Answer:
b. False
Question: As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan). True False
Answer:
False
Question: If we are given a periodic interest rate, say a monthly rate, we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year. True False
Answer:
True
Question: Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure. Essentially, the process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to depreciate. a. True b. False
Answer:
b. False
Question: Which of the following would be most likely to occur in the year after Congress, in an effort to increase tax revenue, passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and assume that the same depreciation method is used for tax and stockholder reporting purposes. A) Companies’ after-tax operating profits would decline. B) Companies’ physical stocks of fixed assets would increase. C) Companies’ cash flows would increase. D) Companies’ cash positions would decline. E) Companies’ reported net incomes would decline.
Answer:
D
Question: Which of the following are reasons why companies move into international operations? a. To take advantage of lower production costs in regions where labor costs are relatively low. b. To develop new markets for the firm’s products. c. To better serve their primary customers. d. Because important raw materials are located abroad. e. All of the above.
Answer:
e. All of the above.
Question: Which of the following statements is CORRECT? a. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. b. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. c. The cash flows for an annuity due must all occur at the beginning of the periods. d. The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month. e. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.
Answer:
c. The cash flows for an annuity due must all occur at the beginning of the periods.
Question: Multinational financial management requires that financial analysts consider the effects of changing currency values. a. True b. False
Answer:
a. True
Question: A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States. a. True b. False
Answer:
a. True
Question: When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification. a. True b. False
Answer:
a. True
Question: Currently, a U.S. trader notes that in the 6-month forward market, the Japanese yen is selling at a premium (that is, you receive more dollars per yen in the forward market than you do in the spot market), while the British pound is selling at a discount. Which of the following statements is CORRECT? a. If interest rate parity holds, 6-month interest rates should be the same in the U.S., Britain, and Japan. b. If interest rate parity holds among the three countries, the United States should have the highest 6-month interest rates and Japan should have the lowest rates. c. If interest rate parity holds among the three countries, Britain should have the highest 6-month interest rates and Japan should have the lowest rates. d. If interest rate parity holds among the three countries, Japan should have the highest 6-month interest rates and Britain should have the lowest rates. e. If interest rate parity holds among the three countries, the United States should have the highest 6-month interest rates and Britain should have the lowest rates.
Answer:
c. If interest rate parity holds among the three countries, Britain should have the highest 6-month interest rates and Japan should have the lowest rates.
Question: If we are given a periodic interest rate, say a monthly rate, we can find the nominal annual rate by dividing the periodic rate by the number of periods per year. True False
Answer:
False
Question: All other things held constant, the present value of a given annual annuity decreases as the number of periods per year increases. True False
Answer:
True
Question: Exchange rate quotations consist solely of direct quotations. a. True b. False
Answer:
b. False
Question: Which of the following statements is CORRECT? a. A time line is not meaningful unless all cash flows occur annually. b. Time lines are not useful for visualizing complex problems prior to doing actual calculations. c. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly. d. Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. e. Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.
Answer:
e. Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.
Question: The United States and most other major industrialized nations currently operate under a system of floating exchange rates. a. True b. False
Answer:
a. True
Question: A lockbox plan is a. used to protect cash, i.e., to keep it from being stolen. b. used to identify inventory safety stocks. c. used to slow down the collection of checks our firm writes. d. used to speed up the collection of checks received. e. used primarily by firms where currency is used frequently in transactions, such as fast food restaurants, and less frequently by firms that receive payments as checks.
Answer Options:
a. used to protect cash, i.e., to keep it from being stolen.
b. used to identify inventory safety stocks.
c. used to slow down the collection of checks our firm writes.
d. used to speed up the collection of checks received.
e. used primarily by firms where currency is used frequently in transactions, such as fast food restaurants, and less frequently by firms that receive payments as checks.
Answer:
d
Question: The greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the greater the present value of a given lump sum to be received at some future date. True False
Answer:
True