Finance for Emerging Markets
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Course Introduction
Finance for Emerging Markets explores the unique financial environments, challenges, and opportunities present in developing economies. The course delves into topics such as international capital flows, exchange rate regimes, investment vehicles, risk management, and the impact of global financial institutions on emerging markets. Students will analyze case studies, assess regulatory frameworks, and examine the influence of political and economic instability on financial decision-making. Emphasis is placed on understanding the dynamics of capital markets, sources of funding, and the strategies businesses and investors use to navigate rapidly changing environments in emerging economies.
Recommended Textbook
Corporate Finance Asia 1st Global Edition by Stephen
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Page 2
Ross
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Suppose you own 100 shares of Apple stock which you intend to sell today.Since you will sell it in the secondary market,Apple will receive no direct cash flows as a consequence of your sale.Why,then,should Apple's management care about the price you get for your shares?
Answer: The current market price of Apple stock reflects,among other things,market opinion about the quality of firm management.If the shareholder's sale price is low,this indirectly reflects on the reputation of the managers,as well as potentially impacting their standing in the employment market.Alternatively,if the sale price is high,this indicates that the market believes current management is increasing firm value and therefore doing a good job.
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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Chapter 2: Financial Statements and Cash Flow
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Sample Questions
Q1) The financial statement showing a firm's accounting value on a particular date is the:
A)income statement.
B)balance sheet.
C)statement of cash flows.
D)tax reconciliation statement.
E)shareholders' equity sheet.
Answer: B
Q2) Which of the following statements concerning the income statement is true?
A)It measures performance over a specific period of time.
B)It determines after-tax income of the firm.
C)It includes deferred taxes.
D)It treats interest as an expense.
E)All of the above.
Answer: E
Q3) Explain why the income statement is not a good representation of cash flow.
Answer: Most income statements contain some noncash items,so these must be accounted for when calculating cash flows.More importantly,however,since GAAP is used to create income statements,revenues and expenses are booked when they accrue,not when their corresponding cash flows occur.
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Chapter 3: Financial Statements Analysis and Long-Term Planning
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Sample Questions
Q1) List and interpret two liquidity ratios.
Answer: Choose any two of the following:
1.Current ratio:a firm's ability to meet its financial obligations as they come due over the coming year
2.Quick ratio:a firm's ability to meet its near-term financial obligations without selling any inventory
3.Cash ratio:a firm's ability to meet its near-term financial obligations without depending on the liquidation of inventory or accounts receivable
Q2) Rosita's Restaurant has sales of $5,000,total debt of $1,300,total equity of $2,400,and a profit margin of 6%.What is the return on assets?
A)8.11%
B)12.50%
C)23.08%
D)27.13%
E)135.13%
Answer: A
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Chapter 5: Net Present Value and Other Investment Rules
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Sample Questions
Q1) Homer is considering a project which will produce cash inflows of $950 a year for 4 years.The project has a 9% required rate of return and an initial cost of $2,900.What is the discounted payback period?
A)3.05 years
B)3.74 years
C)3.81 years
D)3.92 years
E)never
Q2) The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why it has some limitations NPV does not?
Q3) The primary reason that company projects with positive net present values are considered acceptable is that:
A)they create value for the owners of the firm.
B)the project's rate of return exceeds the rate of inflation.
C)they return the initial cash outlay within three years or less.
D)the required cash inflows exceed the actual cash inflows.
E)the investment's cost exceeds the present value of the cash inflows.
Q4) Explain the differences and similarities between net present value (NPV)and the profitability index (PI).
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Chapter 8: Interest Rates and Bond Valuation
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Sample Questions
Q1) In the early 1980s,the Treasury yield curve had a severe downward slope with short-term yields near 20% and long-term yields below 15%.Explain how such a pattern might occur.
Q2) The Lo Sun Corporation offers a 8% bond with a current market price of $875.05.The yield to maturity is 9.18%.The face value is $1,000.Interest is paid semiannually.How many years is it until this bond matures?
A)40 years
B)52 years
C)60 years
D)65 years
E)80 years
Q3) All else constant,a coupon bond that is selling at a premium,must have:
A)a coupon rate that is equal to the yield to maturity.
B)a market price that is less than par value.
C)semi-annual interest payments.
D)a yield to maturity that is less than the coupon rate.
E)a coupon rate that is less than the yield to maturity.
Q4) Sometimes it is not clear if a particular security is debt or equity.Explain the basic difference between debt and equity.
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Chapter 10: Risk and Return: Lessons From Market History
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Sample Questions
Q1) Excelsior shares are currently selling for $25 each.You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share.What was your percentage capital gain this year?
A)4.17%
B)6.25%
C)10.42%
Q2) Which one of the following is a correct statement concerning risk premium?
A)The greater the volatility of returns,the greater the risk premium.
B)The lower the volatility of returns,the greater the risk premium.
C)The lower the average rate of return,the greater the risk premium.
D)The risk premium is not correlated to the average rate of return.
E)The risk premium is not affected by the volatility of returns.
Q3) Over the period of 1926 to 2012,the average rate of inflation was _____%.
A)2.0
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Chapter 11: Return and Risk: the Capital Asset Pricing Model
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Sample Questions
Q1) The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:
A)the capital market line which shows that all investors will only invest in the riskless asset.
B)the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
C)the security market line which shows that all investors will invest in the riskless asset only.
D)the security market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
E)None of the above.
Q2) 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 deviation of the assets' returns.
E)All of the above.
Q3) Explain in words what beta is and why it is important.
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Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
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Q1) For a diversified portfolio including a large number of stocks,the:
A)weighted average expected return goes to zero.
B)weighted average of the betas goes to zero.
C)weighted average of the unsystematic risk goes to zero.
D)return of the portfolio goes to zero.
E)return on the portfolio equals the risk-free rate.
Q2) Which of the following is true about the impact on market price of a security when a company makes an announcement and the market has discounted the news?
A)The price will change a great deal;even though the impact is primarily in the future,the future value is discounted to the present.
B)The price will change little,if at all,since the impact is primarily in the future.
C)The price will change little,if at all,since the market considers this information unimportant.
D)The price will change little,if at all,since the market considers this information untrue.
E)The price will change little,if at all,since the market has already included this information in the security's price.
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Chapter 14: Efficient Capital Markets and Behavioral Challenges
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Sample Questions
Q1) Under the concept of an efficient market,a random walk in stock prices means that:
A)there is no driving force behind price changes.
B)technical analysts can predict future price movements to earn excess returns.
C)the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period.
D)the unexplained portion of price change in one period that cannot be explained by expected return can only be explained by the unexplained portion of price change in a prior period.
E)None of the above.
Q2) Efficient capital markets are financial markets:
A)in which current market prices reflect available information.
B)in which current market prices reflect the present value of securities.
C)in which there is no excess profit from using available information.
D)All of the above.
E)None of the above.
Q3) Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?
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Chapter 15: Long-Term Financing: an Introduction
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Q1) Which of the following statements about preferred stock is true?
A)Unlike dividends paid on common stock,dividends paid on preferred stock are a tax-deductible expense.
B)Unpaid dividends on preferred stock are a debt of the corporation.
C)If preferred dividends are non-cumulative,then preferred dividends not paid in a particular year will be carried forward to the next year.
D)There is no difference in the voting rights of preferred and common stockholders.
E)None of the above.
Q2) Shareholders usually have which of the following right(s)?
A)To elect board members,the authorizing of new shares and other matters of great importance to shareholders such as being acquired.
B)To share proportionally in regular and liquidating dividends.
C)To share proportionally in any new stock sold.
D)All of the above.
E)None of the above.
Q3) Preferred Stock,as a hybrid security,presents somewhat of a puzzle as to why they are issued.What elements give rise to the puzzle and how is it explained?
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Chapter 20: Raising Capital
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Sample Questions
Q1) If the ex-rights price were set at $7.90,would you as a potential new stockholder choose to buy shares ex-rights or buy shares at the old price and exercise your rights?
Q2) The Holly Corporation has a new rights offering that allows you to buy one share of stock with 4 rights and $25 per share.The stock is now selling ex-rights for $30.The price rights-on is:
A)$21.00
B)$25.00
C)$30.00
D)$31.25
E)impossible to determine without the cum-rights price.
Q3) The market for venture capital refers to the:
A)private financial marketplace for servicing small,young firms.
B)bond markets.
C)market for selling rights to individuals who already own shares.
D)market for selling equity securities for firms with equity already outstanding.
E)None of the above.
Q4) What are venture capitalists and what is their role in raising capital for firms?
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13
Chapter 22: Options and Corporate Finance
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Sample Questions
Q1) A trading opportunity that offers a riskless profit is called a(n):
A)put option.
B)call option.
C)market equilibrium.
D)arbitrage.
E)cross-hedge.
Q2) You wrote ten call option contracts on JIG stock with a strike price of $40 and an option price of $.40.What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date?
A)-$6,450
B)-$5,650
C)$400
D)$5,650
E)$6,450
Q3) The intrinsic value of a put is equal to the:
A)lesser of the strike price or the stock price.
B)lesser of the stock price minus the exercise price or zero.
C)lesser of the stock price or zero.
D)greater of the strike price minus the stock price or zero.
E)greater of the stock price minus the exercise price or zero.
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Chapter 23: Options and Corporate Finance: Extensions and Applications
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Q1) If Mr.Maxim earned $500,000 in regular annual salary why might he prefer to have $1,500,000 in straight salary versus salary and options?
Q2) The CEO of NuValue was granted 1,000,000 options.The stock price at the time of the granting of the options was $45 and the options are at the money.The risk free rate was 5% and the options expire in 5 years.The variance on the stock is .04.What is the value of the options contract? If he had negotiated a larger salary and only 10,000 options,what would be the value of the options contract?
Q3) The Nu-Tech Company has a new project available to it at a cost of $6,000,000.If the project is accepted,the company will be able to sell 13,000 personal organizers at $172 in net cash flow for each of the next five years.Nu-Tech's discount rate is 15%.What is the NPV of the investment? The executives of Nu-Tech are concerned about the potential of future competition and a subsequent drop in sales and price.If after two years you can dispose of the asset for $1,000,000 at what price would it make sense to abandon the project?
Q4) In what instances is the binomial option pricing model superior to the Black Scholes option pricing model?
Q5) Why is straight NPV analysis flawed as compared to models that include option pricing in the NPV analysis?
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Chapter 24: Warrants and Convertibles
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Sample Questions
Q1) What would the conversion price and conversion ratio be if Looper Industries had a 4 for 1 stock split?
A)$15.0;120
B)$12.5;80
C)$12.5;120
D)$15.0;80
E)None of the above.
Q2) Based on empirical studies,firms tend to call convertible bonds when the conversion value is:
A)less than the conversion price.
B)greater than the straight bond value.
C)greater than the call price.
D)less than the face value.
E)None of the above.
Q3) What is the conversion price?
A)$25.00
B)$33.33
C)$35.00
D)$1,000.00
E)No conversion premium is given.
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Chapter 25: Derivatives and Hedging Risk
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Sample Questions
Q1) Duration of a pure discount bond:
A)is equal to its half-life.
B)is less than a zero coupon bond.
C)is equal to the liabilities hedged.
D)is equal to its maturity.
E)None of the above.
Q2) An inverse floater and a super-inverse floater are more valuable to a purchaser if:
A)interest rates stay the same.
B)interest rates fall.
C)interest rates rise.
D)held for a long time.
E)None of the above.
Q3) Credit default swaps:
A)will pay the holder the LIBOR interest rate.
B)pay the borrower the LIBOR interest rate.
C)are like insurance against a loss of value if the firm defaults on a bond.
D)limit the amount of borrowing of all parties in the credit default swap.
E)None of the above.
Q4) What new asset duration will immunize the balance sheet?
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Chapter 31: International Corporate Finance
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Sample Questions
Q1) Absolute purchasing power parity is also known as:
A)The law of one price.
B)relative purchasing power parity.
C)complete purchasing power parity.
D)interest rate parity.
E)the international Fisher Effect.
Q2) The current spot rate for the Norwegian krone is $1 = NKr6.83.The expected inflation rate in Norway is 3 percent and in the U.S.2 percent.A risk-free asset in the U.S.is yielding 4.5 percent.What real rate of return should you expect on a risk-free Norwegian security?
A)4.5%
B)5.0%
C)5.5%
D)6.0%
E)6.5%
Q3) 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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