29 Questions
Which type of industry tends to have a short cash conversion cycle?
Retailers
What is the impact of the cash conversion cycle on structural working capital needs?
It increases the working capital needs
What is the typical cash conversion cycle for heavy industries?
Long
Why do retailers tend to have a short cash conversion cycle?
Because they don't grant any payment terms to consumers
What step in the process triggers the need for external financing according to the text?
Making an order to a supplier who will deliver the product
What does looking at the global VIXX index help determine?
Current market risk
What was the purpose of establishing the Financial Stability Board (FSB) in April 2009?
Enhance cooperation among supervisory bodies
What is one of the key mandates of the Financial Stability Board (FSB)?
Promote coordination among financial regulators
Why were global systemic banks instructed by the FSB to create an additional absorbency blanket?
To prevent easy bankruptcy of banks
How did the COVID-19 pandemic impact the economy initially?
Resulted in widespread business closures
Why did only certain companies like Amazon and Facebook benefit during the pandemic according to the text?
As stock markets plunged on increased corporate risk
What does TERP stand for in the context of rights issue?
Theoretical Ex-rights Price
In a 1 for 2 rights issue at €5 for a company with 1000 shares originally priced at €10, what will be the value of the rights issued to shareholders?
€3.33
How is the adjustment factor calculated in a rights issue scenario?
TERP / Reference price
What is the purpose of offering existing shareholders pre-emptive rights in a capital increase?
To prevent dilution of existing shareholders' ownership
In the context of a rights issue, what might entice an existing shareholder to sell their rights to other interested parties?
To realize immediate cash gains
If a company offers new shares resulting from a rights issue at a price lower than €8.33 due to economic problems, how much discount would this represent if the shares are offered at 5% less?
€0.37
What is the purpose of a forward exchange in the context of currency hedging?
To agree on terms of exchange with future settlement
In the given scenario, what is the currency denomination used by the European importer to budget for raw material purchase?
EUR
What is the total amount of goods purchased by the European importer in the USA?
$60 million
How does a forward exchange rate differ from a spot exchange rate?
A forward rate locks in the current exchange rate, while a spot rate fluctuates.
What amount will the company pay to the bank according to the text?
$130 million
The underlying asset in a forward exchange transaction is usually:
Currency
What is the function of the Remitting Bank in a documentary credit transaction?
Send precise bank instructions to the Collecting Bank
In a documentary credit transaction, what does the Importer need to do to receive the documents?
Sign a draft
What is the main function of a Confirming Bank in a Letter of Credit?
Add its commitment to that of the Issuing Bank to pay the Exporter
What is the difference between a revocable and an irrevocable documentary credit?
Revocable can be cancelled/amended without agreement, while irrevocable requires all parties' agreement.
What is the role of an Advising Bank in a documentary credit transaction?
Confirm payment details with the Importer
What is the purpose of the Letter of Credit in international trade transactions?
To secure good execution of commercial contracts between Exporter and Importer
Test your knowledge on assessing financial risk and understanding the global financial system. Topics covered include VIXX index, banks' exposure to sovereign debt risk, and the role of the Financial Stability Board (FSB) in maintaining financial stability.
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