471. If you were buying food for a big hamburger chain, how would you hedge your risk?
A. By taking contracts to sell at the spot price.
B. By taking contracts to buy at the spot price.
C. By taking contracts to sell at a pre-agreed forward price.
D. By taking contracts to buy at a pre-agreed forward price.
472. Which of the following describes purchasing power parity (PPP)?
A. A theory of the exchange rate in which equilibrium is not possible because of excessive Forex volatility.
B. An equilibrium theory in which Forex currency rates change to accommodate changes in relative prices.
C. An equilibrium theory in which Forex currency rates change to accommodate changes in interest rates.
D. An equilibrium theory in which Forex currency rates change to accommodate changes in trade and capital flows.
473. If a Big Mac hamburger meal costs £3.20 in the UK and ¥416 in Japan, what is the appropriate PPP rate of exchange for ¥/£?
A. ¥0.008/£1
B. ¥0.08/£1
C. ¥130/£1
D. ¥1.3/£1
474. Which of the following accurately describes a currency board?
A. A currency board is where the domestic currency is issued in some fixed ratio relative to gross reserves of foreign currency.
B. A currency board is where the foreign currency is issued in some variable ratio relative to gross reserves of domestic currency.
C. A currency board is where the domestic currency is issued in some variable ratio relative to net reserves of foreign currency.
D. A currency board is where the domestic currency is issued in some fixed ratio relative to net reserves of foreign currency.
475. Which of the following describes translation risk?
A. The risk that adverse currency movements, while not actually realized in cash value, will strongly affect the company’s accounting performance and net asset value.
B. The risk of adverse movements in Forex rates affecting the ability of a country’s commercial sector to compete.
C. The risk of adverse currency movement before a transaction can be completed.
D. The risk of companies being unable to raise foreign currency for international transactions.
476. Which of the following derivative instruments tend to have small to medium companies as both counterparties?
A. A traditional currency forward contract.
B. A non-deliverable forward contract.
C. A currency futures contract.
D. A currency swap.
477. Which of the following is not an internal method of managing Forex risk?
A. Leading and lagging.
B. Settlement and drawdown.
C. Netting.
D. Foreign currency borrowing.
478. Which of the following would not be counted as part of incremental cash flow?
A. Opportunity cost.
B. Sunk cost.
C. External cost such as brand cannibalism.
D. External benefit such as acquisition of new technology which can be applied to other projects.
479. Which of the following would be counted as part of incremental cash flow?
A. Sunk cost.
B. Depreciation.
C. An allocation towards general company overhead cost.
D. Change in working capital.
480. Which of the following defines free cash flow?
A. After-tax operating income + depreciation + interest – capital expenditures – change in net working capital.
B. Gross profit + depreciation + interest – capital expenditures – change in net working capital.
C. Net profit + depreciation + interest – capital expenditures – change in net working capital.
D. After-tax operating income + tax shield + depreciation + interest – capital expenditures – change in net working capital.
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