Exam 14: Global Financial Management

Scenario - Aero, Inc. Aero, Inc. started from the idea of Brad Aerostle of Madison, South Dakota in 1992.  Brad earned a financial degree from Harvard and had watched the financial markets for years.  Armed with college credentials and knowledge, he believed he could offer needed services to individuals and companies desiring to conduct business around the globe.  From the minute Brad put his idea into motion, his brainchild - Aero, Inc. - proved quite profitable. Aero, Inc. currently has over five thousand clients ranging from slightly wealthy individuals to very rich and thriving corporations around the world.  Brad's skill at what he does has made his company a sought out firm by those who want to prosper in the foreign marketplace. Aero, Inc. likes to make its customers aware of what is taking place within the global financial world.  One of the lessons it imparts to its clients is about the International Monetary Fund's special drawing right.  Which of the following best identifies what Aero, Inc. would be discussing with its clients?  

A currency swap combined with a(n)______ swap is called a pain vanilla currency swap.

Of the following, which is NOT true about the IMF and World Bank?

The two types of short-term effects on currency movements are transactions risk and transformational risk.

_______ is the safest method available to an exporter, but that which exposes the importer to some risk related to delivery of goods.

If losses occur causing a market participant's balance to fall below the maintenance margin at the end of the trading day, a call option occurs that requires the bank to replenish the investor's trading account.

Scenario - Aero, Inc. Aero, Inc. started from the idea of Brad Aerostle of Madison, South Dakota in 1992.  Brad earned a financial degree from Harvard and had watched the financial markets for years.  Armed with college credentials and knowledge, he believed he could offer needed services to individuals and companies desiring to conduct business around the globe.  From the minute Brad put his idea into motion, his brainchild - Aero, Inc. - proved quite profitable. Aero, Inc. currently has over five thousand clients ranging from slightly wealthy individuals to very rich and thriving corporations around the world.  Brad's skill at what he does has made his company a sought out firm by those who want to prosper in the foreign marketplace. When Aero, Inc. recommends purchasing futures contracts to its clients, it always informs the clients of the rather small commitment fee that is needed to purchase a futures contract.  Which one of the following best identifies what this fee is called?  

A put option obligates an investor to sell an asset at a predetermined price.

The sensitivity of a stock to market risk affected by currency movements is known as the _____.

Bonds that are sold in any country outside the home country, but in the home country's currency, are called _____.

A stock value measured with the coefficient obtained by regressing the stock's return on a currency's return over time is known as the _____.

Differentiate between transaction and translation risks. Explain how these risks affect firms and investors.

Forward contracts

______ is an examination of optimistic, expected, and pessimistic scenarios to give a more complete picture of the risks and returns of investments abroad.

Home bias tends to

A holding firm is a(n)______ firm that is common in multinational corporations.

A derivatives market run by large banks is called a(n)_____.

_____ offers payment protection to both exporters and importers, as the importer's bank writes a guarantee of payment.

Clearing House Interbank Payment System (CHIPS)is an organization that provides secure communication for contracts, invoices, and other trade documents that normally accompany cash payments.

Moody's and Standard and Poor's issue _____.