Question: Define the international Fisher effect. To what

> Why has LIBOR played such a central role in international business and financial contracts? Why has this been questioned in recent debates over its value reported?

> How does a company cancel or unwind a swap?

> Why are there significantly larger swings in the value of a cross-currency swap than there is in a plain vanilla interest rate swap?

> Why would one company with interest payments due in pounds sterling want to swap those payments for interest payments due in U.S. dollars?

> How do corporate borrowers use interest rate or cross currency swaps to reduce the costs of their debt?

> How can interest rate swaps be used by a multinational firm to manage its debt structure?

> Why do fixed for floating interest rate swaps never swap the credit spread component on a floating rate loan?

> If interest rate swaps are not the cost of government borrowing, what credit quality do they represent?

> What are the primary driving forces that motivate cross-border mergers and acquisitions?

> What is a plain vanilla interest rate swap? Are swaps a significant source of capital for multinational firms?

> How can a business firm that has borrowed on a floating-rate basis use a forward rate agreement to reduce interest rate risk?

> What would be the preferred strategy for a borrower paying interest on a future date if they expected interest rates to rise?

> What is an interest "reference rate" and how is it used to set rates for individual borrowers?

> What are the three different prices or ‘rates' integral to every foreign currency option contract?

> What is the difference between the price of an option, the value of an option, the premium on an option, and the cost of a foreign currency option?

> You read that exchange-traded American call options on pounds sterling having a strike price of 1.460 and a maturity of next March are now quoted at 3.67. What does this mean if you are a potential buyer?

> Explain the difference between foreign currency options and futures and when either might be most appropriately used.

> Define a put and call on the British pound sterling.

> How do foreign currency futures and foreign currency forwards compare?

> What is real option analysis? How is it a better method of making investment decisions than traditional capital budgeting analysis?

> How do you use foreign currency futures to speculate on the exchange rate movements, and what role do long and short positions play in that speculation?

> Many academics and professionals have tested the foreign exchange and interest rate markets to determine their efficiency. What have they concluded?

> Explain the meaning and probable significance for international business of the following contract specifications: a. notional principal b. margin c. marked-to-market

> The term carry trade is used quite frequently in the business press. What does it mean, and what conditions and expectations do investors need to hold to undertake carry trade transactions?

> What is the difference between a historic volatility and an implied volatility?

> Some forecasters believe that foreign exchange markets for the major floating currencies are “efficient” and forward exchange rates are unbiased predictors of future spot exchange rates. What is meant by “unbiased predictor” in terms of how the forward r

> What is the relationship or link between the forward rate and the foreign currency option premium?

> Options are often described as in-the-money, at-the-money, or out-of-the-money. What does that mean and how is it determined?

> An option's value declines over time, but it does not do it evenly. Explain what that means for option valuation.

> The value of an option is stated to be the sum of its intrinsic value and its time value. Explain what is meant by these terms.

> How is expropriation risk factored into the capital budgeting analysis of a foreign project?

> The cash flows associated with a call option on euros by a U.S. dollar based investor occur at different points in time. What are they and how much does the time element matter?

> Once an option has been purchased, only two prices or rates are part of the holder's decision making process. Which two and why?

> Why would anyone write an option, knowing that the gain from receiving the option premium is fixed but the loss if the underlying price goes in the wrong direction can be extremely large?

> What is a foreign currency future?

> How is the price elasticity of demand relevant to exchange rate pass-through?

> What is partial exchange rate pass-through, and how can it occur in efficient global markets?

> Incomplete exchange rate pass-through is one reason that a country’s real effective exchange rate can deviate for lengthy periods from its purchasing power equilibrium level of 100. What is meant by the term exchange rate pass-through?

> What formula is used to convert a nominal effective exchange rate index into a real effective exchange rate index?

> Explain how a nominal effective exchange rate index is constructed.

> According to the theory of purchasing power parity, what should happen to a currency which is undervalued?

> How is foreign exchange risk sensitivity factored into the capital budgeting analysis of a foreign project?

> How close does the Big Mac Index conform to the theoretical requirements for a one price measurement of purchasing power parity?

> Define the two forms of purchasing power parity, absolute and relative.

> If transaction costs for undertaking covered or uncovered interest arbitrage were large, how do you think it would influence arbitrage activity?

> If someone you were working with argued that the current forward rate quoted on a currency pair is the market's expectation of where the future spot rate will end up, what would you say?

> Define uncovered interest arbitrage and explain what expectations an investor or speculator would need to undertake an uncovered interest arbitrage investment?

> Define the terms covered interest arbitrage and uncovered interest arbitrage. What is the difference between these two transactions?

> Define interest rate parity. What is the relationship between interest rate parity and forward rates?

> Why is the approximate form of the Fisher effect frequently used instead of the precise formulation? Does this introduce significant analysis error?

> Define the Fisher effect. To what extent do empirical test confirm that the Fisher effect exists in practice?

> What are the differences in the cash flows used in a project point of view analysis and a parent point of view analysis?

> Define the law of one price carefully, noting its fundamental assumptions. Why are these assumptions so difficult to find in the real world in order to apply the theory?

> Define and give an example of each of the following quotes: a. Bid rate quote. b. Ask rate quote.

> With reference to foreign exchange turnover in 2013: a. Rank by volume the relative size of spot, forwards, and swaps. b. List the five most important geographic locations for foreign exchange turnover in descending order. c. List the three most importan

> What is a nondeliverable forward and why does it exist?

> Define and differentiate the different type of swap transactions in the foreign exchange markets.

> Define each of the following types of foreign exchange transactions: a. Spot b. Outright forward c. Forward-forward swaps

> For each of the foreign exchange market participants, identify their motive for buying or selling foreign exchange.

> How is the global foreign exchange market structured? Is digital telecommunications replacing people?

> What is the J-Curve adjustment path?

> What are the three major functions of the foreign exchange market?

> A foreign subsidiary does not have an independent cost of capital. However, in order to estimate the discount rate for a comparable host-country firm, the analyst should try to calculate a hypothetical cost of capital. How is this done?

> Capital budgeting for a foreign project uses the same theoretical framework as domestic capital budgeting. What are the basic steps in domestic capital budgeting?

> Culver Cheese Company has developed a new cheese slicer called the Slim Slicer. The company plans to sell this slicer through its monthly catalogue. Given market research, Culver management believes the company can charge $20 for the Slim Slicer. Prototy

> The fastener division of Northern Textile Industries manufactures zippers and then sells them to customers for $8 per unit. Its variable cost is $3 per unit, and its fixed cost per unit is $1.50. Management would like the fastener division to transfer 12

> Presented below are data for ProTech Appliance Repair Shop: Use time-and-material pricing to determine bill. Repair technicians' wages ……. $120,000 Fringe benefits ………………………. 40,000 Overhead ………………………………. 50,000 The desired profit margin per hour is $1

> Floor Show Corporation produces area rugs. The following perunit cost information is available: direct materials $18, direct labour $9, variable manufacturing overhead $5, fixed manufacturing overhead $6, variable selling and administrative expenses $3,

> Clear Water is considering introducing a water filtration device for its one-litre water bottles. Market research indicates that 1 million units can be sold if the price is no more than $3. If Clear Water decides to produce the filters, it will need to i

> Using the data in BE9.4, calculate the markup percentage using variable-cost pricing. Calculate markup percentage using variable-cost approach. Data from BE9.4: Schuman Corporation produces microwave units. The following per-unit cost information is ava

> Using the data in BE9.4, calculate the markup percentage using the absorption-cost approach. Calculate markup percentage using absorption-cost approach. Data from BE9.4: Schuman Corporation produces microwave units. The following per-unit cost informati

> Podrive Company manufactures computer hard drives. The market for hard drives is very competitive. The current market price for a computer hard drive is $45. Podrive would like a profit of $15 per drive. How can Podrive Company accomplish this objective?

> Quick Pix is a large digital processing centre that serves 130 outlets in grocery stores, service stations, camera and photo shops, and drugstores in 16 nearby towns. Quick Pix operates 24 hours a day, six days a week. Classify each of the following acti

> Wu and Martin is an architectural firm that is contemplating the installation of activity-based costing. The following activities are performed daily by staff architects. Classify these activities as valueadded or non–value-added: (a) designing and draft

> For Biswell Company, variable costs are 70% of sales and fixed costs are $195,000. Calculate the required sales in dollars that are needed to achieve management's target operating income of $75,000. (Use the contribution margin approach.) Calculate sales

> Milner Manufacturing uses a job-order costing system. On May 1, the company has a balance in Work in Process Inventory of $3,500 and two jobs in process: Job No. 429 $2,000, and Job No. 430 $1,500. During May, a summary of source documents reveals the fo

> Hirani Novelty Company identified the following activities in its production and support operations. Classify each of these activities as either value-added or non–value-added. Classify activities as value-added or non–value-added. a. Purchasing b. Recei

> Computer Parts Inc., a manufacturer of computer chips, employs activity-based costing. The following budgeted data for each of the activity cost pools are provided for the year 2020. Calculate activity-based overhead rates. // For 2020, the company had

> Look on the Internet for time management resources that are designed specifically for students. If you cannot find one, look at the University of Guelph library web page. Instructions Use the resources to answer the following questions. a. Why is it imp

> Marcus Lim, the cost accountant for Hi-Power Mower Company, recently installed activity-based costing at the company's western lawn tractor (riding mower) plant, where three models are manufactured: the 8-horsepower Bladerunner, the 12-horsepower Quickcu

> Java Inc. is a distributor and processor of a variety of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. Java Inc. currently offers 10 different coffees in 500-gram bags to

> Canadian Motorcycle Company (CMC) produces two models of motorcycles: Faster and Slower. The company has five categories of overhead costs: purchasing, receiving, machine operating, handling, and shipping. Each category represents the following percentag

> The CEO of Walker Ltd. is currently investigating ways to modernize the company's manufacturing process. At the first staff meeting, the chief engineer presented a proposal for automating the assembly department, and recommended that the company purchase

> Coats Galore Inc. uses activity-based costing as the basis for information to set prices for its six lines of seasonal coats. Calculate the activity-based overhead rates using the following budgeted data for each of the activity cost pools. Calculate act

> The Peace Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $3,900 per month. The other barbers are paid $1,900 per month. In addition, each barber is paid a commission of $2 per haircut. Other monthly cost

> Wet Ride Inc. manufactures and distributes three types of water skis: beginner, intermediate, and advanced. Production is highly automated for the beginner model, whereas the intermediate and advanced models require increasing degrees of labour, dependin

> For Dene Company, the predetermined overhead rate is 150% of direct labour cost. During the month, Dene incurred $100,000 of factory labour costs, of which $85,000 is direct labour and $15,000 is indirect labour. Actual overhead incurred was $120,000. Ap

> B & B Electronics Company manufactures two large-screen television models: the Deluxe, which has been produced for many years and sells for $900, and the Flat, a new model, which sells for $1,260. Based on the following income statement for 2020, the

> Aerotech International Inc. of Montreal has supported a research and development (R&D) department that for many years has been the sole contributor to the company's new products. The R&D activity is an overhead cost centre that provides services

> For the past five years, Collins Ltd. has been running a consulting practice in which it provides two major services: general management consulting and executive training seminars. The CFO is not quite sure that he is charging accurate fees for the diffe

> ProDriver Inc. (PDI) recently started operations to obtain a share of the growing market for golf equipment. PDI manufactures two models of specialty drivers: the Thunderbolt model and the Earthquake model. Two professional engineers and a professional g

> McDonald and O'Toole is a law firm that serves both individuals and corporations. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the ass

> Scalar Manufacturing produces automobile parts in batches in one continuous manufacturing process. The company uses direct labour hours to assign overhead to each part. Magda Malakova, the financial controller, is wondering what the reasons are for the l

> National Steel Company has budgeted manufacturing overhead costs of $2.5 million. It has allocated overhead on a plant-wide basis to its two products (Standard Steel and Deluxe Steel) using machine hours, which are estimated to be 100,000 for the current

> Quality Paints Inc. uses a traditional cost accounting system to apply quality-control costs uniformly to all its products at a rate of 30% of the direct labour cost. The monthly direct labour cost for the varnish paint line is $100,000. The company is c

> Ronald Enterprises Ltd. has estimated the following costs for producing and selling 15,000 units of its product: Calculate the break-even point in units and target income after tax. Direct materials ………………………………………….………. $75,000 Direct labour …………………………

> Prime Furniture designs and builds premium factory-made wood armoires for homes. All are made of white oak. Its budgeted manufacturing overhead costs for the year 2020 are as follows. Assign overhead costs using traditional costing and ABC; compare resul

> Ayala Company manufactures four products in a single production facility. The company uses activity-based costing. The company has identified the following activities through its activity analysis: (a) inventory control, (b) machine set-ups, (c) employee

> During the current month, Seeza Corporation completed Job 310 and Job 312. Job 310 cost $60,000 and Job 312 cost $40,000. Job 312 was sold on account for $90,000. Journalize the entries for the completion of the two jobs and the sale of Job 312. Prepare

> Mars Company has four categories of overhead: purchasing and receiving materials, machine operating costs, material handling, and shipping. The costs estimated for these categories for the coming year are as follows: Assign overhead costs using tradition