What is most different about the foreign exchange market versus the New York Stock Exchange? What will be an ideal response? ANSWER Answer: The interbank foreign exchange market is a very large, diverse, over-the-counter market, not a physical trading place such as the New York Stock Exchange where buyers and sellers gather in […]
After a trip to Bordeaux France you are considering opening a restaurant based on Restaurant L’Entrecote. You will offer a fixed menu of salad, steak and French fries. Your innovation is that you will use a bordelaise (red wine) sauce instead of a tarragon butter sauce. You plan to run the restaurant for two years […]
When does delivery occur on a spot contract? What will be an ideal response? ANSWER Answer: When currencies in the interbank spot market are traded, certain business conventions are followed. For example, when the trade involves the U.S. dollar, business convention dictates that spot contracts are settled in 2 business days–that is, the […]
What is a spot exchange-rate contract? What will be an ideal response? ANSWER Answer: A spot exchange-rate contract is one that trades within forty eight hours. During the first 24 hours, buyers and sellers agree on the terms. The next 24 hours the traders must provide the currency in question and the funds […]
Eastern Copper Mines of New Zealand has called a broker at Deutsche Bank to ask her opinion about the Japanese yen to New Zealand dollar exchange rate. What would the broker’s answer be? A) ¥104.30/NZ$ B) ¥80.60/NZ$ C) ¥75.44/NZ$ D) ¥65.57/NZ$ ANSWER Answer: D
As the risk of a stock investment increases, A) return will increase. B) return will decrease. C) required rate of return will decrease. D) required rate of return will increase. E) the beta approaches zero. ANSWER D
The CEO of Trans World Airlines (TWA), Jack Frye, wants to distribute $1B of cash by issuing a special dividend. Selected financial information for TWA is provided in the table below. Mr. Frye owns 51% of the common shares of TWA before the extra dividend. What is his total wealth in cash and shares after […]
Halo Corp is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that Halo has a 100% payout rate. Halo has 1,000 shares outstanding. The stock holders of Halo […]
Amish Electronics Inc is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that Amish has a 100% payout rate, 5,000 shares outstanding, and that shareholders require a return […]
Which of the following statements about debt is false? I. Interest payments reduce the scope for waste by management. II. Debt creates the possibility of bankruptcy. III. Debt increases the tendency of shareholders to take gambles. IV. Debt reduces the cash flows that go to government. A) I B) II C) III D) IV E) […]
