FIN 558 Exam 2 | Questions and Answers

FIN 558 Exam 2 | Questions and Answers When the government of a country may possibly default on its bond payments to outside investors, the risk is referred to as _______ sovereign risk The ________ is the discount rate or internal rate of return that equates the present value of all the future interest rate and principal payments to the net proceeds received by the issuer. all-in-cost Which of the following is false regarding American Depository Receipts: there are no custodial/depository fees. The exposure of a return to fluctuations in the return on the market portfolio, which cannot be diversified away is called market risk Which one of the following is the name for the action of a country takes when it repays a loan at a discount? debt buyback The Export-Import Bank of the U.S. is the only independent U.S. government corporation whose sole purpose is to support ________ in their efforts to conduct international trade. U.S. exporters Which type of bond is issued in a domestic market by a borrower located in another country, denominated in the domestic currency, marketed to domestic residents, and regulated by the domestic authorities? foreign bond The Sharpe ratio is the ________ return relative to the ________ of the return. average excess, volatility Which one of the following economic variables would be the best to use to help investors determine a financially sound country? the ratio of a country's external debt to its GDP When a firm's pretax income is more volatile, the benefits of hedging currency risk are greater. With a ________, the exporter retains title and control of the goods until the importer has paid for the goods. documentary collection The returns of different stocks are ________ correlated, so a portfolio's volatility can't be diversified all of the way to _______. positively, zero What is the name given to the variance that cannot be diversified away? systematic variance ________ are the name of treaties that have helped investors avoid legal problems associated with sovereign debt and investor rights. bilateral investment treaties Hedging allows a tax-paying firm with revenue that occurs in a volatile currency to increase the expected net present value of its earnings by eliminating the need to discount the value of a tax-loss carry forward that is realized in future periods. If a bank accepts a ________ draft, it may become a ________. time, banker's acceptance The sources of funds for a multinational corporation can be subdivided into two categories, ________ and ________. internally-generated, externally generated When an exporter is dealing with a high credit risk customer, ________ as a form of payment is most often used. cash in advance Which one of the following statements is true for the centralized debt denomination model? The debts for both the parent company and its foreign subsidiaries are denominated in the home currency of the parent company. Which one of the following is a false statement about Level I ADRs? Transactions are completed in a centralized market place. A country's credit spread is another indicator of country risk According to some research, firms with higher dividend payouts are more like to hedge. Which type of bond is denominated in one or more currencies but is traded in external markets outside the borders of the countries issuing the currencies? Eurobond Which one of the following stock markets was almost 40% of the world's stock market capitalization at the end of 2005? the United States When one corporation owns shares in another, the practice is known as ________ cross-holding _______ trading systems, often found in foreign exchange markets, are good examples of markets in which market makers stand prepared to buy at their bid prices and sell at the ask or offer prices. price-driven trading What is the name of the important phenomenon that has led to globalization of exchanges around the world over the past two decades? cross-listing For the most part, stocks are ________, so you ________ diversify away all of a portfolio's variance. Because the average covariance is ________, even a large portfolio of international stock will have a ________ variance. positively correlated, cannot, positive, positive A ________ is a contract issued to an exporter by the shipping company that agrees to transport the goods to their destination Bill of lading If the transfer of title for the shipped goods is desired, which type of bill of lading is used? Order A ________ is a document required by certain countries which forces the exporter to provide information to customs officials in the importing country with the goal of preventing false declarations of the value of the merchandise consular invoice A ________ is a request for payment that is created when an importer asks its bank to write a letter to an exporter indicating that the importer's bank will honor the request. Draft A documentary credit reduces the uncertainty of a transaction by ________ clearly establishing the acts that the exporter must carry out in order to receive payment