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. -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?

______ are bonds that are sold in any country outside the home country, but in the home country's currency.

Moody's and Standard and Poor's rating services, which are important in assuring foreign investors of the credit quality of bond issues, refers to _____.

______ allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements.

The ______ is the required rate of return demanded by stock and bond investors and is used in net present value capital budgeting analyses as the discount rate.

The sum of the costs of equity and debt weighted by the amount of financing from these two capital sources is the ______.

On October 19, 1987 (Black Monday)stock prices in Hong Kong began collapsing and spread throughout the day into the Europe and then North America. This is an example of contagion.

______ are debt contracts sold by firms domiciled in a country in the home currency.

The sensitivity of a stock to market risk affected by currency movements is called the weighted average cost of capital.

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

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

Bank and government loans used by exporters to finance working capital are called trade financing.

Large global banks are called _______ banks.

When a bank sells a LC into the financial marketplace as a money market instrument, it is called a(n)_____.

Derivatives market run by large banks refers to _____.

______ is the sensitivity of a stock to market risk affected by currency movements.

Bank and government loans used by exporters to finance working capital refers to ______.

Debt contracts sold by firms domiciled in a country in the home currency are called _____.

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

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. -One of the prominent concerns the clients of Aero, Inc. express is that of currency fluctuations. The clients know fluctuations in currency can wind up costing them money. Aero, Inc. alleviates its clients concern by suggesting the client enter into a situation where currencies can be exchanged at a previously agreed exchange rate as a way to hedge exchange rate movements. Which one of the following best identifies what Aero, Inc. is likely suggesting?