Business Finance
Exam Questions
Course Introduction
Business Finance provides an introduction to the fundamental principles and practices of financial management within a business context. The course covers topics such as the time value of money, financial statement analysis, budgeting, working capital management, risk and return, and the basics of capital structure and investment decisions. Students will learn how financial information is used to make strategic business decisions and develop practical skills in analyzing financial data, assessing investment opportunities, and planning for the financial health of an organization. The course equips learners with essential knowledge needed to understand and manage the financial functions critical to business success.
Recommended Textbook
Corporate Finance 1st European Edition by David Hillier
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) A partnership:
A)is taxed the same as a corporation.
B)agreement defines whether the business income will be taxed like a partnership or a corporation.
C)terminates at the death of any general partner.
D)has less of an ability to raise capital than a proprietorship.
E)allows for easy transfer of interest from one general partner to another.
Answer: C
Q2) What advantages does the corporate form of organization have over sole proprietorships or partnerships?
Answer: The advantages of the corporate form of organization over sole proprietorships and partnerships are the ease of transferring ownership,the owners' limited liability for business debts,the ability to raise more capital,and the opportunity of an unlimited life of the business.
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Chapter 2: Corporate Governance
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Q1) A general partner:
A)has less legal liability than a limited partner.
B)has more management responsibility than a limited partner.
C)faces double taxation whereas a limited partner does not.
D)cannot lose more than the amount of his/her equity investment.
E)is the term applied only to corporations which invest in partnerships.
Answer: B
Q2) Which one of the following statements concerning a sole proprietorship is correct?
A)The life of the firm is limited to the life span of the owner.
B)The owner can generally raise large sums of capital quite easily.
C)The ownership of the firm is easy to transfer to another individual.
D)The company must pay separate taxes from those paid by the owner.
E)The legal costs to form a sole proprietorship are quite substantial.
Answer: A
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4
Chapter 3: Financial Statement Analysis and Long-Term Planning
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Sample Questions
Q1) Note that in all of our cash flow computations to determine cash flow of the firm,we never include the addition to retained earnings.Why not? Is this an oversight?
Answer: The addition to retained earnings is not a cash flow.It is simply an accounting entry that reconciles the statement of financial position.Any additions to retained earnings will show up as cash flow changes in other statement of financial position accounts.
Q2) Note that we added depreciation back to operating cash flow and to additions to non-current assets.Why add it back twice? Isn't this double-counting?
Answer: In both cases,depreciation is added back because it was previously subtracted when obtaining ending balances of net income and non-current assets.Also,since depreciation is a noncash expense,we need to add it back in both instances,so there is no double counting.
Q3) Why is interest expense excluded from the operating cash flow calculation?
Answer: Operating cash flow is designed to represent the cash flow a firm generates from its day-to-day operating activities.Interest expense arises from a financing decision and thus should be considered as a cash flow to creditors.
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Chapter 4: Discounted Cash Flow Valuation
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Sample Questions
Q1) Winston Enterprises would like to buy some additional land and build a new factory.The anticipated total cost is £136 million.The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project.Management has decided to save £450,000 a month for this purpose.The firm earns 6% compounded monthly on the funds it saves.How long does the company have to wait before expanding its operations?
A)184.61 months
B)199.97 months
C)234.34 months
D)284.61 months
E)299.97 months
Q2) Mr.Miser loans money at an annual rate of 21%.Interest is compounded daily.What is the actual rate Mr.Miser is charging on his loans?
A)22.97%
B)23.08%
C)23.21%
D)23.36%
E)23.43%
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Chapter 5: How to Value Bonds and Shares
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Q1) Payments made by a corporation to its shareholders,in the form of either cash,shares or payments in kind,are called:
A)retained earnings.
B)net income.
C)dividends.
D)redistributions.
E)infused equity.
Q2) The rate at which a share price is expected to appreciate (or depreciate)is called the _____ yield.
A)current
B)total
C)dividend
D)capital gains
E)earnings
Q3) Differential growth refers to a firm that increases its dividend by:
A)three or more percent per year.
B)a rate which is most likely not sustainable over an extended period of time.
C)a constant rate of two or more percent per year.
D) .10 or more per year.
E)an amount in excess of .10 a year.
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Chapter 6: Net Present Value and Other Investment Rules
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Q1) The profitability index is closely related to:
A)payback.
B)discounted payback.
C)average accounting return.
D)net present value.
E)internal rate of return.
Q2) A situation in which accepting one investment prevents the acceptance of another investment is called the:
A)net present value profile.
B)operational ambiguity decision.
C)mutually exclusive investment decision.
D)issues of scale problem.
E)multiple choices of operations decision.
Q3) When the present value of the cash inflows exceeds the initial cost of a project,then the project should be:
A)accepted because the internal rate of return is positive.
B)accepted because the profitability index is greater than 1.
C)accepted because the profitability index is negative.
D)rejected because the internal rate of return is negative.
E)rejected because the net present value is negative.
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Chapter 7: Making Capital Investment Decisions
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Q1) Le Place has sales of 439,000,depreciation of 32,000,and net working capital of 56,000.The firm has a tax rate of 34% and a profit margin of 6%.The firm has no interest expense.What is the amount of the operating cash flow?
A) 49,384
B) 52,616
C) 54,980
D) 58,340
E) 114,340
Q2) When is it appropriate to use the equivalent annual cost (EAC)methodology,and how do you make a decision using it?
Q3) Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates.
A)real
B)nominal
C)effective
D)stripped
E)coupon
Q4) Should financing costs be included as an incremental cash flow in capital budgeting analysis?
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Chapter 8: Risk Analysis, Real Options, and Capital Budgeting
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Sample Questions
Q1) Including the option to expand in your project analysis will tend to:
A)extend the duration of a project but not affect the project's net present value.
B)increase the cash flows of a project but decrease the project's net present value.
C)increase the net present value of a project.
D)decrease the net present value of a project.
E)have no effect on either a project's cash flows or its net present value.
Q2) The Marx Brewing Company recently installed a new bottling machine.The machine's initial cost is 2,000,and can be depreciated on a straight line basis to a zero salvage in 5 years.The machine's per year fixed cost is 1,800,and its variable cost is 0.50 per unit.The selling price per unit is 1.50.Marx's tax rate is 34%,and it uses a 16% discount rate.Calculate the accounting break-even point on the new machine,as well as the present value break-even point on the new machine.
Q3) Sensitivity analysis is a method which allows for evaluation of the NPV given a series of changes to the underlying assumptions.Discuss why and how scenario analysis is used in addition to sensitivity analysis.
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Chapter 9: Risk and Return: Lessons From Market History
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Sample Questions
Q1) You have a sample of returns observations for the Malta Stock Fund.The 4 returns are 7.25%,5.6%,12.5%,1.0%.What is the average return and variance of these returns?
A)6.50%; 16.9
B)6.60%; 22.5
C)6.60%; 4.75
D)26.35%; 67.6
E)None of the above.
Q2) Winslow plc is currently selling for £40 a share.The equity has a dividend yield of 3.8%.How much dividend income will you receive per year if you purchase 500 shares?
A)£152
B)£190
C)£329
D)£760
E)£1,053
Q3) What securities have offered the highest average annual returns over the last several decades?
Can we conclude that return and risk are related in real life?
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11
Chapter 10: Return and Risk: The Capital Asset Pricing Model
Capm
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Sample Questions
Q1) Beta measures:
A)the ability to diversify risk.
B)how an asset covaries with the market.
C)the actual return on an asset.
D)the standard of the assets' returns.
E)All of the above.
Q2) An efficient set of portfolios is:
A)the complete opportunity set.
B)the portion of the opportunity set below the minimum variance portfolio.
C)only the minimum variance portfolio.
D)the dominant portion of the opportunity set.
E)only the maximum return portfolio.
Q3) The variance of Share A is .004,the variance of the market is .007 and the covariance between the two is .0026.What is the correlation coefficient?
A).9285
B).8542
C).5010
D).4913
E).3510
Q4) Explain in words what beta is and why it is important.
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Chapter 11: Factor Models and the Arbitrage Pricing Theory
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Q1) The term Corr(\(\varepsilon\)<sub>R</sub> ,\(\varepsilon\) <sub>T</sub> )= 0 tells us that:
A)all error terms of company R and T are 0.
B)the unsystematic risk of companies R and T is unrelated or uncorrelated.
C)the correlation between the returns of companies R and T is -1.
D)the systematic risk companies R and T is unrelated.
E)None of the above.
Q2) You have a 3 factor model to explain returns.Explain what a factor represents in the context of the APT?
Each factor is multiplied by a beta.What do these represent and how do they relate to the actual return?
Q3) The betas along with the factors in the APT adjust the expected return for:
A)calculation errors.
B)unsystematic risks.
C)spurious correlations of factors.
D)differences between actual and expected levels of factors.
E)All of the above.
Q4) Explain the conceptual differences in the theoretical development of the CAPM and APT.
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Chapter 12: Risk, cost of Capital, and Capital Budgeting
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Q1) Given the sample of returns of Top Black Tar plc and the FTSE 100 index,calculate Top Black's correlation.What can be said about the relationship of Top Black and the market return behavior?
Q2) The weighted average of the firm's costs of equity,preference shares,and after tax debt is the:
A)reward to risk ratio for the firm.
B)expected capital gains yield for the equity.
C)expected capital gains yield for the firm.
D)portfolio beta for the firm.
E)weighted average cost of capital (WACC).
Q3) Betas may vary substantially across an industry.The decision to use the industry or firm beta: to estimate the cost of capital depends on
A)how small the estimation errors are of all betas across industries.
B)how similar the firm's operations are to the operations of all other firms in the industry.
C)whether the company is a leader or follower.
D)the size of the company's public float.
E)None of the above.
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Page 14
Chapter 13: Corporate Financing Decisions and Efficient
Capital Markets
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Q1) Suppose your cousin invests in the stock market and doubles her money in a single year while the market,on average,earned a return of only about 15%.Is your cousin's performance a violation of market efficiency?
Q2) Do you think the lessons from capital market history will hold for each year in the future?
That is,as an example,if you buy small company shares will your investment always outperform Treasury bonds?
Q3) Explain why it is that in an efficient market,investments have an expected NPV of zero.
Q4) Event studies have been used to examine:
A)IPOs,SEOs,and other equity issuances.
B)changes in earnings.
C)mergers and acquisitions.
D)most financial events.
E)All of the above.
Q5) Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?
Q6) Define the three forms of market efficiency.
Page 15
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Chapter 14: Long-Term Financing: An Introduction
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Q1) Technically speaking,a long-term corporate debt offering that features a specific attachment to corporate property is generally called:
A)a debenture.
B)a bond.
C)a long-term liability.
D)a preferred liability.
E)None of the above.
Q2) Retained earnings are:
A)the amount of cash that the firm has saved up.
B)the difference between the net income earned and the dividends paid.
C)the difference between the market price of the equity and the book value.
D)the amount of shares repurchased.
E)None of the above.
Q3) A grant of authority allowing someone else to vote shares of equity that you own is called:
A)a power-of-share authorization.
B)a proxy.
C)a share authority grant (SAG).
D)a restricted conveyance.
E)None of the above.
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Chapter 15: Capital Structure: Basic Concepts
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Sample Questions
Q1) The tax savings of the firm derived from the deductibility of interest expense is called the:
A)interest tax shield.
B)depreciable basis.
C)financing umbrella.
D)current yield.
E)tax-loss carryforward savings.
Q2) Wild Flowers Express has a debt-equity ratio of .60.The pre-tax cost of debt is 9% while the unlevered cost of capital is 14%.What is the cost of equity if the tax rate is 34%?
A)7.52%
B)8.78%
C)15.98%
D)16.83%
E)17.30%
Q3) Based on MM with taxes and without taxes,how much time should a financial manager spend analyzing the capital structure of his firm? What if the analysis is based on the static theory?
Q4) Explain homemade leverage and why it matters.
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Chapter 16: Capital Structure: Limits to the Use of Debt
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Q1) What are the advantages of a prepackaged bankruptcy for a firm? What are the disadvantages?
Q2) Given the following information,leverage will add how much value to the unlevered firm per pound of debt?
Corporate tax rate: 34%
Personal tax rate on income from bonds: 20%
Personal tax rate on income from equities: 0%
A)£0.175
B)£0.472
C)£0.528
D)£0.825
E)None of the above.
Q3) Covenants restricting the use of leasing and additional borrowings primarily protect:
A)the equityholders from added risk of default.
B)the debtholders from added risk of dilution of their claims.
C)the debtholders from the transfer of assets.
D)the management from having to pay agency costs.
E)None of the above.
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Chapter 17: Valuation and Capital Budgeting for the Levered Firm
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Q1) Non-market or subsidized financing ________ the APV ___________ .
A)has no impact on; as the lower interest rate is offset by the lower discount rate
B)decreases; by decreasing the NPV of the loan
C)increases; by increasing the NPV of the loan
D)has no impact on; as the tax deduction is not allowed with any government supported financing
E)None of the above.
Q2) The WACC approach to valuation is not as useful as the APV approach in leveraged buyouts because:
A)there is greater risk with a LBO.
B)the capital structure is changing.
C)there is no tax shield with the WACC.
D)the value of the levered and unlevered firms are equal.
E)the unlevered and levered cash flows are separated which cannot be used with the WACC approach.
Q3) A loan of 10,000 is issued at 15% interest.Interest on the loan is to be repaid annually for 5 years,and the non-amortized principal is due at the end of the fifth year.Calculate the NPV of the loan if the company's tax rate is 34%.
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Chapter 18: Dividend and Other Payouts
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Sample Questions
Q1) Schaeffer Shippers announced that on May 1,2004,that it will pay a dividend of £5.00 per share on June 15 to all holders on record as of May 31st.The firm's share price is currently at £70 per share.Assume that all investors are in the 33% tax bracket.Given that the ex-dividend date is May 29,what should happen to Schaeffer's share price on May 29?
Q2) The last date on which you can purchase shares and still receive the dividend is the date _____ business day(s)prior to the date of record.
A)zero
B)one
C)three
D)five
E)seven
Q3) Homemade dividends are described by Modigliani and Miller to be the:
A)dividend one pays oneself to avoid risky stocks.
B)re-arrangement of the firm's dividend stream as management needs.
C)re-arrangement of the firm's dividend stream by investors in their holdings by buying or selling stock.
D)present value of all dividends to be paid.
E)None of the above.
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Page 20
Chapter 19: Equity Financing
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Q1) Investment banks perform which of the following services for corporate issuers:
A)formulating the method used to issue the securities.
B)pricing the new securities.
C)selling the new securities.
D)All of the above.
E)None of the above.
Q2) A group of investment bankers who pool their efforts to underwrite a security are known as a(n):
A)amalgamate.
B)conglomerate.
C)green shoe group.
D)klatch.
E)syndicate.
Q3) Explain the advantages of a shelf-registration to an issuer.How can timeliness of disclosure and a potential market overhang work against a shelf-registration?
Q4) The evidence on IPO sales is varied from issue to issue,but there are three common themes; underpricing,underperformance,and the reasons for going public.Explain these three themes.
Q5) Discuss what a Dutch auction is and how it works.
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Chapter 20: Debt Financing
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Q1) Callable bonds may be issued in the real world because:
A)bondholders have lower tax rates than the corporation.
B)management may have better information about future interest rates.
C)interest rate risk of callable bonds are lower.
D)callable bonds provide the option to reduce restrictive covenants.
E)All of the above.
Q2) Bonds that sell for much less than face value and pay no coupon are called:
A)original issue discount bonds.
B)deep discount bonds.
C)pure discount bonds.
D)zero coupon bonds.
E)All of the above.
Q3) Studies have shown that around the announcement of bond rating changes:
A)bond values increase,and equity values decrease.
B)bond values decrease,and equity values increase.
C)bond values increase,and equity values do not change.
D)bond values decrease,and equity values do not change.
E)no unusual behavior occurs in bond or equity values.
Q4) An income bond is unique in at least one characteristic.Explain what is different about income bonds and why they exist.Why are they not more popular?
Page 22
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Chapter 21: Leasing and Off-Balance-Sheet Financing
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Q1) Your firm is considering leasing a new robotic milling control system.The lease lasts for 5 years.The lease calls for 6 payments of £300,000 per year with the first payment occurring at lease inception.The black box would cost £1,050,000 to buy and would be straight-line depreciated to a zero salvage.The actual salvage value is zero.The firm can borrow at 8%,and the corporate tax rate is 34%. What is the minimum lease payment that the lessor would be willing to accept?
A)£161,000
B)£176,995
C)£217,645
D)£237,083
E)None of the above.
Q2) The reason tax authorities are most concerned about lease contracts is:
A)firms that lease generally pay no taxes.
B)that leasing usually leads to bankruptcy.
C)that leases can be set up solely to avoid taxes.
D)because leasing leads to off-balance-sheet-financing.
E)All of the above.
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Page 23
Chapter 22: Options and Corporate Finance
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Q1) What is the value of one November 35 put contract? KNJ (KNJ)Underlying share price: 30.86
\(\begin{array}{|l|l|l|l|}
\hline && Call & Put \\
\hline Expiration&Strike&Last&Last\\
\hline \text { Aug } & 25 & 6.15 & .05\\
\hline \text { Nov } & 25 & 6.60 & .10 \\
\hline \text { Aug } & 35 & .10 & 4.60 \\
\hline \text { Nov } & 35 & .70 & 5.10\\
\hline
\end{array}\)
A) 70
B) 460
C) 510
D) 4,600
E) 5,100
Q2) Explain the rationale behind the statement that equity is a call option on the firm's assets.When would a shareholder allow the call to expire?
Q3) What are the upper and lower bounds for an American call option?
Explain what would happen in each case if the bound was violated.
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Chapter 23: Options and Corporate Finance: Extensions and Applications
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Q1) Walter Maxim,the CEO of Digital Storage Devices has been granted options on 300,000 shares.The equity is currently trading at £27 a share and the options are at the money.The volatility of the equity has been about .15 on an annual basis over the last several years.The option mature in 5 years,become exercisable in 3 years,and the risk free rate is 4%.
If Mr.Maxim earned £500,000 in regular annual salary why might why might he prefer to have £1,500,000 in straight salary versus salary and options?
Q2) What are the u,the up state multiplier,and d,the down state multiplier,if there are monthly intervals and the standard deviation is .38?
A)1.1159; .8961
B).0317; 31.5789
C).0317; .9683
D).2193; .7807
E)None of the above
Q3) The executive janitor of NuValue was granted 1,000,000 options.The equity price at the time of the granting of the options was £25 and the options are at the money.The risk free rate was 3% and the options expire in 3 years.The variance on the equity is .04.What is the value of the options contract?
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Chapter 24: Warrants and Convertibles
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Q1) A convertible preference share is similar to a convertible bond except:
A)the conversion ratio is fixed (given).
B)the conversion price is fixed (given).
C)the time to maturity is infinite.
D)All of the above.
E)None of the above.
Q2) A warrant gives the owner:
A)the obligation to sell securities directly to the firm at a fixed price for a specified time.
B)the right to purchase securities directly from the firm at a fixed price for a specified time.
C)the obligation to purchase securities directly from the firm at a fixed price for a specified time.
D)the right to sell securities directly to the firm at a fixed price for a specified time.
E)None of the above.
Q3) Explain why there is neither a "Free" nor "Expensive Lunch" when convertible bonds are issued?
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Chapter 25: Financial Risk Management With Derivatives
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Q1) Hedging in the futures markets can reduce all risk if:
A)price movements in both the cash and futures markets are perfectly correlated.
B)price movements in both the cash and futures markets have zero correlation.
C)price movements in both the cash and futures markets are less than perfectly correlated.
D)the hedge is a short hedge,but not a long hedge.
E)the hedge is a long hedge,but not a short hedge.
Q2) On March 1,you contract to take delivery of 1 ounce of gold for £415.The agreement is good for any day up to April 1.Throughout March,the price of gold hit a low of £385 and hit a high of £435.The price settled on March 31 at £420,and on April 1st you settle your futures agreement at that price.Your net cash flow is:
A)£-30.
B)£-20.
C)£-15.
D)£ 5.
E)£20.
Q3) The futures markets are labeled as pure speculation and even gambling.Why is this an inaccurate portrayal of the markets function?
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Chapter 26: Short-Term Finance and Planning
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Q1) A flexible short-term financial policy:
A)is associated with firms where the carrying costs are considered to be less than the shortage costs.
B)applies mostly to firms where the shortage costs tend to be less than the carrying costs.
C)applies only to firms that strictly limit their credit sales.
D)tends to decrease the amount of current assets held by a firm.
E)is designed to utilize short-term external financing to fund all of the seasonal increases in current assets.
Q2) Your firm currently has an operating cycle of 64 days.You are analyzing some operational changes which are expected to decrease the trade receivables period by 3 days and decrease the inventory period by 2 days.The trade payables turnover rate is expected to increase from 7 to 9 times per year.If all of these changes are adopted,what will your firm's new operating cycle be?
A)47 days.
B)51 days.
C)54 days.
D)57 days.
E)59 days.
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Chapter 27: Cash Management
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Q1) The Timberline firm expects a total need of 12,500 over the next 3 months.They have a beginning cash balance of 1,500,and cash is replenished when it hits zero.The fixed cost of selling securities to replenish cash balances is 3.50.The interest rate on marketable securities is 8% per annum.There is a constant rate of cash disbursement and no cash receipts during the month. Based on the firm's current practice,how many times during the next 3 months will the cash balance be replenished?
A)3.33 times
B)4.42 times
C)8.33 times
D)13.35 times
E)None of the above.
Q2) Cheques written by the firm are said to generate:
A)collection float.
B)ledger float.
C)disbursement float.
D)book float.
E)None of the above.
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Chapter 28: Credit Management
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Q1) Lory Corporation has variable cost per unit of £.35 per £1 of sales.The firm offers a 2% discount for orders paid within 15 days if the customer increases their order size by 5%.A customer normally orders £75,000,and is considering the discount.Normally,the customer pays within 30 days with no discount.Lory 's cost of debt capital is 12%.Would Lory be wise to offer the discount?
Calculate the NPV of the decision.
Q2) The average collection period measures:
A)the average time necessary to collect a credit sale.
B)how long the companies money is invested in their customers.
C)the days sales outstanding.
D)All of the above.
E)None of the above.
Q3) The credit period offered is influenced by:
A)the size of the account to receive credit.
B)the collateral value of the goods sold.
C)the probability that the customer will not pay.
D)All of the above.
E)None of the above.
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Chapter 29: Mergers and Acquisitions
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Q1) The acquisition of a firm involved with a different production process stage than the bidder is called a _____ acquisition.
A)conglomerate
B)forward
C)backward
D)horizontal
E)vertical
Q2) In a merger the:
A)legal status of both the acquiring firm and the target firm is terminated.
B)acquiring firm retains its name and legal status.
C)acquiring firm acquires the assets but not the liabilities of the target firm.
D)equityholders of the target firm have little,if any,say as to whether or not the merger occurs.
E)target firm continues to exist as a subsidiary of the acquiring firm.
Q3) One of the most basic reasons for a merger is:
A)revenue enhancing in the hopes that net losses may decrease.
B)increased competition.
C)employee benefits.
D)cost reductions.
E)to keep lawyers and accountants employed.
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Chapter 30: Financial Distress
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Q1) If a firm has a equity based insolvency in both book and market value terms and liquidates:
A)the payoff will not be 100% to all investors.
B)the unsecured creditors are likely to get less than full value.
C)the equityholders typically should receive nothing.
D)All of the above.
E)None of the above.
Q2) In a prepackaged bankruptcy the firm:
A)and creditors agree to a private reorganization outside formal bankruptcy.
B)must reach agreement privately with most of the creditors.
C)will have difficulty when there are thousands of reluctant trade creditors.
D)All of the above.
E)None of the above.
Q3) Approximately ____ of all firms going through a Reorganisation bankruptcy successfully reorganize.
A)0%
B)15%
C)25%
D)50%
E)85%
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Chapter 31: International Corporate Finance
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Q1) Assume that you can buy 250 Canadian dollars with 100 British pounds.Which one of the following statements is correct given the following exchange rates? Assume that you start out with British pounds.
\(\begin{array}{|l|l|l|}
\hline
\text { Country } & \text { U.S. } \$ \text { Equivalent } & \text { Currency per U.S. \$ } \\ \hline \text { Canada }&? & 1.3500\\
\hline
\end{array}\)
A)You can earn a profit of C$2.47 by using triangle arbitrage.
B)You can earn a profit of £1.17 by using triangle arbitrage.
C)You can earn a profit of C$1.17 by using triangle arbitrage.
D)You can earn a profit of £2.47 by using triangle arbitrage.
E)You can not earn a profit given the current exchange rates.
Q2) What is triangle arbitrage?
Using the U.S.dollar,the Canadian dollar,and the euro,construct an example in which triangle arbitrage exists,and then show how to exploit it.
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