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Problems In Corporate Finance > Final > Flashcards

Final Flashcards

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1
Q

George and Pat just made an agreement to exchange currencies based on today’s exchange rate. Settlement will occur tomorrow, which one of the following is the exchange rate that applies

Spot
Forward
Triangle
Cross
Current
A

Spot exchange rate

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2
Q

Which one of the following statements is correct concerning the foreign exchange market

A. The trading floor of the foreign exchange market is located in London
B importers, exporters, and speculators are key players in the foreign exchange market
C. The US created a communications network called SWIFT

A

B importers exporters and speculators are key players in the foreign exchange market

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3
Q

Interest rate party

A eliminates covered interest arbitrage opportunities
B exists when spot rates are equal for multiple countries
C means the nominal risk free rate of return must be the same across countries

A

A eliminates covered interest arbitrage opportunities

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4
Q

Which of the following statements is correct

A the use of forward rates increases the short run exposure to exchange rate risk
B accounting translation gains and losses are recorded in the equity section of the balance sheet
C there is no known method of reducing long run exchange rate risk

A

B accounting translation gains and losses are recorded in the equity section of the balance sheet

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5
Q

Which one of the following statements is correct in relation to a firms short run financial risk

A Short run financial results from permanent changes in prices due to new technology
B A financially sound firm can become financially distressed as the result of short run exposure to financial risk
C Each segment of a business entity should be responsible for hedging its own short run financial risk

A

B A financially sound firm can become financially distressed as the result of a short run exposure to financial risk

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6
Q

A forward contract

A Requires that payment be made in full when the contract is originated
B Provides the bar with an option to buy an asset on the settlement date at the forward price
C Is the binding agreement on both the buyer and the seller and nets out as a zero sum game

A

Is a binding agreement on both the buyer and the seller and nets out as a zero sum game

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7
Q

The buyer of an option contract

A Receives the option premium in exchange for an obligation to either buy or sell an underlying asset
B Hayes and option premium in exchange for a rat to buy or sell an underlying asset during a specified period of time
C Pays the strike price at the time the option is purchased and in exchange receive the right to exercise the option at any time during the option period.

A

B Pays an option premium in exchange for a rat to buy or sell an underlying asset during a specified period of time

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8
Q

Which one of the following statements concerning option payoffs is correct

A The buyer of a call profits when the exercise price exceeds the market price
B Both the buyer and the seller profit when a call is exercised
C The seller of a put incurs a loss when a put is exercised

A

C The seller of a put incurs a loss when a put is exercised

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9
Q

Company I can borrow money at a fixed rate of 7.5% or a variable rate set at prime +1%. Company B can borrow money at a variable rate of prime +.5% or a fixed rate of 8%. Company prefers a variable rate and Company B prefers a fixed rate. Which oneOf the following statements the picks the most favorable outcome of a swap between companies a and B
A Company they could pay the variable prime rate +1%
B Company I could pay the variable prime rate +.75%

A

B Company A could pay the variable prime rate +.75%

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10
Q

Which one of these statements is false

A acquisitions are sometimes unfriendly
B shareholders of the target firm must vote to approve an acquisition by stock
C The cost of a stock acquisition can be higher than the cost of a merger if the target firms management resist

A

B shareholders of the target firm must vote to approve and acquisition by stock

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11
Q

All of the following are related to a take over except a

A consolidation
B strategic alliance
C Proxy contest

A

B. Strategic alliance

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12
Q

Which one of the following statements is correct

A if the assets of a firm are written up as part of the acquisition process the increase in value is considered to be a taxable gain
B Target firm shareholders demand a higher selling price when an acquisition is a non-taxable event
C The assets of an acquired firm are recorded on the books of the acquiring firm at their current book value regardless of the tax status of the acquisition

A

A

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13
Q

All of the following are examples of cost reductions that can result from an acquisition except

A increasing the firms market share
B benefiting from economies of scale when purchasing raw materials
C allocating fixed overhead across a wider range of products

A

A increasing the firms market share

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14
Q

Which one of the following statements is correct

A the price earnings ratio must remain constant as a result of an acquisition that fails to create value
B the price earnings ratio can decrease even when the net present value of a merger is equal to zero
C diversification is one of the greatest benefits derived from an acquisition

A

B the price earnings ratio can decrease even when the net present value of a merger is equal to zero

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15
Q

Which one of the following is correct

A lessors provide a source of financing for leases
B The lessor is primarily concerned about the use of the asset
C the lessor is primarily concerned with returning the asset at the end of the lease term

A

A lessors provide a source of financing for lessees

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16
Q

An operating lease has which of the following characteristics

A the lease term is relatively long term
B the lessee can cancel the lease prior to the expiration date
C the lessee has responsibility for the maintenance and insurance

A

B the lessee can calculate the lease prior to the expiration date

17
Q

If a firm does. It expect to owe taxes for a few years and needs some equipment the firm generally should

A lease the equipment and retain the tax benefits
B lease the equipment with the lessor retaining the tax ownership of the asset
C buy the equipment with cash and depreciate it using MACRS

A

B lease the equipment with the lessor retaining the tax ownership of the asset

18
Q

Which one of the following will classify a lease as a capital lease for an accounting purpose

A the lease transfers ownership of the asset to the lessee by the end of the lease term
B the lease term is 75 percent or less of the estimated economic life of the asset
C the lessee can buy the asset at fair market value at the end of the lease

A

A the lease transfers ownership of the asset to the lessee by the end of the lease term

19
Q

Which one of the following statements is correct concerning taxes and leasing

A the lessor should be the party with the higher tax bracket
B if a firm has significant net operating losses it should be the lessor in a lease
C tax reduction is a legitimate reason for leasing

A

C

20
Q

The international fisher effect states that ____ rates are equal across countries

A

Real

21
Q

A call option contract

A

Grants rights to the buyer and obligates the seller

22
Q

Futures contracts

A

Are market to the market on a daily basis

23
Q

Which one of the following is true regarding forward contracts

A

The payoff profile for the buyer of a forward contract is an upward sloping linear function

24
Q

If a firm does not expect to owe taxes for a few years and needs some equipment the firm generally should

A

Lease the equipment with the lessor retaining the tax ownership of the asset

25
Q

A leveraged lease is a

A

Lease where the lessor borrows a no recourse basis

26
Q

The interest rate parity approximation formula is

A

Ft=so * [1+(rfc- rus)] ^t

27
Q

International bonds issued in a single country and denominated in that countries currency are called

A

Foreign bonds

28
Q

Party A has agreed to exchange 1 million US FOR 1.21 million Canadian what is this agreement called

A

Swap

29
Q

Trader A has agreed to give 100 US dollars to trader B in exchange for British pounds based on today’s exchange rate of $1 = £.5928. The traders agree to settle this trade within 2 business days. What is this exchange called

A

Spot trade

30
Q

A trader has just agreed to exchange 2 million US for €1.55 million six months from today. This exchange is called

A

Forward trade

31
Q

An operating lease

A

Is reflected in the foot notes

32
Q

Farmer Jones raises several hundred acres of corn and would suffer a significant loss should the price of corn decline at harvest time. Which of the following would be be doing if he purchased financial securities to offset this price risk

A

Hedging

Problems In Corporate Finance (1 decks)

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