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
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 […]
Cyborg Mechatronics is entirely equity financed with 400 shares outstanding and a market capitalization of $18,750 (P=$46.875). Current financial data for Cyborg is provided in the table below for two states of nature, which correspond with two levels of sales. The standard deviation of EPS is $1.875. The CFO of Cyborg, John Conner, is considering […]
Which of the following statements is true? A) A graph of the relationship between EPS and EBIT is steeper when the firm is leveraged. B) At the indifference point on an EPS-EBIT graph, two financing alternatives provide the same EBIT. C) Firms are more likely to use greater levels of debt when predicted EBIT is […]
When it comes to currency transfers, what is the most important global interbank communications network? A) CHIPS B) TARGET C) SWIFT D) RTGS ANSWER Answer: C