Fundamentals of Investing 12th edition Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk - Solutions

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Federal government deficit financing may have a very great influence on monetary and credit conditions. Explain.
Discuss the various objectives of debt management.
Explain how Federal Reserve notes are supported or backed in our financial system.
Why are the expansion and contraction of deposits by the banking system possible in our financial system?
Trace the effect on its accounts of a loan made by a bank that has excess reserves available from new deposits.
Explain how deposit expansion takes place in a banking system consisting of two banks.
Explain the potential for deposit expansion when required reserves average 10 percent and $2,000 in excess reserves are deposited in the banking system.
Describe the effect on bank reserves when the Federal Reserve sells U.S. government securities to a bank.
Summarize the factors that can lead to a change in bank reserves.
What is the difference between the monetary base and total bank reserves?
Briefly describe what is meant by the money multiplier and indicate the factors that affect its magnitude or size.
Define the velocity of money and explain why it is important to anticipate changes in money velocity.
Why does it seem to be important to regulate and control the supply of money?
What is meant by the statement that the international monetary system has operated mostly under a “gold standard”? What are the major criticisms associated with being on a gold standard?
Describe the Bretton Woods system for setting currency exchange rates. What are special drawing rights (SDRs) and how are they used to foster world trade?
What is the European Union (EU)? How did it develop? Who are the current members of the EU?
What is meant by the term eurozone members? Which countries are eurozone members?
What is the euro? Identify some of its distinguishing characteristics.
What types of financial crises have some countries in the EU faced in recent years?
What are currency or foreign exchange markets?
Explain the role of supply and demand as it relates to the establishment of exchange rates between countries.
Describe the activities and economic role of the arbitrageur in international finance.
What is meant by the statement that foreign exchange quotations may be given in terms of sight drafts, cable orders, and time drafts?
Describe the various ways by which an exporter may finance an international shipment of goods. How may commercial banks assist the exporter in the collection of drafts?
How do importers protect themselves against improper delivery of goods when they are required to make payment as they place an order?
Describe the process by which an importing firm may substitute the credit of its bank for its own credit in financing international transactions.
How may a bank protect itself after having issued a commercial letter of credit on behalf of a customer?
Describe the costs involved in connection with financing exports through bankers’ acceptances.
Describe the ultimate sources of funds for export financing with bankers’ acceptances. How are acceptances acquired for investment by these sources?
Explain the role played by the Export-Import Bank in international trade. Do you consider this bank to be in competition with private lending institutions?
Commercial letters of credit, traveler’s letters of credit, and traveler’s checks all play an important role in international finance. Distinguish among these three types of instruments.
Briefly indicate the problems facing the United States in its attempt to maintain international financial equilibrium.
The U.S. international balance-of-payments position is measured in terms of the current account balance. Describe the current account balance and indicate its major components.
Discuss the meaning of the capital account balance and identify its major components.
You are the owner of a business that has offices and production facilities in several foreign countries. Your product is sold in all of these countries, and you maintain bank accounts in the cities in which you have offices. At present you have short-term notes outstanding at most of the banks with
Explain the concept of “balance” as it relates to a nation’s balance of payments.
As an exporter of relatively expensive electronic equipment, you have a substantial investment in the merchandise that you ship. Your foreign importers are typically small- or medium-size firms without a long history of operations. Although your terms of sales require payment upon receipt of the
As an importer of merchandise, you depend upon the sale of the merchandise for funds to make payment. Although customary terms of sale are 90 days for this type of merchandise, you are not well known to foreign suppliers because of your recent entry into business. Furthermore, your suppliers
As a speculator in the financial markets, you notice that for the last few minutes Swiss Francs are being quoted in New York at a price of $0.5849 and in Frankfurt at $0.5851.a. Assuming that you have access to international trading facilities, what action might you take?b. What would be the effect
You manage the cash for a large multinational industrial enterprise. As a result of credit sales on 90-day payment terms you have a large claim against a customer in Madrid. You have heard rumors of the possible devaluation of the Spanish peseta. What actions, if any, can you take to protect your
Assume, as the loan officer of a commercial bank, one of your customers has asked for a “commercial letter of credit” to enable his firm to import a supply of well-known French wines. This customer has a long record of commercial success yet has large outstanding debts to other creditors. In
For the entire year, the nation’s balance of trade with other nations has been in a substantial deficit position, yet, as always, the overall balance of payments will be in “balance.” Describe the various factors that accomplish this overall balance, in spite of the deficit in the balance of
Assume you are the international vice president of a small U.S.-based manufacturing corporation. You are trying to expand your business in several developing countries. You are also aware that some business practices are considered to be “acceptable” in these countries but not necessarily in
Exchange rate relationships between the U.S. dollar and the euro have been quite volatile. When the euro began trading at the beginning of 1999, it was valued at 1.17 U.S. dollars. By late-2000, a euro was worth only $.83 and peaked at $1.60 in mid-2008. Calculate the percentage changes in the
Over a two-year period, the U.S. dollar equivalent of a euro increased from $1.3310 to 1.4116. Using the indirect quotation method, determine the currency per U.S. dollar for each of these dates.
A few years ago the U.S. dollar equivalent of a foreign currency was $1.2167. Today, the U.S. dollar equivalent of a foreign currency is $1.3310. Using the indirect quotation method, determine the currency per U.S. dollar for each of these dates.
A few years ago the U.S. dollar equivalent of a foreign currency was $1.2167. Today, the U.S. dollar equivalent of a foreign currency is $1.3310. Determine the percentage change of the euro between these two dates.
Assume that five years a euro was trading at a direct method quotation of $.8767. Also assume that recently the indirect method quotation was .8219 euros per U.S. dollar.a. Calculate euro “currency per U.S. dollar” five years ago.b. Calculate the “U.S. dollar equivalent” of a euro this
Assume that last year the Australian dollar was trading at $.5527, the Mexican peso at $.1102, and the British pound was worth $1.4233. By this year the U.S. dollar value of an Australian dollar was $.7056, the Mexican peso at $.0867, and the British pound was $1.8203. Calculate the percentage
Assume that the Danish krone (DK) has a current dollar ($US) value of $0.18a. Determine the number of DK that can be purchased with one $US.b. Calculate the percentage change (appreciation or depreciation) in the Danish krone if it falls to $0.16.c. Calculate the percentage change (appreciation or
Assume the U.S. dollar ($US) value of the Australian dollar is $0.73 while the U.S. dollar value of the Hong Kong dollar is $0.13 a. Determine the number of Australian dollars that can be purchased with one $US. b. Determine the number of Hong Kong dollars that can be purchased with one $US. c. In
Assume one U.S. dollar ($US) can currently purchase 1.316 Swiss francs. However, it has been predicted that one $US soon will be exchangeable for 1.450 Swiss francs. a. Calculate the percentage change in the $US if the exchange rate change occurs. b. Determine the dollar value of one Swiss franc
Following are currency exchange â€œcrossratesâ€ between pairs of major currencies. Currency cross rates include both direct and indirect methods for expressing relative exchange rates.a. Fill in the missing exchange rates in the crossrates table.b. If the inflation rate is expected to be 3
In addition to U.S. corporations, what government groups compete for funds in the U.S. capital markets?
What foreign industry has privatization been most important in?
How does foreign investment help the U.S. government?
What is a key tax characteristic associated with state and local (municipal) securities?
What are three forms of corporate securities discussed in the chapter?
Do corporations rely more on external or internal funds as sources of financing?
What are electronic communication networks (ECNs)? Generally speaking, are they currently part of the operations of the New York Stock Exchange and the NASDAQ Stock Market?
Why is secondary trading in the security markets important?
What was the primary purpose of the Securities Act of 1933?
What act of Congress created the Securities and Exchange Commission?
What was the purpose of the Sarbanes–Oxley Act of 2002?
Discuss the reason for the differences between underwriting spreads for stocks and bonds.
If a company was looking for capital by way of a private placement, where would it look for funds?
How might a leveraged buyout eventually lead to high returns for companies?
Differentiate between each of the following pairs of terms: a. Money market and capital market b. Primary market and secondary market c. Broker market and dealer market
How are after-hours trades typically handled? What is the outlook for after-hours trading?
Briefly describe the key requirements of the following federal securities laws: a. Securities Act of 1933 b. Securities Exchange Act of 1934 c. Maloney Act of 1938 d. Investment Company Act of 1940 e. Investment Advisers Act of 1940 f. Securities Acts Amendments of 1975 g. Insider Trading and Fraud
What is a long purchase? What expectation underlies such a purchase? What is margin trading, and what is the key reason why investors sometimes use it as part of a long purchase?
How does margin trading magnify profits and losses? What are the key advantages and disadvantages of margin trading?
Describe the procedures and regulations associated with margin trading. Be sure to explain restricted accounts, the maintenance margin, and the margin call. Define the term debit balance, and describe the common uses of margin trading.
What is the primary motive for short selling? Describe the basic short-sale procedure. Why must the short seller make an initial equity deposit?
What relevance do margin requirements have in the short-selling process? What would have to happen to experience a margin call on a short-sale transaction? What two actions could be used to remedy such a call?
Describe the key advantages and disadvantages of short selling. How are short sales used to earn speculative profits?
Briefly describe the IPO process and the role of the investment banker in underwriting a public offering. Differentiate among the terms public offering, rights offering, and private placement.
For each of the items in the left-hand column, select the most appropriate item in the right-hand column. Explain the relationship between the items matched. a. NYSE Amex b. CBT c. NYSE d. Boston Stock Exchange e. CBOE f. OTC 1. Trades unlisted securities 2. Is a futures exchange
Explain how the dealer market works. Be sure to mention market makers, bid and ask prices, the Nasdaq market, and the OTC market. What role does the dealer market play in initial public offerings (IPOs) and secondary distributions?
What are the third and fourth markets?
Why is globalization of securities markets an important issue today? How have international investments performed in recent years?
Describe how foreign security investments can be made, both indirectly and directly.
Describe the risks of investing internationally, particularly currency exchange risk.
From 1990 to 2005, the average WO rose by more than 20% in its first day of trading. In 1999, 117 deals doubled in price on the first day, compared to only 39 in the previous 24 years combined. Since 2000, no deals doubled on the first day. What factors might contribute to the huge first-day
Why do you think some large, well-known companies such as Cisco Systems, Intel, and Microsoft prefer to trade on the Nasdaq OMX markets rather than on an organized securities exchange such as the NYSE (for which they easily meet the listing requirements)? Discuss the pros and cons of listing on an
On the basis of the current structure of the world's financial markets and your knowledge of the NYSE and Nasdaq OMX markets, describe the key features, functions, and problems that would be faced by a single global market (exchange) on which transactions can be made in all securities of all of the
Critics of longer trading hours believe that expanded trading sessions turn the stock market into a casino and place the emphasis more on short-term gains than on long-term investment. Do you agree? Why or why not? Is it important to have a "breathing period" to reflect on the day's market
Describe how, if at all, conservative and aggressive investors might use each of the following types of transactions as part of their investment programs. Contrast these two types of investors in view of these preferences. a. Long purchase b. Margin trading c. Short selling
The current exchange rate between the U.S. dollar and the Japanese yen is 80 (yen/$). How many dollars would you get for 1,000 Japanese yen?
Miguel Torres purchased 100 shares of CantWin.com.com for $50 per share, using as little of his own money as he could. His broker has a 50% initial margin requirement and a 30% maintenance margin requirement. The price of the stock falls to $30 per share. What does Miguel need to do?
Jerri Kingston bought 100 shares of stock at $80 per share using an initial margin of 60%. Given a maintenance margin of 25%, how far does the stock have to drop before Jerri faces a margin call? (Assume that there are no other securities in the margin account.)
An investor buys 200 shares of stock selling at $80 per share using a margin of 60%. The stock pays annual dividends of $1 per share. A margin loan can be obtained at an annual interest cost of 8%. Determine what return on invested capital the investor will realize if the price of the stock
Marlene Bellamy purchased 300 shares of Writeline Communications stock at $55 per share using the prevailing minimum initial margin requirement of 50%. She held the stock for exactly 4 months and sold it without brokerage costs at the end of that period. During the 4-month holding period, the stock
Not long ago, Jack Edwards bought 200 shares of Almost Anything Inc. at $45 per share; he bought the stock on margin of 60%. The stock is now trading at $60 per share, and the Federal Reserve has recently lowered initial margin requirements to 50%. Jack now wants to do a little pyramiding and buy
An investor short sells 100 shares of a stock for $20 per share. The initial margin is 50%. Ignoring transaction costs, how much will be in the investor's account after this transaction if this is the only transaction the investor has undertaken and the investor has deposited only the required
An investor short sells 100 shares of a stock for $20 per share. The initial margin is 50%, and the maintenance margin is 30%. The price of the stock falls to $12 per share. What is the margin, and will there be a margin call?
An investor short sells 100 shares of a stock for $20 per share. The initial margin is 50%, and the maintenance margin is 30%. The price of the stock rises to $28 per share. What is the margin, and will there be a margin call?
Calculate the profit or loss per share realized on each of the following short-sale transactions.
In each of the following cases, calculate the price of one share of the foreign stock measured in United States dollars (US$). a. A Belgian stock priced at 103.2 euros (€) when the exchange rate is 0.8595€/US$. b. A Swiss stock priced at 93.3 Swiss francs (Sf) when the exchange rate is
Erin McQueen purchased 50 shares of BMW, a German stock traded on the Frankfurt Exchange, for 64.5 euros (€) per share exactly 1 year ago when the exchange rate was 0.67 €/US$. Today the stock is trading at 71.8 (€) per share, and the exchange rate is 0.75 €/US$. a. Did the depreciate or

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Fundamentals of Investing 12th edition Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk - Solutions

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