Global Finance Exam - Fall 2025

The gold standard strength is also its greatest weakness because…

it limited the flexibility of the central banks' monetary policy by limiting their ability to expand the money supply.

The Bretton Woods era was the time

in which governments-maintained exchange rates within 1 percent of a specified rate

The Bretton Woods system of monetary management collapsed because

President Nixon unilaterally terminated convertibility of the US dollar to gold

Which market promoted the continued role of the US Dollar as the global reserve currency after President Nixon closed the gold window in 1971?

Oil

Why is the US Dollar considered more important than the Singapore Dollar in the global financial markets?

The US Dollar can be used to purchase copper

Why would the United States want the US Dollar to be a reserve currency?

It can have an “unlimited” amount of money to pay for imports

The Misery Index is equal to

Nominal GDP minus real GDP plus the unemployment rate

Which of the following is the constraint of having USD as the key reserve currency?

The global financial cycle is in fact a US interest rate and US dollar cycle

The components for the appropriate discount rate when analyzing a Treasury Note or Bond are

real rate, inflation premium and maturity premium

Interest rate tends to move in a up and down cycle over time because stronger economic growth leads to

higher inflation and risk-free rates which discourage new borrowers

The appropriate discount rate for valuing any bond is

Treasury bond yield of the same maturity plus default risk premium

If interest rates rise over a specific period, the market price of a treasury bond you own would likely ____ over this period.

decrease

If Warren Buffet had bought a 5 year Treasury Inflation Protected Note yielding 1% instead of the same maturity nominal Treasury note yielding 2.5%, he would have had made a better decision if inflation turned out to be

greater than 1.5%

The breakeven inflation rate is calculated as

Nominal bond yield minus Treasury Inflation Protected Note yield

When the economy is expected to enter into a recession, a BB rated bond would

show a higher yield than when the economy was stronger

Among the various fixed income securities, the dominant risk of a _____ is _____ risk.

BB bond; default risk

Fallen angels

are bonds that used to be investment grade

At the start of a financial crisis, it is likely that the yield on a treasury bond will _____ while that of a high yield bond will _________.

decrease, increase

We can measure risk in the stock market using ______ and ______ for the treasury bond market

beta; duration

A bond has a Modified Duration of 8 years, annual coupon payment with the YTM at 10%. What is the change in price for an increase in yield of 0.2%?

-1.6% (Reason: %∆Price ≈ -Duration × ∆Y = -8 × 0.2% = -1.6%.)

Which of the following securities' price is likely to be the least sensitive to a 1% increase in market yield?

A very long maturity treasury bill

An insurance company is expected to pay out $300 million in 5-year time. Which of the following is an appropriate strategy?

Matching strategy

Phoebe Buffai owns a 5-year Treasury note and thinks that interest rates will fall sharply across the curve.  To maximize her return, she should 

Sell the 5-year and buy an equal amount of 30-year Treasury bond

What is the dominant risk when one invests in a high yield corporate bond?

Default risk

Interest rates are likely to decline when

Nominal GDP growth is lower than nominal interest rate

A portfolio manager working for a pension fund would buy a government bond with negative yield because

The boss says so

The yields for non-investment grade bonds would ______ when the economy is _____ .

increase; weaker

The high yield bond market often has a high correlation to the stock market because

both credit risk and profitability are closely connected to the state of the economy

What could be the technical reasons that the stock market kept hitting new highs in 2018 and 2019?

All of these

(there were less new companies going public, some stocks were delisted, & there are more investment demands from investors)

What is the relationship between the quantity of US publicly listed companies and private equity-owned companies since 2000?

There are fewer public companies and more PE owned companies

One of the main impacts of the Sarbanes Oxley Act was

There were less new companies going public

As a result of more investable money flowing into the private equity funds,

More startups delayed their IPO

When a company buys back its own share, it is likely that

The number of outstanding shares will decline

In a stock market sell-off, one group which is least likely be forced to sell?

Companies which had previously bought back their own shares

Which of the following reflects a correct relationship between NASDAQ and NYSE?

Most of the companies listed on NYSE received more capital from their IPO than companies listed on NASDAQ

Which of the following statement is correct regarding the companies listed in the US stock exchanges?

Listed companies market valuation can be calculated daily

Which of the following is correct regarding the S&P 500 index?

The companies in the S&P 500 index during the 2000 internet bubble and 2008 subprime mortgage crisis are different

Which of the following statement is incorrect?

On the day when a company lock-up period expires, its stock price will certainly trade up

In the financial markets, there are a lot of jargon phrases. Which of the following is incorrect?

The Russell 2000 index covers listed companies with small and large market capitalization

More jargons. Which of the following is correct?

FOMO can lead to portfolio managers buying stocks that are “expensive”

(other options: FAANG stocks have not outperformed the rest of the other stocks in the S&P500 index, Nifty Fifty are buy and hold large blue-chip internet stocks, The S&P500 index has 500 symbols)

Which of the following is incorrect?

All of these
(S&P500 Index consists of America’s most profitable companies, The S&P500 Index is well diversified and unlikely to lose more than 20%, & The S&P500 Index tracks the same 500 companies over the decades)

A company’s book value is equal to:

Total contributed equity capitals plus accumulated reserves

Which of the following is correct about book value?

When two companies have the same level of debt liability, the company with higher book value also has a higher total asset amount

When a goodwill item appears in a company’s balance sheet, it is likely that the company

has acquired another company in the past

Tangible book value per share among the companies in the S&P500 stock index has been declining in recent decades because

All of these
(Greater investment in intellectual property products, Outsourcing by manufacturing companies, & A shift in consumer behavior towards more internet shopping)

A price-to-book ratio of 0.80 can be interpreted as

the market is discounting that 20% of the net assets should be written off

In a typical bank’s balance sheet

Loans are classified as assets and deposits are liabilities

What kind of company is most likely to reward stockholders with dividend?

Large manufacturing companies

Which of the following is a key determinant of a company’s credit rating?

Interest coverage ratio

According to the Gordon Growth Model, the valuation is higher when dividend growth rate is________ and when discount rate is_______.

higher; lower

The Gordon Growth Model is NOT useful for valuing

A company that successfully paid a dividend for the first time

Using the Gordon Growth Model V = D1 / (r-g), and given: the stock price, dividend growth rate & next year’s dividend, we can calculate the

market implied discount rate of the stock

Using the Gordon Growth Model to create a sensitivity table is useful to understand

Under what conditions will the stock price rise to a certain level

The value investing process is based on drivers that includes:

Trend and value of revenue

As a separate concept from intrinsic valuation, the price of a stock at any one moment is directly decided by

Supply and demand

The key component of valuing a company using DCF model is estimating the company’s

Free cash flow in the future

A company with a lower required rate of return likely

has a low debt to equity ratio

A stock with a beta of 0.9. most likely is

slightly less volatile compared to the market index

A company’s required rate of return will increase if

All of these

(Management issues more bonds to buy back shares, Amazon buys over one of its competitors, & The Federal Open Market Committee announces a rate hike)

When we evaluate a stock using the Discounted Cash Flow method, the cash flow that we use can be

expected earnings

When we evaluate a stock using the Discounted Cash Flow method, the discount rate that we use can be

derived from the company’s cost of fund

When we evaluate a stock using the Capital Asset Pricing Model, the beta of a stock is

derived from the regression line of stock returns vs market returns

The term, financial engineering, can refer to

stock buyback

A quarterly earning result of a $0.01 below the expected EPS

Is likely to lead to investors selling the company stock

The reason why most of the companies can beat analysts’ earnings estimate is because:

analysts’ expectations can be guided by companies as the reporting date gets closer

Which should be considered as a fair representation of earnings

Lyft’s “Net Profit” using GAAP

A company can cook the book to misrepresent their financial performance. Which of the following accounting data is likely to be least reliable?

Reported EPS

The earnings expectation is

The average of analysts’ forecast

Pro forma earnings are

also known as street earnings

What is an important factor to consider when using the P/E multiple to value a stock?

All of these

(The country where the stock is listed, The business cycle, The P/E ratio of the sector that the stock belongs to)

Which of the following will most likely be illegal?

None of these
(Changing the depreciation time period, Revaluation of inventories, Management decides to focus on pro forma earnings in the press conference)

One possible reason that makes US top 500 companies more valuable in market capitalization than European top companies is that:

The companies in Europe do not generate as much profits as those in the US

When we use the P/E multiple, E may refer to

 Either Trailing 12-month earnings or Forecasted earnings for next year

How should an investor interpret a high S&P 500 stock index P/E multiple?

The market is optimistic about the future growth of companies

Recent research has shown that when the S&P500 stock index has traded with very low optimism, the subsequent 5-year has historically showed

Double digits total returns for this stock index

If Apple shares are trading at a high P/E multiple, a strong reason could be

Acquisition of a series of technological startups with new products

When Facebook announced that it has created a product that will compete against Zoom, P/E multiple of Facebook will likely  _______ and that of Zoom will ________

Increase; decrease

A company is likely to be able to command a high P/E multiple if

Its products have a great franchise and network effect

PEG is preferred by some investors because

It can be used for comparing firms across different industries

Which of the following has impact on the P/E ratio for the S&P500 stock index?

All of these
(Changes in demographic trend, Changes in interest rate, Changes in inflation rate)

The S&P500 stock index P/E ratio is likely to expand

When profit margin starts to rise

The Nasdaq P/E ratio is likely to decline

When inflation is rising rapidly, and the Fed may act on it

In general, when earnings per share is rising, we could expect the P/E multiple to

Rise over time

A company that has a higher PEG ratio _____

has a higher P/E ratio relatively to its growth rate

Over the past decade, the US equity has had an increasing inflow from equity ETFs while having consistent outflows from actively managed equity funds. Which of the following might have caused this change of capital flow?

All of these
(ETF charges management fees as low as 0.07% of the amount of money invested while mutual funds charge 1.4% on average, Investors can obtain full transparency on percentage of equity held in most ETFs but only partial transparency on most mutual funds’ portfolio, Investors can short sell ETFs but not with mutual funds, ETFs provide investors with intraday pricing)

The ETF with the largest AUM is:

SPY

Which of the following ETF is likely to have the least liquidity for its underlying asset?

An ETF that invests in high end office buildings

Which of the following stocks or asset classes has the highest liquidity?

Shares in Walmart

Active ETFs seeks to _____ and passive investments are designed to _____.

outperform the market; perform in line with the market

When a fund is marketed as an alpha seeking fund, what kind of fund is it?

Actively managed fund

Which of the following ETFs is likely to have its beta close to the that of the Nasdaq Index?

QQQ (US Equity)

When comparing ETFs, which of the following is/are important?

 All of the above
(Fees, Sortino ratio, Underlying liquidity, Active or passively managed)

The prices for some futures market are often higher further out in time than the spot contract because of

All of these
(Storage costs, Financing costs, & Insurance costs)

When a commodity is trading backwardation in the futures market

There are buyers who need delivery immediately or as soon as possible

Why are the leveraged ETFs not an ideal long-term investment?

When an ETF drops 10% in value, it will require another more than 10% of return to recover to its original value

When oil is trading backwardation in the futures market, ____________

time is your friend

Which of the following strategy has potentially the most risk and reward?

Long GM, short Tesla (which has a very high P/E multiple)

A good example of an equity long/short strategy is

Any of these
(Long Citibank, short the ETF for the banking industry, Short Facebook, long QQQ, Long Amazon, short CVS (the retail pharmacy chain))

In general, when relative value hedge funds look at _____, they evaluate ______ as the dominant risk.

All of these are correct
(Mortgaged back securities, prepayment risks, High yield bonds, default risk, Treasury bonds, interest rate risk)

When an arbitrage-based hedge funds buy a convertible bond, they are likely to

Ensure that the common shares of the company can be shorted