International Finance Final Exam

Front 1

Three differences between forwards and futures

Back 1

1. forwards private; futures traded
2. forwards customized; futures standardized
3. forwards have no daily settlement; futures have daily settlement

Front 2

Intrinsic Value = ?

Back 2

Intrinsic Value = Spot - Strike

Front 3

Time Value = ?

Back 3

Time Value = Call Premium - Intrinsic Value

Front 4

Call Option Price Relationships with Strike, Spot, Rd, Rf, t, volatility

Back 4

Strike = -
Spot = +
Rd = +
Rf = -
t= +
volatility = +

Front 5

Current rate method

Back 5

1. functional is not $
2. TA-TL
3. CTA, bypass income statement

Front 6

Temporal method

Back 6

1. function is $
2. MA-ML
3. goes to income statement

Front 7

What is translation exposure?

Back 7

Changes in income statement items and the book value of balance sheet assets and liabilities that are caused by an exchange rate change. This measurement is retrospective because it is based on activities that occurred in the past.

Front 8

What is operating/economic exposure?

Back 8

Changes in the amount of future operating cash flows caused by an exchange rate change. Prospective because it is based on future activities. (Big picture, competitive)

Front 9

What is transaction exposure?

Back 9

Changes in the value of outstanding foreign currency denominated contracts that are brought about by an exchange rate change. This is a mix of retrospective and prospective because it's based on activities that occurred in the past, but will be settled in the future.

Front 10

3 Natural Hedges

Back 10

1. Input sourcing
2. Plant location
3. Shifting production

Front 11

3 Reasons for adjusting transfer prices

Back 11

1. tax minimization
2. avoid exchange controls
3. disguise profitability in less developed country (LDC)

Front 12

3 Step approach in project evaluation

Back 12

1. project as if stand-alone
2. adjust for project-parent flows
3. adjust for global project interactions