Q&A Hero

Q: Transistors helped advance computing because they complicated the assembly process.

Q: The early computer ENIAC weighted 30 tons.

Q: The camera of a smart phone would be classified as an input device.

Q: The computer first digitized the census data in 1980.

Q: ARM, which stands for Advanced RISC Machine, is a standard processor that is often used as a component of consumer devices.

Q: Software is a collective term for programs; the instructions computers perform to implement applications.

Q: What is the difference between a spot rate and a forward rate?

Q: If the spot rate (in U.S. dollars) for Japanese Yen is 0.00703 and the 180 day forward rate is 0.00717, then the Yen is trading at an annualizeda. premium of 4.04%b. premium of 3.98%c. premium of 3.91%d. discount of 3.89%

Q: If the spot rate (in U.S. dollars) for the Australian dollar is $0.559 and the 180 day forward rate is trading at a premium of 2.86%, then the 180 day forward rate is: a. $0.551 b. $0.567 c. $0.575 d. $0.583

Q: The 6 month interest rate on 180 day U.S. Treasury Bills is 7.5 percent. In the foreign exchange markets, the spot rate between U.S. dollars and Australian dollars is 1 Australian dollar = $0.452 and the 180 day (6 month) forward rate is 1 mark = $0.46. Determine the expected rate of interest on 6 month Australian government debt securities, assuming that the interest rate parity between the U.S. dollar and Australian dollar exists. a. 7.35% b. 1.77% c. 5.63% d. 3.82%

Q: The (6 month) interest rate on 180 day U.S. Treasury bills is 7.64%. In the foreign exchange markets, the spot rate between U.S. dollars and British pounds is 1 pound = $1.5525. The 180-day (6 month) forward rate is 1 pound = $1.5188. Determine the expected rate of interest on 6 month British government debt securities, assuming interest rate parity between the dollar and pound exists. a. 13.52% b. 5.47% c. 7.31% d. 10.03%

Q: What is the real rate of return if the risk-free rate is 4 percent and the expected rate of inflation is 2.5 percent? a. 0.43% b. 1.50% c. 6.35% d. 1.46%

Q: What is the real rate of return if the risk-free rate is 3.25 percent and the expected rate of inflation is 2.75 percent? a. 0.50% b. 0.51% c. 0.487% d. 1.49%

Q: If U.S. prices are expected to rise by 3.5 percent over the coming year and prices in Great Britain are expected to rise by 5.25 percent during the same time, what is the expected spot rate in one year given that the current spot exchange rate is $1.497? a. $1.522 b. $1.470 c. $1.472 d. $1.499

Q: If the 182-day interest rate is 1.75 percent in the U.S. and 2.625 percent in Germany, and the current spot exchange rate between dollars and euros is $0.583, what will the 180-day forward rate be if IRP holds? a. $0.578 b. $0.588 c. $0.573 d. $0.581

Q: HBA Limited purchased several Mercedes Benz automobiles from its German broker. The contract was for 10,000,000 euros, due in 180 days. The present exchange rate is $0.51 per euro and the 180 day forward rate is $0.514. If the rate actually goes to $0.50 in 180 days, what is the dollar gain or loss incurred if no hedge is taken relative to a hedged position?a. $392,157 gainb. $ 40,000 lossc. $100,000 gaind. $140,000

Q: Crown Honda purchased one of its most popular models for 965,600 yen. The exchange rate for the yen was 142 yen per U.S. dollar at the time of purchase but then rose to 171.8 yen by the time payment was made. What was the dealer's gain or loss on the change in rates? a. gain of $1,180 b. loss of $1,427 c. loss of $1,180 d. gain of $1,427

Q: If one year U.S. nominal interest rates are 4 percent, one-year German nominal interest rates are 7.5 percent, and the current spot exchange rate, S0, is $0.587, then the expected spot rate in one year will be: a. $0.568 b. $0.607 c. $0.564 d. $0.573

Q: If U.S. prices are expected to rise by 3 percent over the coming year and prices in France are expected to rise by 7 percent during the same time, what is the expected spot rate in one year of the French franc given that the current spot exchange rate is $0.168? a. $0.1612 b. $0.1613 c. $0.1617 d. $0.1745

Q: What is the nominal interest rate in Canada if the real rate of return is 2.5% and the expected inflation rate was 4.5%? a. 7.00% b. 6.89% c. 7.11% d. 7.07%

Q: If the spot rate for the Japanese yen is $0.009204 and the 90-day forward rate is $0.009227, what is the annualized premium (discount)? a. premium of 1.00% b. premium of 0.50% c. discount of -0.99% d. premium of 0.25%

Q: If the spot rate for the British pound is $1.5077 and the 180-day forward rate is $1.4934, what is the annualized premium (discount)? a. premium of 1.90% b. premium of 0.97% c. discount of -1.90% d. discount of -0.97%

Q: If the forward (direct quote) exchange rate is lower than the spot rate, then the currency is said to be trading at a ____. a. forward premium b. forward gain c. forward discount d. forward loss

Q: If the spot rate (in U.S. dollars) for Japanese Yen is 0.00703 and the 180 day forward rate is 0.00717, then the Yen is trading at a(n) ____. a. expected gain b. premium c. reciprocal d. discount

Q: If the exchange rate from U.S. dollars to Swiss francs is $0.20/franc, then the exchange rate from francs to dollars is a. 0.20 francs/dollar b. 0.80 francs/dollar c. 5.0 francs/dollar d. 2.0 francs/dollar

Q: If the exchange rate from U.S. dollars to Canadian dollars is $0.80/Canadian dollar, then the exchange rate from Canadian dollars to U.S. dollars is a. $0.80 Canadian $/U.S. dollar b. $1.25 Canadian $/U.S. dollar c. $1.20 Canadian $/U.S. dollar d. $8.00 Canadian $/U.S. dollar

Q: Eurodollars are U.S. dollars that have been deposited in a. foreign banks b. foreign branches of U.S. banks c. foreign subsidiaries d. foreign banks and foreign branches of U.S. banks

Q: Which of the following is not a correct statement about foreign currency futures? a. futures contracts have a standardized maturity date b. futures contracts are an exchange-traded agreement c. futures contracts are not liquid d. futures contracts are "marked to market" daily

Q: If the spot rate for Swiss francs is $0.6658/franc and the 180-day forward rate is $0.6637, the market is indicating that the Swiss franc is expected to a. strengthen relative to the dollar b. weaken relative to the ECU c. lose value relative to the dollar over the next 6 months d. gain value relative to the dollar over the next 6 months

Q: An exchange rate quoted as $1.47 per British pound is known as a ____ quote. a. hedge b. direct c. futures d. indirect

Q: If Japanese yen are deposited in a bank in Paris, the deposits would be called ____. a. Eurofrancs b. European currency unit c. Eurobond d. Euroyen

Q: The interest rate at which banks in the Eurocurrency market lend to each other is known as the a. Eurocurrency currency rate (ECR) b. London interbank offer rate c. exchange rate d. interest rate parity

Q: A multinational firm ____. a. has direct investments in manufacturing facilities in more than one country b. exports finished goods for sale in another country c. imports raw materials from another country d. has a manufacturing representative in another country

Q: In general, when a foreign subsidiary's assets are ____ than its liabilities, ____ will occur when the exchange rate on the currency of the country in which the foreign subsidiary operates loses value. a. greater, currency exchange gains b. greater, currency exchange losses c. less, nothing d. greater, nothing

Q: Basic hedging techniques include all of the following except a. money market hedge b. forward market hedge c. primary market hedge d. all are basic hedging techniques

Q: Firms transacting business with foreign companies can lower exchange rate risk exposure by a. limiting transaction exposure b. hedging c. purchasing LIBORs d. making all their direct investments in foreign subsidiaries in one particular country

Q: The theory that the annual percentage differential in the forward market for a currency quoted in terms of another currency is equal to the approximate difference in interest rates in the two countries is known as a. covered interest arbitrage b. inflation c. hedging d. interest rate parity

Q: A high rate of inflation within a country will tend to ____ the value of its currency with respect to the currencies of other countries that are experiencing lower rates of inflation. a. increase b. decrease c. have no effect on d. cannot be determined from the information provided

Q: When the Federal Reserve (acting through member commercial banks) sells U.S. dollars in the foreign exchange market, it ____ the supply of U.S. dollars and hence tends to ____ the value of the U.S. dollar relative to other currencies. a. increases, raise b. decreases, lower c. increases, lower d. decreases, raise

Q: Which of the following trade policies will tend to decrease the supply of the country's currency in the foreign exchange market? a. imposition of tariffs b. imposition of export quotas c. financing exports with low interest loans d. imposition of tariffs and quotas

Q: Government trade policies that restrict imports into a country tend to ____ the supply of the country's currency in the foreign exchange market and tend to ____ the value of the country's currency with respect to other currencies. a. increase, decrease b. increase, increase c. decrease, decrease d. decrease, increase

Q: Primary sources of supply of British pounds in the foreign exchange market include: a. British importers who need to convert their pounds into foreign currency to pay for purchases b. foreign investors who want to make investments in physical or financial assets in Great Britain c. speculators who expect British pounds to increase in value relative to other currencies d. speculators who expect British pounds to decrease in value relative to other currencies

Q: Primary sources of demand for British pounds in the foreign exchange market include a. foreign buyers of British exports who must pay for their purchases in pounds b. foreign investors who desire to make investments in physical or financial assets in Great Britain c. speculators who expect British pounds to increase in value relative to other currencies d. All of these answers are correct.

Q: A U.S. company that purchases goods on credit from a German supplier can protect itself against transaction exchange risk by a. executing a contract in the forward exchange market b. borrowing U.S. funds and investing in interest-bearing German securities c. borrowing German funds and investing in interest-bearing U.S. securities d. executing a contract in the forward exchange market and borrowing U.S. funds and investing in interest-bearing German securities

Q: A parent company's foreign investment risk exposure depends on the foreign subsidiary's net ____ position. a. cash b. equity c. present value d. working capital

Q: A European currency unit is a a. monetary unit used in transactions between European central banks b. monetary unit used in providing capital to the World Bank c. monetary unit used in transactions between Common Market countries d. composite currency whose value is based on the weighted value of several European currencies

Q: The theory of interest rate parity states that the annual percentage differential in the forward market for a currency quoted in terms of another currency is equal to the approximate difference in ____ prevailing in the two countries. a. inflation rates b. interest rates c. trade deficit rates d. GNP growth rates

Q: Firms engaged in international transactions incur ____ because of fluctuations in the exchange rates among currencies. a. credit risk b. political risk c. market risk d. exchange rate risk

Q: To protect itself against transaction exchange rate risk, a U.S. company that purchases automobiles from a Japanese manufacturer may use all of the following techniques except: a. borrow U.S. funds and invest them in interest-bearing Japanese securities b. execute a contract in the forward exchange market c. sell yen in the spot market at the time of each transaction d. execute a contract in the foreign exchange futures market

Q: An increase in the value of a foreign currency relative to the U.S. dollar ____ the conversion value of the foreign subsidiary's liabilities. a. decreases b. increases c. has no effect on d. none of the above

Q: Under current accounting procedures, all of the following balance sheet items are translated into dollars at the rate of exchange prevailing on the date of the balance sheet except: a. stockholder's equity b. fixed assets c. current liabilities payable in a foreign currency d. long-term liabilities payable in a foreign currency

Q: When a multinational firm has one or more foreign subsidiaries with assets and liabilities denominated in a foreign currency, it faces ____ exposure. a. economic b. operating c. translation d. transaction

Q: Motorola has a contract to deliver cellular telephones in Japan in 6 months from now and the payment for these telephones will be in Japanese yen. What type of foreign exchange risk does Motorola face? a. economic exposure b. operating exposure c. transaction exposure d. translation exposure

Q: Which of the following is not a primary category of foreign exchange risk that multinational firms must consider? a. economic exposure b. operating exposure c. translation exposure d. transaction exposure

Q: The ____ states that the differences in interest rates between two countries should be offset by equal, but opposite, changes in the future spot exchange rate. a. expectations theory b. interest rate parity c. purchasing power parity d. international Fisher effect

Q: When interest rate parity exists, the forward rate will differ from the spot rate by just enough to ____. a. offset the difference in the real rate of return b. permit the buyer of a covered option to make a profit c. offset the interest rate differential between the two currencies d. result in a perfect interest rate arbitrage

Q: Which of the following actions would not tend to increase the value of a country's currency? a. relatively low interest rates b. government trade policies that limit imports c. relatively low rate of inflation d. restrictions on foreign exchange transactions

Q: What is commercial paper and what are the advantages and disadvantages of using it?

Q: Smurfit issued $25 million of commercial paper with 270 days to maturity and an annual interest rate of 8.32%. If the placement fee is $50,000, what is the annual financing cost to Smurfit?a. 8.32%b. 9.17%c. 8.88%d. 9.15%

Q: Reingold obtained a 181-day loan for $225,000. If the loan requires an interest payment of $9,000, what is the loan's APR? a. 8.23% b. 8.58% c. 8.16% d. 8.51%

Q: Ikon obtained a loan for $50,000. If loan requires a repayment of $51,000 in 91 days, what is the loan's APR? a. 8.0% b. 8.48% c. 8.27% d. 8.19%

Q: RoTech Medical Corp. needs to borrow $15 million dollars for 270 days. It can borrow from its bank at its current interest rate of 9.75% plus a requirement to keep a 10% compensating balance. RoTech currently has a $400,000 balance with its bank. An alternative for RoTech is to sell commercial paper. The interest rate on the paper is 9.55% and the dealer's fee for selling the paper is $22,500. Which source has the least cost?a. Bank loan: 10.02% vs. 10.49% for paperb. Bank loan: 10.02% vs. 10.75% for paperc. Commercial paper: 9.70% vs. 10.02% bankd. Commercial paper: 10.49% vs. 10.52% bank

Q: The ALLTEL Company is considering the use of the commercial paper as a source of short-term funds. A commercial paper dealer has told ALLTEL that it can sell a $20 million issue that will mature in 270 days. The dealer's fee will be $37,500 and the interest rate on the commercial paper will be 9.35 percent. What is the annual financing cost of this issue?a. 9.60%b. 7.63%c. 10.34%d. 9.54%

Q: Indurain has a revolving credit agreement with its bank under which the firm can borrow up to $750,000 at an interest rate of 2 percent over the prime rate. Currently the prime rate is 9.5%. Indurain is required to keep a 10% compensating balance on any borrowed funds and to pay a 0.50% per year commitment fee on the unused portion of the credit line. Indurain currently maintains a checking balance of $30,000. What is the annual financing cost to borrow $500,000 for 180 days if no additional funds are borrowed the remainder of the year?a. 12.24%b. 13.04%c. 12.50%d. 12.78%

Q: Modern Textiles, Inc. is considering factoring its receivables. The firm has annual sales of $109.5 million. Its average collection period is 73 days. Bad-debt losses average 2% of sales and credit department costs are $360,000 per year. Both of these costs would be eliminated if Modern Textiles factors its receivables. The factor will charge a fee of 3.5% on all receivables it purchases from the company. The factor will advance up to 80% of the value of the receivables at an annual interest rate of 12%. Interest is deducted from the amount of the advance. Determine the annual financing cost to Modern Textiles of factoring its receivables and borrowing under this arrangement. Assume 365 days in any calculations.a. 22.3%b. 20.1%c. 13.5%d. cannot be determined from the information provided

Q: Hoffman Industries has negotiated a revolving credit agreement with its bank. The bank will loan Hoffman up to $300,000 at an annual interest rate of 10% and requires a 0.3% commitment fee on the unused portion of the credit agreement. The bank's standard policy requires all loan customers to maintain a 10% compensating balance on any amount borrowed. Hoffman currently maintains an average balance of $8,000 that can be used to meet any compensating balance requirements. Compute the annual financing cost of the revolving credit agreement, if the firm borrows an average of $180,000 throughout the year. a. 10.80 percent b. 10.20 percent c. 12.71 percent d. 2.0 percent

Q: Pressing Club Corporation can raise needed short-term funds by pledging its receivables. First Bank will lend Pressing 70 percent of the $2.5 million in pledged receivables at 11.2 percent plus a service fee that equals 0.75 percent of the amount of the pledged receivables. Interest is computed based on the amount of receivables pledged. If Pressing's average collection period is 55 days, what is the annual financing cost for the pledged receivables? a. 2.7% b. 18.3% c. 23.1% d. 11.2%

Q: A commercial dealer has told Waltham Acceptance Corporation (WAC) that it can sell a $10 million issue for WAC that will mature in 120 days. What is the annual financing cost of this issue if the interest rate is 9.12 percent and the dealers fee is $12,500? a. 9.99% b. 9.40% c. 9.74% d. 9.81%

Q: The Wham-O Company has a line of credit with a bank under which it can borrow up to $200,000 at 11 percent interest rate but it must maintain a 15 percent compensating balance on the borrowed amount. If the firm currently maintains $10,000 in its account at the bank, what is the annual financing cost of borrowing $150,000 for 90 days? Assume a 365 day year. a. 12.94% b. 12.0% c. 12.17% d. 15.4%

Q: Doyle Knitting Mills, Ltd. is considering factoring its receivables. The firm has annual sales of $21.6 million and its average collection period is 72 days. Bad-debt losses average 1.5 percent of sales and credit department costs are $12,000 per month. Both of these costs would be eliminated if Doyle factors its receivables. The factor will charge a fee of 3 percent on all receivables it purchases from Doyle. The factor will advance up to 85 percent (i.e., 15 percent reserve for returns and allowances) of the value of the receivables at an annual interest rate of 12 percent. Interest is deducted from the amount of the advance. When converting from annual to daily data or vice versa, assume there are 365 days per year. Determine the net annual percentage financing cost of this factoring (and borrowing) arrangement. a. 17.6% b. 14.8% c. 7.1% d. 22.4%

Q: Doyle Knitting Mills, Ltd. is considering factoring its receivables. The firm has annual sales of $21.6 million. Its average collection period is 72 days. Bad-debt losses average 1.5 percent of sales and credit department costs are $12,000 per month. Both of these costs would be eliminated if Doyle factors its receivables. The factor will charge a fee of 3 percent on all receivables it purchases from Doyle. The factor will advance up to 85 percent (i.e., 15 % reserve for returns and allowances) of the value of the receivables at an annual interest rate of 12 percent. Interest is deducted from the amount of the advance. When converting from annual to daily data or vice versa, assume that there are 365 days per year. Determine the netannual financing cost (in $) to Doyle of factoring its receivables and borrowing under this agreement.a. $ 175,656b. $ 210,529c. $ 599,265d. $324,000

Q: Doyle Knitting Mills, Ltd. is considering factoring its receivables. The firm has annual sales of $21,600,000. Its average collection period is 72 days. Bad-debt losses average 1.5 percent of sales and credit department costs are $12,000 per month. Both of these costs would be eliminated if Doyle factors its receivables. The factor will charge a fee of 3 percent on all receivables it purchases from Doyle. The factor will advance up to 85 percent (i.e., 15% reserve for returns and allowances) of the value of the receivables at an annual interest rate of 12 percent. Interest is deducted from the amount of the advance. When converting from annual to daily data or vice versa, assume that there are 365 days per year. Determine the amount of funds Doyle can obtain by factoring its receivables.a. $15,120,000b. $ 3,411,170c. $ 4,260,822d. $127,825

Q: Stephens Metals Company has a revolving credit agreement with its bank permitting it to borrow up to $25 million at an annual interest rate of 12%. Stephens is required to maintain a 10% compensating balance on any funds borrowed under this agreement and to pay a 0.5% commitment fee on the unused portion of the credit line. The company maintains a $500,000 balance at the bank that can be used to meet the compensating balance requirement. Determine the annual financing cost of borrowing $20 million under this revolving credit agreement. a. 13.3% b. 13.5% c. 13.1% d. 12.0%

Q: Determine the annual financing cost of foregoing a cash discount under credit terms of 3/10, net 4 months. Assume 30 days per month and 365 days per year. a. 10.3% b. 9.1% c. 3.1% d. 30%

Q: Wellington Industries currently purchases an average of $50,000 per day of raw materials from its suppliers on terms of "net 45". The company waits until the end of the credit period to pay its suppliers. If Wellington stretches its accounts payable an extra 10 days beyond the due date and increases its purchases to $60,000 per day next year, determine the amount of additional trade credit these actions will generate. a. $600,000 b. $1,050,000 c. $3, 300,000 d. cannot be determined from the information given

Q: Calculate the annual percentage rate of foregoing the cash discount if the credit terms are 1/10, net 40. a. 1.13 percent b. 13.0 percent c. 20.1 percent d. 11.11 percent

Q: Calculate the annual financing cost of foregoing the cash discount if the credit terms are 1/10, net 40. a. 6.0 percent b. 9.2 percent c. 15.3 percent d. 12.3 percent

Q: Calculate the annual financing cost, AFC, for a 91-day, $10,000 loan that has $400 of interest. The entire principal amount is paid back at maturity. Assume 365 days per year. a. about 4 percent b. about 8 percent c. about 16 percent d. about 14 percent

Q: Gamma Fax received a 90-day, $100,000 discounted loan at a stated annual rate of 10.5 percent. What is the annual financing cost of this loan? a. 10.78% b. 10.50% c. 10.94% d. 4.08%

Q: Syntech is offered credit terms of 2/10, net 40, but decides to forego taking the cash discount and pays on the 45th day. What is Syntech's cost of foregoing the cash discount? a. 24.83% b. 21.28% c. 18.62% d. 8.13%