Financial Management
Study Guide Questions
Course Introduction
Financial Management is a foundational course that explores the essential principles and practices of managing an organizations financial resources. Students learn to analyze financial statements, assess investment opportunities, plan and control budgets, and understand the time value of money. The course covers topics such as capital structure, risk management, asset valuation, and working capital management. Emphasis is placed on decision-making processes that aim to maximize shareholder value while minimizing financial risk, preparing students for roles in corporate finance, banking, and investment analysis.
Recommended Textbook
Corporate Finance 10th Edition by Stephen A. Ross
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31 Chapters
2486 Verified Questions
2486 Flashcards
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Why might a corporation wish to list its shares on a national exchange such as the NYSE as opposed to a regional exchange or NASDAQ?
Answer: Being listed on a regional exchange effectively limits the capital access for the business. Plus,there is a prestige factor in being listed on one of the national exchanges. There is still a perceived prestige factor in moving from NASDAQ to the NYSE since the NYSE has more restrictive membership requirements. However,the lure of greater prestige certainly hasn't prompted some major corporations,such as Microsoft,to move to the NYSE.
Q2) The Sarbanes Oxley Act of 2002 is intended to:
A) protect financial managers from investors.
B) not have any effect on foreign companies.
C) reduce corporate revenues.
D) protect investors from corporate abuses.
E) decrease audit costs for U.S. firms.
Answer: D
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3
Chapter 2: Financial Statements and Cash Flow
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Sample Questions
Q1) An increase in which one of the following will cause the operating cash flow to increase?
A) depreciation
B) changes in the amount of net fixed capital
C) net working capital
D) taxes
E) costs
Answer: A
Q2) _____ refers to the changes in net capital assets.
A) Operating cash flow
B) Cash flow from investing
C) Net working capital
D) Cash flow from assets
E) Cash flow to creditors
Answer: B
Q3) What is a liquid asset and why is it necessary for a firm to maintain a reasonable level of liquid assets?
Answer: Liquid assets are those that can be sold quickly with little or no loss in value. A firm that has sufficient liquidity will be less likely to experience financial distress.
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Page 4
Chapter 3: Financial Statements Analysis and Financial Models
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Sample Questions
Q1) Mario's Home Systems has sales of $2,800,cost of goods sold of $2,100,inventory of $600,and accounts receivable of $600. How many days,on average,does it take Mario's to sell its inventory?
A) 42.10 days
B) 66.37 days
C) 78.21 days
D) 104.29 days
E) 273.75 days
Answer: D
Q2) Moulton Incorporated has a 10% return on assets and a 20% dividend payout ratio. What is the internal growth rate?
A) 8.2%
B) 8.7%
C) 9.4%
D) 10%
E) None of these.
Answer: B
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Chapter 4: Discounted Cash Flow Valuation
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Sample Questions
Q1) Today,you turn 21. Your birthday wish is that you will be a millionaire by your 40<sup>th</sup> birthday. In an attempt to reach this goal,you decide to save $25 a day,every day until you turn 40. You open an investment account and deposit your first $25 today. What rate of return must you earn to achieve your goal?
A) 15.07%
B) 15.13%
C) 15.17%
D) 15.20%
E) 15.24%
Q2) What is the present value of 10 annual payments of $500 at a discount rate of 12%?
A) $1,332
B) $1,761
C) $1,840
D) $2,825
E) $3,040
Q3) There are three factors that affect the present value of an annuity. Explain what these three factors are and discuss how an increase in each will impact the present value of the annuity.
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Chapter 5: Net Present Value and Other Investment Rules
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Q1) An investment is acceptable if its IRR:
A) is exactly equal to its net present value (NPV).
B) is exactly equal to zero.
C) is less than the required return.
D) exceeds the required return.
E) is exactly equal to 100%.
Q2) An investment is acceptable if the profitability index (PI) of the investment is:
A) greater than one.
B) less than one.
C) greater than the internal rate of return (IRR).
D) less than the net present value (NPV).
E) greater than a pre-specified rate of return.
Q3) The internal rate of return tends to be:
A) easier for managers to comprehend than the net present value.
B) extremely accurate even when cash flow estimates are faulty.
C) ignored by most financial analysts.
D) used primarily to differentiate between mutually exclusive projects.
E) utilized in project analysis only when multiple net present values apply.
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Chapter 6: Making Capital Investment Decisions
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Sample Questions
Q1) Diswo Inc. needs to maintain 15% of its sales in net working capital. Lottie's is considering a 3-year project which will increase sales from their current level of $110,000 to $135,000 the first year and $145,000 a year for the following two years. What amount should be included in the project analysis for the last year of the project in regards to the net working capital?
A) -$35,000
B) -$5,250
C) $0
D) $5,250
E) $35,000
Q2) A project which is designed to improve the manufacturing efficiency of a firm but will generate no additional sales is referred to as a(n) _____ project.
A) sunk cost
B) opportunity
C) cost-cutting
D) revenue-cutting
E) revenue-generating
Q3) Explain the half year convention used in MACRS depreciation.
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8
Chapter 7: Risk Analysis, Real Options, and Capital Budgeting
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Sample Questions
Q1) Ryan Industries is considering a project with a discounted payback just equal to the project's life. The projections include a sales price of $12,variable cost per unit of $9,and fixed costs of $5,000. The operating cash flow is $8,000. What is the break-even quantity?
A) 1,900 units
B) 2,679 units
C) 3,250 units
D) 4,000 units
E) 4,333 units
Q2) Monte Carlo simulation is:
A) the method of analysis most widely used by executives.
B) a very simple formula.
C) more complex than sensitivity or scenario analysis.
D) the oldest capital budgeting technique.
E) None of these.
Q3) Discuss two shortcomings in the standard decision tree analysis that a financial manager should be cognizant of?
Q4) Can different discount rates be used for different stages in a decision tree? If so,what would be the benefit of such action?
Page 9
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Chapter 8: Interest Rates and Bond Valuation
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Sample Questions
Q1) A bond with a face value of $1,000 that sells for $1,000 in the market is called a _____ bond.
A) par value
B) discount
C) premium
D) zero coupon
E) floating rate
Q2) The nominal rate of return on the bonds of Steve's Boats is 8.75%. The real rate of return is 3.4%. What is the rate of inflation?
A) 5.17%
B) 5.28%
C) 5.35%
D) 5.43%
E) 5.49%
Q3) The annual coupon of a bond divided by its face value is called the bond's:
A) coupon.
B) face value.
C) maturity.
D) yield to maturity.
E) coupon ratE.
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Chapter 9: Stock Valuation
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Sample Questions
Q1) The common stock of Eddie's Engines,Inc. sells for $20 a share. The stock is expected to pay $2 per share next month when the annual dividend is distributed. Eddie's has established a pattern of increasing its dividends by 4% annually and expects to continue doing so. What is the market rate of return on this stock?
A) 14%
B) 14.4%
C) 15%
D) 17%
E) 19%
Q2) Next year's annual dividend divided by the current stock price is called the: A) yield to maturity. B) total yield.
C) dividend yield.
D) capital gains yield.
E) earnings yield.
Q3) What are the components of the required rate of return on a share of stock? Briefly explain each component.
Q4) What is the difference between the enterprise value to EBITDA ratio and the PE ratio?
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11
Chapter 10: Risk and Return: Lessons From Market History
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Sample Questions
Q1) A stock had returns of 8%,-2%,4%,and 16% over the past four years. What is the standard deviation of this stock for the past four years?
A) 6.3%
B) 6.6%
C) 7.1%
D) 7.5%
E) 7.9%
Q2) You bought 100 shares of stock at $20 each. At the end of the year,you received a total of $400 in dividends,and your stock was worth $2,500 total. What was your total dollar capital gain and total dollar return?
A) $400; $500
B) $400; $900
C) $500; $900
D) $900; $2,500
E) None of these.
Q3) You earned a total return of -5% on NoDotCom this year,earned -40% last year,and earned 30% two years ago. Calculate both the three-year holding period return and the average three year return.
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Chapter 11: Return and Risk: the Capital Asset Pricing Model
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Sample Questions
Q1) You have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 10.2%. Stock A has an expected return of 12% while stock B is expected to return 7%. What is the portfolio weight of stock A?
A) 46%
B) 54%
C) 58%
D) 64%
E) 70%
Q2) If a stock portfolio is well diversified,then the portfolio variance:
A) will equal the variance of the most volatile stock in the portfolio.
B) may be less than the variance of the least risky stock in the portfolio. C) must be equal to or greater than the variance of the least risky stock in the portfolio. D) will be a weighted average of the variances of the individual securities in the portfolio. E) will be an arithmetic average of the variances of the individual securities in the portfolio.
Q3) Why are some risks diversifiable and some nondiversifiable?
Give an example of each.
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Page 13
Chapter 12: An Alternative View of Risk and Return: The Arbitrage Pricing Theory
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Sample Questions
Q1) A criticism of the CAPM is that it:
A) ignores the return on the market portfolio.
B) ignores the risk-free return.
C) requires a single measure of systematic risk.
D) utilizes too many factors.
E) None of these.
Q2) What would not be true about a GNP beta?
A) If a stock's GNP = 1.5, the stock will experience a 1.5% increase for every 1% surprise increase in GNP.
B) If a stock's GNP = -1.5, the stock will experience a 1.5% decrease for every 1% surprise increase in GNP.
C) It is a measure of risk.
D) It measures the impact of systematic risk associated with GNP.
E) None of these.
Q3) Explain the conceptual differences in the theoretical development of the CAPM and APT.
Q4) Discuss the Fama-French three factor model; both what it means and the factors of the model.
Page 14
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Chapter 13: Risk, Cost of Capital, and Valuation
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Sample Questions
Q1) If the CAPM is used to estimate the cost of equity capital,the expected excess market return is equal to the:
A) return on the stock minus the risk-free rate.
B) difference between the return on the market and the risk-free rate.
C) beta times the market risk premium.
D) beta times the risk-free rate.
E) market rate of return.
Q2) Assuming the CAPM or one-factor model holds,what is the cost of equity for a firm if the firm's equity has a beta of 1.2,the risk-free rate of return is 4%,the expected return on the market is 10%,and the return to the company's debt is 7%?
A) 11.2%
B) 11.4%
C) 12.8%
D) 12.9%
E) None of these.
Q3) Given the sample of returns of the Top Black Asphalt Company and the S&P 500 index,calculate Top Black's correlation. What can be said about the relationship of Top Black and the market return behavior?
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Page 15
Chapter 14: Efficient Capital Markets and Behavioral Challenges
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Sample Questions
Q1) Which one of the following statements is correct concerning market efficiency?
A) Real asset markets are more efficient than financial markets.
B) If a market is efficient, arbitrage opportunities should be common.
C) In an efficient market, some market participants will have an advantage over others.
D) A firm will generally receive a fair price when it sells shares of stock.
E) New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock.
Q2) The average serial correlation,which indicates if there is a relationship between yesterday's return and today's return for the 100 largest companies is
A) positive, and large.
B) not possible to calculate.
C) zero.
D) positive, but small.
E) negative, but small.
Q3) 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?
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Page 16
Chapter 15: Long-Term Financing
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Sample Questions
Q1) 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 these.
E) None of these.
Q2) If a group other than management solicits the authority to vote shares to replace management,a _____ is said to occur.
A) proxy fight
B) stockholder derivative action
C) tender offer
D) vote of confidence
E) None of these.
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 16: Capital Structure: Basic Concepts
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Sample Questions
Q1) The unlevered cost of capital is:
A) the cost of capital for a firm with no equity in its capital structure.
B) the cost of capital for a firm with no debt in its capital structure.
C) the interest tax shield times pretax net income.
D) the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure.
E) equal to the profit margin for a firm with some debt in its capital structurE.
Q2) Financial leverage impacts the performance of the firm by:
A) maintaining the same level of volatility of the firm's EBIT.
B) decreasing the volatility of the firm's EBIT.
C) decreasing the volatility of the firm's net income.
D) increasing the volatility of the firm's net income.
E) None of these.
Q3) A levered firm is a company that has:
A) Accounts Payable as the only liability on the balance sheet.
B) some debt in the capital structure.
C) all equity in the capital structure.
D) All of these.
E) None of these.
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Page 18
Chapter 17: Capital Structure: Limits to the Use of Debt
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Q1) The Aggie Company has EBIT of $50,000 and market value debt of $100,000 outstanding with a 9% coupon rate. The cost of equity for an all equity firm would be 14%. Aggie has a 35% corporate tax rate. Investors face a 20% tax rate on debt receipts and a 15% rate on equity. Determine the value of Aggie.
A) $120,000
B) $162,948
C) $258,537
D) $263,080
E) $332,143
Q2) Is there an easily identifiable debt-equity ratio that will maximize the value of a firm? Why or why not?
Q3) An investment is available that pays a tax-free 8%. The corporate tax rate is 35%. Ignoring risk,what is the pre-tax return on taxable bonds?
A) 4.20%
B) 5.00%
C) 8.47%
D) 12.3%
E) None of these.
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19
Chapter 18: Valuation and Capital Budgeting for the Levered Firm
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Sample Questions
Q1) The Tip-Top Paving Co. wants to be levered at a debt to value ratio of .6. The cost of debt is 11%,the tax rate is 34%,and the cost of equity for an all equity firm is 14%. What will be Tip-Top's cost of equity?
A) 0.08%
B) 3.06%
C) 14.0%
D) 16.97%
E) None of these.
Q2) Brad's Boat Company,a company in the 40% tax bracket,has riskless debt in its capital structure which makes up 30% of the total capital structure,and equity is the other 70%. The beta of the assets for this business is .9 and the equity beta is:
A) 0.54.
B) 0.90.
C) 1.13.
D) 1.20.
E) 1.49.
Q3) Discuss the adjusted present value,the flow to equity and the weighted average cost of capital methods of capital budgeting with leverage and the guidelines for using each method.
Page 20
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Chapter 19: Dividends and Other Payouts
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Sample Questions
Q1) A reverse stock split is sometimes used as a means of:
A) decreasing the liquidity of a stock.
B) decreasing the market value per share of stock.
C) increasing the number of stockholders.
D) keeping a firm's stock eligible for trading on a stock exchange.
E) raising cash from current stockholders.
Q2) The market's reaction to the announcement of a change in the firm's dividend payout is likely the:
A) information content effect.
B) clientele effect.
C) efficient markets hypothesis.
D) MM Proposition I.
E) MM Proposition II.
Q3) Schaeffer Shippers announced on May 1,2009,that it will pay a dividend of $5.00 per share on June 15 to all holders on record as of May 31<sup>st</sup>. The firm's stock 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 stock price on May 29?
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Chapter 20: Raising Capital
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Q1) Under the _______ method,the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue,while under the _______ method,the underwriter does not purchase the shares but merely acts as an agent.
A) best efforts; firm commitment
B) firm commitment; best efforts
C) general cash offer; best efforts
D) competitive offer; negotiated offer
E) seasoned; unseasoned
Q2) A standby underwriting arrangement provides the:
A) company with methods to cancel the offering.
B) company with an alternate investment banker if there is conflict between the issuer and the agent.
C) investment banker with an oversubscription privilege to ensure profits are earned.
D) company with an alternative avenue of sale to ensure success of the rights offering.
E) investment bankers with an added syndication for the rights offering.
Q3) Discuss the stages of venture capital financing,defining each in detail.
Q4) Discuss what a Dutch auction is and how it works.
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Page 22
Chapter 21: Leasing
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Q1) Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8%. The corporate tax rate is 30%. What is the NPV of the lease relative to the purchase?
A) -$1,039.78
B) $339.78
C) $360.22
D) $6,610.22
E) None of these.
Q2) Debt displacement is associated with leases because:
A) all assets not purchased with equity use debt financing.
B) debt is always a cheaper source of financing and preferred to equity financing.
C) FASB 13 and the IRS mandate debt displacement.
D) lease financing is all debt and causes an imbalance in the optimal debt to equity ratio which reduces future debt financing.
E) None of these.
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Page 23
Chapter 22: Options and Corporate Finance
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Q1) You own one call option with an exercise price of $30 on Nadia Interiors stock. This stock is currently selling for $27.80 a share but is expected to increase to either $28 or $34 a share over the next year. The risk-free rate of return is 5% and the inflation rate is 3%. What is the current value of your option if it expires in one year?
A) $0.76
B) $0.79
C) $0.89
D) $0.92
E) $0.95
Q2) A _____ is a derivative security that gives the owner the right,but not the obligation,to sell an asset at a fixed price for a specified period of time.
A) futures contract
B) call option
C) put option
D) swap
E) forward contract
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) Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The variance of the stock has been about .07 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is the value of a call option?
A) $4.14
B) $4.86
C) $5.13
D) $5.62
E) $6.16
Q2) The CFO of NuValue was granted 1,000,000 options. The stock price at the time of the granting of the options was $20 and the options are at the money. The risk free rate was 4% and the options expire in 5 years. The variance on the stock is .05. What is the value of her options contract?
If she had negotiated a larger salary and only 10,000 options,what would be the value of the options contract?
Q3) If real options were not included in calculations of value,would the valuation be under or over-valued and why?
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Chapter 24: Warrants and Convertibles
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Q1) Concerning warrants and call options,which of the following statements generally is correct?
A) The issue procedures for both are quite similar.
B) When a call option is exercised, the firm must issue new stock.
C) When a warrant is exercised, existing stock changes hands.
D) Exercise of a call option does not affect share value, but warrant exercise does.
E) None of these. is correct.
Q2) The holders of Looper Industries bond with a face value of $1,000 can exchange that bond for 20 shares of stock. The stock is selling for $35.00. What is the conversion value of the bond?
A) $35
B) $70
C) $700
D) $1,000
E) No conversion premium is given.
Q3) Kida Consultants currently has 300,000 shares of common outstanding. Firm value net of debt is $3,900,000. Kida has warrants outstanding with an exercise price of $10. How many warrants must the firm have issued if the gain from exercising a single warrant is $8.25?
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Page 26
Chapter 25: Derivatives and Hedging Risk
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Q1) Interest rate and currency swaps allow one party to exchange a:
A) floating interest rate or currency value for a fixed value over the contract term.
B) fixed interest rate or currency value for a lower fixed value over the contract term.
C) floating interest rate or currency value for a lower floating value over the contract term.
D) fixed interest rate position for a currency position over the contract term.
E) None of these.
Q2) A Treasury note with a maturity of 2 years pays interest semi-annually on a 9 percent annual coupon rate. The $1,000 face value is returned at maturity. If the effective annual yield for all maturities is 7 percent annually,what is the current price of the Treasury note?
A) $960.68
B) $986.69
C) $1,010.35
D) $1,034.40
E) $1,038.99
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Chapter 26: Short-Term Finance and Planning
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Q1) Which one of the following will decrease the net working capital of a firm? Assume that the current ratio is greater than 1.0.
A) Selling inventory at a profit
B) Collecting an accounts receivable
C) Paying a payment on a long-term debt
D) Selling a fixed asset for book value
E) Paying an accounts payable
Q2) D & F,Inc. expects sales of $620,$650,$730 and $780 for the months of April through July,respectively. The firm collects 20% of sales in the month of sale,50% in the month following the month of sale and 28% in the second month following the month of sale. The remaining 2% of sales is never collected. How much money does the firm expect to collect in the month of July?
A) $645
B) $703
C) $711
D) $742
E) $755
Q3) List and describe the three basic types of secured inventory loans. What are the advantages and disadvantages of each type of loan?
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Page 28
Chapter 27: Cash Management
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Sample Questions
Q1) The Timberline firm expects a total cash 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. What is the total opportunity cost for a month based on the firm's current practice?
A) $5.00
B) $18.98
C) $27.92
D) $60.00
E) None of these.
Q2) Your firm receives 40 checks per month. Of these,10 are for $1,200 and 30 are for $500. The delay for the $1,200 checks is 4 days; the $500 checks are delayed 6 days. What is the weighted average delay?
A) 4 days
B) 4.5 days
C) 5 days
D) 5.5 days
E) 6 days
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Chapter 28: Credit and Inventory Management
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Q1) To collect on the accounts receivable due to the firm,a firm can:
A) send a delinquency letter of past due status to the customer.
B) make personal contact by telephone.
C) employ a collection agency.
D) take legal action against the customer as necessary.
E) All of
Q2) Lory Corporation has variable costs 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.
Q3) Aging schedules are flawed because they:
A) do not identify specific customers.
B) show the percent of accounts that are past due.
C) only give the yearly or periodic average of account age.
D) All of these.
E) None of these.
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Chapter 29: Mergers, Acquisitions, and Divestitures
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Q1) Discuss why AT&T purchased T-Mobile in 2011.
Q2) The shareholders of a target firm benefit the most when:
A) An acquiring firm has the better management team and replaces the target firm's managers.
B) The management of the target firm is more efficient than the management of the acquiring firm which replaces them.
C) The management of both the acquiring firm and the target firm are as equivalent as possible.
D) Their current management team is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation.
E) Their management team is technologically knowledgeable yet ineffectivE.
Q3) Which one of the following combinations of firms would benefit the most through the use of complementary resources?
A) A ski resort and a travel trailer sales outlet
B) A golf resort and a ski resort
C) A hotel and a home improvement center
D) A swimming pool distributor and a kitchen designer
E) A fast food restaurant and a dry cleaner
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Chapter 30: Financial Distress
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Q1) Financial distress can be best described by which of the following situations in which the firm is forced to take corrective action?
A) Cash payments are delayed to creditors.
B) The market value of the stock declines by 10%.
C) The firm's operating cash flow is insufficient to pay current obligations.
D) Cash distributions are eliminated because the board of directors considers the surplus account to be low.
E) None of these.
Q2) Some of the various events which typically occur around the period of financial distress for a firm are:
A) continued increase in earnings.
B) steady growth.
C) dividend reductions.
D) Both continued increase in earnings and steady growth.
E) Both continued increase in earnings and dividend reductions.
Q3) When choosing between liquidation and reorganization,what are some of the empirical factors that lead a firm toward one choice or the other?
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Chapter 31: International Corporate Finance
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Q1) Suppose that the one-year forward rate on pounds is $1.75£. Given no arbitrage opportunities,this implies that traders expect:
A) the spot rate to be $1.75£ in one year.
B) the spot rate to be greater than $1.75£ in one year.
C) the spot rate to be less than $1.75£ in one year.
D) the spot rate to be greater than or equal to $1.75£ in one year.
E) the spot rate to be less than or equal to $1.75£ in one year.
Q2) _____ holds because of the possibility of covered interest arbitrage.
A) Uncovered interest parity
B) Interest rate parity
C) The international Fisher effect
D) Unbiased forward rates
E) Purchasing power parity
Q3) How well do you think relative purchasing power parity and uncovered interest parity behave?
That is,do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?
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