Exam 14: Global Financial Management

The impact of random change in the value of one currency with respect to other currencies is called the _____ risk.

A group of banks that collectively make a loan to a firm is called a hedge.

Moody's and Standard and Poor's provide bond ratings,which are important in assuring the credit quality to foreign investors.

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

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

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

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

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.

Whether a firm has growth or value and how this firm characteristic affects an estimate of the cost of equity is called the _____.

Of the following,which is NOT true about international banking and payments?

Marked-to-market involves the trading of futures contracts in major currencies and offering price transparency and efficiency in addition to elimination of counterparty risk due to guaranteed payments on contract.

Two kinds of short-term effects of currency movements are _____ risk and _____ risk.

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

The cost of equity is required rate of return by stockholders in a firm and is estimated by means of the Capital Asset Pricing Model (CAPM).

Using currency derivatives to reduce potential transaction,translation,and economic risks of currency movements that could lead to losses for a firm or investor is called_____.

Losses that are incurred and that cause the participant's balance to fall below the maintenance margin at the end of the trading day is called a _____.

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

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

Scenario - The Gayla Corporation The Gayla Corporation is a multinational business that conducts operations in twelve foreign markets.This multi-million dollar organization is very familiar with currency exchanges and has considerable understanding when it comes to the risks associated with operating in the global market arena.The Gayla Corporation claims it would not be as successful without the expertise of the financial wizards that work for it.The company has not lost money so far and plans to stay that way. -When the Gayla Corporation conducts its operations in foreign markets,its customers often pay in different forms of currency.Many times there is a difference in the value of that currency received in comparison to the company's U.S.currency.Which of the following best identifies what the Gayla Corporation is experiencing?

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?