Consider a Ricardian world consisting of U.S. and Japan. Both countries produce and consume the same two goods: cars and computers. In U.S., it takes 400 hours of labor to make a car, and 100 hours of labor to make a computer. In Japan, it takes 400 hours of labor to make a car, and 200 hours of labor to make a computer. Each country has 2 billion hours of labor.

            a. What would the autarky equilibrium (i.e., the amount of each good produced and consumed as well as the relative price of each good) in these two countries be if each devotes 80% of its labor force to the production of cars and the rest to the production of computers? Show the autarky equilibrium for each country in a graph with the respective numbers on the graph.

            b. Which country has absolute advantage in cars? In computers? Why?

            c. Given the answer to b, would U.S. have any incentive to trade with Japan? Who has comparative advantage in what? Why?

            d. If there is free trade, what would the world relative price of a car be if both countries produce cars?

            e. If there is free trade, what would the wages in Japan relative to the wages in U.S. be if both countries completely specialize?

            f. Suppose there is free trade and the world demand for cars exceeds 5 million. Who would produce what? What would the U.S.'s commodity terms of trade be? What would the Japan's commodity terms of trade be? Which country would be `small'? Explain.

You can do the graphs by hand but your explanation/text has to be typed.

QUESTION 45

1. All of the following may be sources of revenue for a revenue bond EXCEPT

   		airports
   		user fees
   		tolls
   		property taxes

1 points   

QUESTION 46

1. Which of the following are factors that affect the marketability of municipal GO bonds?

   I. The quality

   II. Call features

   III. The issuer’s name

   IV. Credit enhancements

   		I and II
   		I, II, III, and IV
   		II and III
   		I, II, and III

1 points   

QUESTION 47

1. Investors who have international investments are subject to

   I. political risk

   II. currency risk

   III. regulatory risk

   		II and III
   		I and II
   		I and III
   		I, II, and III

1 points   

QUESTION 48

1. If the U.S. dollar has fallen in comparison with foreign currencies, which of the following statements is TRUE?

   		U.S exports increase.
   		Foreign currencies buy fewer U.S. dollars.
   		U.S. products cost more for foreign consumers.
   		U.S. exports are likely to fall.

1 points   

QUESTION 49

1. A registered representative may open all of the following customer account EXCEPT

   		a corporate account by a designated officer
   		a partnership account by a designated partner
   		a minor’s account by a custodian
   		an account in the name of Mr. Wegner for Mrs. Wegner

1 points   

QUESTION 50

1. Which of the following partnership documents needs to be filed with the secretary of state in the home state of the partnership?

   I. The certificate of limited partnership

   II. The partnership agreement

   III. The subscription agreement

   		I only
   		I and III
   		II and III
   		I, II, and III

1.Which statement is true about nuclear fission or bombs?
A moderator slows down neutrons to make fission less likely.
The nuclear bomb dropped on Hiroshima in WWII was called Fat Man.  
A moderator slows down neutrons to make fission more likely.
The nuclear bomb in WWII that used ²³⁵U and a gun-type design was called Fat Man.
The maximum amount of fissile material that will sustain a chain reaction is called the critical mass.

The correct ranking of countries from highest to lowest for either their total nuclear power generation or for their percentage of electrical power from nuclear is:
Total nuclear power generation: France, U.S., China, South Korea
Percentage of electrical power from nuclear : South Korea, U.S., France, China
Total nuclear power generation: France, South Korea, U.S., China
Percentage of electrical power from nuclear : U.S., South Korea, France, China
Total nuclear power generation: U.S., France, China, South Korea

Which statement is true about a nuclear reactor?
Adding the moderator to the reactor slows down fission.
A sudden loss of primary coolant water in a pressurized water reactor slows down fission.  
Removing the control rods from the reactor slows down fission.
Removing the moderator from the reactor speeds up fission.
A sudden loss of primary coolant water in a pressurized water reactor speeds up fission.

1. Assume that Nissan spends an average of 1.875 million yen to manufacture a car in Japan, plus $2,600 to market and distribute the car in the United States. Furthermore, Nissan adds 10% margin to price the car. The exchange rate is $1 = ¥100

a. Assuming that the exchange rate at the end of the year is expected to be $1 = ¥80, what will be the impact of the exchange rate on the dollar cost the auto?

b. If Nissan had wanted to sell the car at the same price at which they were selling earlier, by how much would it have to cut costs, given the exchange rate in part a above.

c. If the same car were manufactured in the United States at a cost of $19,000 and 40 percent of parts were imported from Japan, what impact would the different exchange rates have on the dollar cost?

d. Suggest some strategies that can be used by Nissan to counter strong yen.

e. Suggest some strategies that can be used by Nissan in a weak yen environment.

2.

a. Company Ziyu. is a U.S. based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly correlated in their movements against the dollar. Kang Co. is a U.S. based MNC that has the same level of net cash flows in these currencies as Ziyu Co. except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk? Why?

b. Stephanie Olive Co. is a U.S. based MNC with net cash inflows of Singapore dollars and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Deepika Co. is a U.S. based MNC that has the same exposure as Stephanie Co. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk? Why?

3. Which of the following operations benefits from appreciation of the firm’s local currency?

A) Borrowing in a foreign currency and converting the funds to the local currency prior to the appreciation.

B) Receiving earnings dividends from foreign subsidiaries.

C) Purchasing supplies locally rather than overseas.

D) Exporting to foreign countries.

4. Which of the following operations benefits from depreciation of the firm’s local currency?

A) Borrowing in a foreign country and converting the funds to the local currency prior to the depreciation.

B) Purchasing foreign supplies.

C) Investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency.

D) Borrowing in a foreign country and converting the funds to the local currency prior to the depreciation AND purchasing foreign supplies.

5. Chaoyi Co. is a U.S. company that has exposure to the Swiss francs (SF) and Danish kroner (DK). It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $.40 while the present exchange rate of the DK is $.10. Chaoyi Co. has not hedged these positions. The SF and DK are highly correlated in their movements against the dollar. If the dollar weakens, then Chaoyi Co. will:

A) Benefit, because the dollar value of its SF position exceeds the dollar value of its DK position.

B) Benefit, because the dollar value of its DK position exceeds the dollar value of its SF position.

C) Be adversely affected, because the dollar value of its SF position exceeds the dollar value of its DK position.

D) Be adversely affected, because the dollar value of its DK position exceeds the dollar value of its SF position.

6. Generally, MNCs with less foreign costs than foreign revenue will be _______ affected by a _______ foreign currency.

A) Favorably; stronger

B) Not; stronger

C) Favorably; weaker

D) Not; weaker

7. When the dollar strengthens, the reported consolidated earnings of U.S. based MNCs are _______ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are _______.

A) Favorably; favorably affected but by a smaller degree

B) Favorably; favorably affected by a higher degree

C) Unfavorably; favorably affected

D) Favorably; unfavorably affected

8. A firm produces goods for which substitute goods are produced in all countries. Appreciation of the firm’s local currency should:

A) Increase local sales as it reduces foreign competition in local markets.

B) Increase the firm’s exports denominated in the local currency.

C) Increase the returns earned on the firm’s foreign bank deposits.

D) Increase the firm’s cash outflow required to pay for imported supplies denominated in a foreign currency.

E) None of these.

9. A firm produces goods for which substitute goods are produced in all countries. Depreciation of the firm’s local currency should:

A) Decrease local sales as foreign competition in local markets is reduced.

B) Decrease the firm’s exports denominated in the local currency.

C) Decrease the returns earned on the firm’s foreign bank deposits.

D) Decrease the firm’s cash outflow required to pay for imported supplies denominated in a foreign currency.

E) None of these.

10. If a U.S. firm’s cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a _______ overall impact of the Swiss franc’s depreciation against the dollar on _______.

A) Positive; interest expenses

B) Positive; gross profit

C) Negative; gross profit

D) Negative; interest expenses

11. Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What the net inflow or outflow is as measured in U.S. dollars?

12. Xiling Co. is a U.S. company with sales to Canada amount¬ing to C$8 million. Its cost of materials attributable to the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Given these exact figures above, the dollar value of Whitewater’s “earnings before interest and taxes” would _______ if the Canadian dollar appreciates; the dollar value of Whitewater’s cash flows would _______ if the Canadian dollar appreciates.

A) Increase; increase

B) Decrease; increase

C) Decrease; decrease

D) Increase; decrease

E) Increase; be unaffected

12. Yichen Peng (a U.S. firm) has no subsidiaries and presently has sales to Mexican customers amounting to MXP98 million, while its peso denomin¬ated expenses amount to MXP41 million. If it shifts its material orders from its Mexican suppliers to U.S. suppliers, it could reduce peso denominated expenses by MXP12 million and increase dollar denominated expenses by $800,000. This strategy would _______ the Yichen’s exposure to changes in the peso’s movements against the U.S. dollar. Regardless of whether the firm shifts expenses, it is likely to perform better when the peso is valued _______ relative to the dollar.

A) Reduce; high

B) Reduce; low

C) Increase; low

D) Increase; high

13. Maura Watts Co. is a U.S. manufacturing firm that produces goods in the U.S. and sells all products to retail stores in the U.K.; the goods are denominated in pounds. It finances a small portion of its business with pound denominated loans from British banks. Which of the following is true? (Assume that the amount of products to be sold is guaranteed by contracts.)

A) The dollar value of sales is higher if the pound depre¬ciates against the dollar.

B) The dollar value of sales is unaffected by the pound’s exchange rate.

C) Both of these are true.

D) Neither of these is true.

14. Aashka Co. has some expenses and revenue in euros. If its expenses are more sensitive to exchange rate movements than revenue, it could reduce economic exposure by _______. If its revenues are more sensitive than expenses, it could reduce economic exposure by _______.

A) Decreasing foreign revenues; decreasing foreign expenses

B) Decreasing foreign revenues; increasing foreign expenses

C) Increasing foreign revenues; decreasing foreign revenues

D) Decreasing foreign expenses; increasing foreign revenues

15. If revenues and costs are equally sensitive to exchange rate movements, MNCs may reduce their economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that:

A) Cash inflows exceed cash outflows in each foreign currency.

B) Cash outflows exceed cash inflows in each foreign currency.

C) Cash inflows match cash outflows in each foreign currency.

D) None of these.

For each problem, follow these steps.

1. State the hypotheses and identify the claim.

2. Find the critical values(s).

3. Compute the test value.

4. Make the decision.

5. Summarize the results.

1. The reasons that workers in the 25-54 year old category were displaced are listed below.

Plant closed/moved 44.8%

Insufficient work 25.2%

Position eliminated 30.0%

A random sample of 180 displaced workers (in this age category) found that 40 lost their jobs due to their position being eliminated, 53 due to insufficient work, and the rest due to the company being closed or moving. At the 0.01 level of significance, are these proportions different from those from the U.S. Department of Labor?  

ABC corporation has just sold equipment to a French company exports worth FF 80 million with payment due in three months. The spot rate is FF 7.4/$ and the 3 month forward rate is FF 7.5/$. Also assume: 3 month French interest rate 9.00% p.a. 3 month U.S. interest rate 4.00% p.a. 3 month call option on Francs at FF 7.5/$ (strike price) 3.0% premium 3 month put option on Francs at FF 7.5/$ (strike price) 2.4% premium a) How can ABC hedge this risk? b) Which alternative would you choose and why?

International Accounting:

Answer based on IFRS unless otherwise indicated.

What is a provision, and when must a provision be recognized?

What is a contingent liability? What is the financial reporting treatment for contingent liabilities?

What is a constructive obligation?

What is an onerous contract? How are onerous contracts accounted for?

How does a company measure the net pension benefit liability (asset) to report on the balance sheet under IFRS and U.S. GAAP?

page 198In accounting for post-employment benefits, when are past service costs and actuarial gains and losses recognized in income?

What is the basis for determining compensation cost in an equity-settled share-based payment transaction with nonemployees? With employees?

On April 1, 2017, Mendoza Company borrowed 680,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2017 and will make a second interest payment on March 31, 2018 when the loan is repaid. Mendoza prepares U.S.-dollar financial statements and has a December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 euro:

April 1, 2017 $ 1.12

October 1, 2017 1.22

December 31, 2017 1.26

March 31, 2018 1.30

Reliable Non-Authoritative Sources

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 established the FASB Standards Accounting Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants.

For discussion: What are some non-authoritative sources of information and how could management of a company utilize information obtained from non-authoritative sources in preparing GAAP financial statements?