Question

Please give tick (√) or cross (x) to the following statements
1. The largest foreign exchange market is in New York.
2. Currency swap does not involve interest swap of the swapped currencies.
3. Withholding tax is a direct tax.
4. The global foreign exchange market never closes.
5. Cost of capital is the minimum rate of return an investment project generates for the payment of its financing cost.
6. Foreign exchange intervention is one function of commercial banks.
7. The Economic exposure has the fundamental impact on multinational corporations’ cash flows, hence, their firm values.
8. Euro-currency market is the market where euro-denominated assets are traded.
9. In a forward rate agreement, the buyer agrees to pay the seller the increased interest cost on a notational amount if interest rates increase above the agreed rate.
10. In fully integrated capital markets, each asset will be priced according to the world systematic risk.
11. International corporations need to manage their cash balances so as to keep a balance between the cost of keep cash on hands and the cost of not to keep enough cash on hands.
12. Transfer pricing is often used by international corporations to relocate funds within the firm for the purpose of reducing tax liabilities.

Answer 1

1) cross

The reason is that the largest foreign exchange market is in London.

2) cross

The reason is that currency swap are used to obtain foreign currency loan at a better interest rate and acts like hedging a transaction risk. It may involve the interest rate swap as currency swap invloves two variable rate loan or fixed rate to variable rates.

3)tick

Withholding tax is a direct tax as the amount of tax is directly deducted from employee's salary by the employer and paid to government as part of individual's liability.

4) tick

Global foreign exchange market never closes and it's a 24-hour market that is open for 7 days a week from 5pm EST on Sunday until 4 pm EST on friday.