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896N1

THE UNIVERSITY OF SUSSEX
MSc EXAMINATION 2011/12

SAMPLE – MOCK EXAMINATION
Multinational Financial Management
Date Time

Student number

This exam paper is divided into three parts: Part A: multiple-choice questions (answer sheet on page 2 of this document) Part B: calculation question Part C: questions requiring short written answers Duration: 2.0 hours University approved calculators are permitted

Write your student number on this document and submit it with the answer book containing your answers to Parts B and C.

Multinational Financial Management
Answer sheet for multiple choice questions in Part A Student number_____________________ Question Answer A 1 A 2 A 3 A 4 A 5 A 6 A 7 A 8 A 9 A 10 A Answer B B B B B B B B B B B Answer C C C C C C C C C C C Answer D D D D D D D D D D D 896N1

Circle the answer you think is correct

Part A: Multiple-choice questions Attempt all questions Two marks for each correct answer (there are no penalty marks) Write your answers on the answer sheet on page 2 of this document Circle the answer you think is correct 1. The forecasted inflation rates for China and Australia are 3% and 5% respectively. The nominal interest rate or yield in the Australian Dollar market (one year sovereign debt) is 9% while the equivalent rate in China is 6%. The spot exchange rate is CNY 6.6807/Australia$. What is the spot exchange rate one year from now? A. CNY 6.5534/Australia$ B. CNY 6.3256/Australia$ C. CNY 5.9868/Australia$ D. CNY 7.1354/Australia$

You are the CFO of South Side Ventures, An Australian domiciled firm, that has debt and equity listed on the Australian Stock Exchange in order to finance its overseas expansion strategy. The Australian corporate tax is 30% and annualized yield on Australian 1 year government bonds is 4.37%. As CFO use the above information to answer the following questions (questions 2 – 6):

2. The standard deviation of South Side Ventures stock is 30%, the standard deviation of ASX-All Share index is 20% while the correlation between the firm’s stock and market index is 0.652. What is the beta of South Side Ventures stock against the ASX-All share market benchmark? A. 1.820 B. 1.110 C. 1.226 D. 0.978

3. The expected return on the ASX-All Share market benchmark index is 14%. Using the beta from question 2 (above) what is the cost of equity for the firm? A. 13.79% B. 14.70% C. 15.20% D. 12.30%

4. Assuming South Side Ventures is finance entirely by debt and equity and given the default premium for the firm is 3% and that the proportion of equity to total securities value is 55% with remainder of total securities being debt, what is the weighted (after tax) cost of capital? A. 10.60% B. 9.91% C. 10.02% D. none of the above

5. If the expected return on the New Zealand Stock Exchange (NZSX) market index is 18% (in Australian Dollar terms) and the auditors of South Side Ventures estimate that the firm’s anticipated beta with the New Zealand benchmark is 1.06 what would be the cost of equity for the firm if it were to transfer all its equity to a primary listing in New Zealand? A. 18.82% B. 22.32% C. 16.23% D. 19.22%

6. What would be the impact on the cost of capital resulting from this migration of listed equity? A. 13.26% B. 12.67% C. 14.12% D. 8.76%

7. If the current spot exchange rate is CNY 9.8483/UK£, the 90-day Chinese Yuan deposit rate is 6.5% per annum and the yield on 90-day UK£ denominated deposit is 9.6% per annum what is the forward exchange rate in 3 months’ time? A. CNY 9.7737/UK£ B. CNY 9.8400/UK£ C. CNY 9.771 3/UK£ D. CNY 9.6278/UK£

8. Brighton Petroleum has two classes of shares traded on the London Stock Exchange (LSE): the first is an A-class which has single class voting rights and currently trades at UK£ 15 per share, while the second is B-class share which is a preferred share and trades at UK£18 per share. Simultaneously there is an unsponsored ADR traded on the New York Stock Exchange (NYSE) with each ADR...
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