Quiz
B 6- Financial Decisions, Financial Risk Managment
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Perguntas do quiz (26)
1What would be the primary reason for a company to agree to a debt covenant limiting the percentage of its long-term debt?
- ATo reduce the coupon rate on the bonds being sold.
- BTo cause the price of the company's stock to rise.
- CTo reduce the risk for existing bondholders.
- DTo lower the company's bond rating.
2Bander Co. is determining how to finance some long-term projects. Bander has decided it prefers the benefits of no fixed charges, no fixed maturity date and an increase in the credit-worthiness of the company. Which of the following would best meet Bander's financing requirements?
- ABonds.
- BShort-term debt
- CLong-term debt
- DCommon stock.
3Which of the following types of bonds is most likely to maintain a constant market value?
- ACallable.
- BFloating-rate
- CZero-coupon.
- DConvertible
4Managers that anticipate greater return for greater risk are referred to as having what attitude toward risk?
- ARisk indifferent.
- BRisk seeking.
- CCautious.
- DRisk averse.
5If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be:
- ACautious.
- BRisk seeking.
- CRisk averse
- DRisk indifferent.
6Investment managers develop portfolios of different investments to combine, offset, and thereby reduce overall risk. Not all risks can be eliminated by development of a portfolio. Risks that cannot be eliminated through a portfolio are called:
- AFirm-specific risks.
- BUnsystematic risks.
- CNon-market risks.
- DSystematic risks.
7The marketable securities with the least amount of default risk are:
- AU.S. Treasury securities.
- BFederal government agency securities.
- CBankers' acceptances.
- DRepurchase agreements
8When purchasing temporary investments, which one of the following best describes the risk associated with the ability to sell the investment in a short period of time without significant price concessions?
- AInterest rate risk
- BLiquidity risk.
- CFinancial risk
- DPurchasing power risk.
9Hedgehog International has a receivable valued at 500,000 local currency units from its foreign customer due in 90 days. The current spot rate of the local currency unit is $.60. Hedgehog purchases a put option to sell the local currency unit in 90 days for $.61 for a premium of $.005. The exchange rate for the local currency increases to $.63 in 90 days. What will Hedgehog do on the receivable's settlement date?
- AHedgehog will not exercise the option and sell local currency units collected from its receivable at the spot rate.
- BHedgehog will be indifferent as to whether it exercises the option or not.
- CHedgehog will sell the option at the settlement date and combine its proceeds along with local currency units purchased at the spot rate to maximize its revenue.
- DHedgehog will exercise its option and sell the proceeds of its accounts receivable collection under the provisions of the option contract at a gain.
10Hedgehog International has numerous foreign exchange transactions. Management has elected to hedge transactions as a means of mitigating transaction exposure to exchange rate risk. What is the most effective means that Hedgehog International can use to avoid overhedging?
- AHedgehog should acquire parallel loans to provide a means for liquidating unneeded hedge securities
- BHedgehog should acquire the maximum amount required to hedge known and projected transactions
- CHedgehog should acquire the minimum amount required to hedge known transactions.
- DHedgehog should enter into a cross hedging agreement.
11An American importer expects to pay a British supplier 500,000 British pounds in three months. Which of the following hedges is best for the importer to fix the price in dollars?
- ASelling British pound call options.
- BBuying British pound put options
- CBuying British pound call options.
- DSelling British pound put options.
12Platinum Co. has a receivable due in 30 days for 30,000 euros. The treasurer is concerned that the value of the euro relative to the dollar will drop before the payment is received. What should Platinum do to reduce this risk?
- AEnter into a forward contract to sell 30,000 euros in 30 days
- BBuy 30,000 euros now.
- CPlatinum cannot effectively reduce this risk
- DEnter into an interest rate swap contract for 30 days.
13In evaluating the impact of relative inflation rates on the demand for a foreign currency, which of the following is true?
- AAs inflation associated with a foreign economy increases in relation to a domestic economy, demand for the foreign currency falls.
- BAs inflation associated with a foreign economy decreases in relation to a domestic economy, demand for the foreign currency falls.
- CAs inflation associated with a foreign economy increases in relation to a domestic economy, demand for the foreign currency increases.
- DInflation is irrelevant to currency demand.
14In evaluating the impact of relative inflation rates on the demand for a foreign currency, which of the following is true?
- AAs inflation associated with a foreign economy increases in relation to a domestic economy, demand for the foreign currency falls.
- BAs inflation associated with a foreign economy decreases in relation to a domestic economy, demand for the foreign currency falls.
- CAs inflation associated with a foreign economy increases in relation to a domestic economy, demand for the foreign currency increases
- DInflation is irrelevant to currency demand
15Atlas Worldwide Industries conducts business in a number of different countries and is trying to evaluate its economic exposure to exchange rate risk. Which of the following statements is not correct?
- AAtlas will suffer an economic loss in the event it has net cash outflows of a foreign currency and the foreign currency appreciates
- BAtlas will suffer an economic loss in the event it has net cash inflows of a foreign currency and the foreign currency appreciates.
- CAtlas will enjoy an economic gain in the event it has net cash outflows of a foreign currency and the foreign currency depreciates
- DAtlas will suffer an economic loss in the event it has net cash inflows of a foreign currency and the foreign currency depreciates.
16Universal Industries limits its operations to exports to foreign countries. What can be said about Universal's exposures to exchange rate risk?
- AUniversal is subject to transaction and translation exposures to exchange rate risk.
- BUniversal is subject to economic and translation exposures to exchange rate risk.
- CUniversal is subject to potential transaction, economic and translation exposures to exchange rate risk.
- DUniversal is subject to potential transaction and economic exposures to exchange rate risk.
17What is the effect when a foreign competitor's currency becomes weaker compared to the U.S. dollar?
- AThe fluctuation in the foreign currency's exchange rate has no effect on the U.S. company's sales or cost of goods sold.
- BThe foreign company will be disadvantaged in the U.S. market.
- CIt is better for the U.S. company when the value of the U.S. dollar strengthens.
- DThe foreign company will have an advantage in the U.S. market.
18Freely fluctuating exchange rates perform which of the following functions?
- AThey make imports cheaper and exports more expensive.
- BThey automatically correct a lack of equilibrium in the balance of payments.
- CThey impose constraints on the domestic economy.
- DThey eliminate the need for foreign currency hedging.
19If the dollar price of the euro rises, which of the following will occur?
- AThe dollar depreciates against the euro.
- BThe euro will buy fewer U.S. goods
- CThe euro depreciates against the dollar
- DThe euro will buy fewer European goods.
20Which of the following types of risk can be reduced by diversification?
- ARecessions.
- BHigh interest rates
- CLabor strikes.
- DInflation.
21Which of the following factors is inherent in a firm's operations if it utilizes only equity financing?
- AMarginal risk.
- BInterest rate risk.
- CBusiness risk.
- DFinancial risk.
22The required rate of return is generally computed as the risk-free rate of return plus a number of risk premium adjustments. All of the following risk adjustments are used to compute the required rate of return, except:
- APurchasing power risk premium.
- BCredit risk premium
- CDefault risk premium.
- DMaturity risk premium.
23Each of the following financial instruments is a derivative, except:
- AInterest rate futures.
- BA fixed interest, five-year note payable
- CA contract to purchase a commodity in six months at a price determined today
- DAn agreement to buy a piece of equipment in six months at a price determined today
24A put is an option that gives its owner the right to do which of the following?
- ASell a specific security at fixed conditions of price and time.
- BBuy a specific security at a fixed price for an indefinite time period.
- CBuy a specific security at fixed conditions of price and time.
- DSell a specific security at a fixed price for an indefinite time period.
25A company has several long-term floating-rate bonds outstanding. The company's cash flows have stabilized, and the company is considering hedging interest rate risk. Which of the following derivative instruments is recommended for this purpose?
- AFutures contract on a stock.
- BInterest rate swap agreement
- CStructured short-term note.
- DForward contract on a commodity.
26Which tool would most likely be used to determine the best course of action under conditions of uncertainty?
- AScattergraph method.
- BExpected value (EV).
- CCost-volume-profit analysis
- DProgram evaluation and review technique (PERT).
Informações
- Descrição
- Financial Decisions Part 1, part 2
- Autor
- Harpratap Singh
- Idioma
- English
- Visualizações
- 56
- Etiquetas
- Avaliação
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