are denominated in currencies that are not the currency of the country in which the bank is operating. Its settlement procedures are identical […]
Given an example of how a money market hedge is constructed? What will be an ideal response? ANSWER Answer: If the underlying business transaction gives you a liability in foreign currency, you can borrow domestic currency, convert the principal from the borrowing into foreign currency, and invest the foreign currency thereby acquiring a […]
Float exists when a payee has received funds in a spendable form but these funds have not been withdrawn from the account of the payer. Indicate whether the statement is true or false ANSWER FALSE
Interbank interest rates in various cities around the world are often the basis for interest rates in contractual loan agreements. What is the most important of these rates? A) London Interbank Offer Rate (LIBOR) B) Frankfurt Interbank Offer Rate (FIBOR) C) Hong Kong Interbank Offer Rate (HIBOR) D) Euro Interbank Offer Rate (EURIBOR) […]
When the forward premium or discount on the foreign currency equals the interest differential between the domestic and foreign interest rates divided by one plus the foreign interest rate, what is being satisfied? A) covered interest arbitrage B) interest rate parity C) domestic and foreign interest rates D) spot and forward exchange rates […]
If the underlying transaction gives you a liability, denominated in foreign currency, the general principal behind a money market hedge states you need an equivalent ________ in the money market to provide a hedge. A) liability B) asset C) forward contract D) foreign bank account ANSWER Answer: B
Processing float is the delay between the receipt of a check by a payee and its deposit in firm’s account. Indicate whether the statement is true or false ANSWER TRUE
Which one of the following would be the most logical reason to use a synthetic forward contract to hedge? A) forward contracts are not available in the currency of choice B) when time horizons are short, forward contracts can be expensive C) the underlying transaction is too risky D) the underlying transaction gives you an […]
