The Kansas City Southern Railroad (KCSR) currently has a levered capital structure, but it is considering a proposal to issue new equity (@$15/share) and use the proceeds to retire its debt. Selected financial information for KCSR is provided in the table below. Assume that KCSR generates perpetual annual EBIT at a constant level. Assume that […]
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 […]
Q9 Networks is a leading provider of outsourced data center infrastructure such as web-servers and data storage. Use the financial information in the table to calculate Q9’s maximum sustainable growth rate. Selected Ratios Q9 Networks Year 5 ROE 0.10% ROA 0.09% Net Profit Margin 0.27% Total Asset Turnover 0.33 Dividend Payout Rate 0% A) 0.09% […]
The difference between the ask rate and the bid rate is known as the A) arbitrage profit. B) dealer’s profit. C) spread. D) bid-ask spread. ANSWER Answer: D
The fourth decimal place in a dealer’s quote in the trade jargon is known as the A) pip. B) round trip. C) spread. D) haircut. ANSWER Answer: A
What is the name of the risk that a financial institution may not deliver the currency on one side of a completed currency transaction? A) dealer risk B) market risk C) Herstatt risk D) exchange rate risk ANSWER Answer: C
What is the name of the computer network in which member banks globally send and receive messages pertaining to foreign exchange transactions? A) Fed funds B) SWIFT C) CHIPS D) The Automated Clearing House (ACH) ANSWER Answer: B
Selected financial information for the Baltimore & Ohio Railroad Corporation (B&O) is provided in the table below. B&O is currently all equity financed, but it is considering a leveraged capital structure, details of which are presented in the column labeled ‘Proposed’. Under the proposed capital structure, B&O will use all of the new debt to […]
