Question 1 A hedge fund is an actively managed investment fund that seeks an attractive absolute return, that is, a return whether markets go up or down. TRUE FALSE Question 2 All else being equal, the greater the demand for a currency, the lower its price; the lower the demand for a currency, the higher its price. TRUE FALSE Question 3 All else being equal, the greater the supply of a currency, the lower its price; the lower the supply of a currency, the higher its price TRUE FALSE Question 4 An oversupply of money in a country eventually leads to a decrease in the value of the nation's currency. TRUE FALSE Question 5 Assume that current spot rate of MXP is MXP13 per USD. Expected inflation rate in Mexico for the coming year is 12% and expected US inflation is 2%. What is the approximate expected change in the value of USD against Mexican peso? 10% appreciation 10% depreciation 12% appreciation 2% appreciation Question 6 Assume that the inflation rate becomes much higher in the U.K. relative to the U.S. This will place upward pressure on the value of the British pound. TRUE FALSE Question 7 Big Mac prices in Mexico and the US are MXP49 and $4.78 respectively. If the current exchange rate (i.e. actual exchange rate) is MXP 14.63 per US dollar MXP is _________ by ________%. 0vervalued; 30% Undervalued; 30% Overvalued; 42.7% Undervalued; 42.7% Question 8 Hedge funds ______ engage in speculative market bets ______ take extensive derivative positions. cannot; and cannot cannot; but can can; and can can; but cannot None of these is correct Question 9 Hedge funds are ______ transparent than mutual funds because of ______ strict SEC regulation on hedge funds. more; more more; less less; less less; more None of these is correct Question 10 Hedge funds may invest or engage in distressed firms convertible bonds currency speculation merger arbitrage All of these are correct Question 11 If corporate profits in the US are expected to increase, investors would expect to earn higher returns on their investments. This would ______demand for US dollar and _____the value of US dollar against other currencies. reduce-decrease reduce-increase increase-decrease increase-increase Question 12 If last year one dollar equaled one euro, and then the exchange rate shifted so that today one dollar equals two euros, which of the following would most likely NOT occur? European firms would pay more for raw materials imported from the United States. European consumers would purchase fewer U.S. products and services. Fewer Europeans would travel to the U.S. or study at U.S. universities. European firms would lower their prices on goods made with U.S. parts. Question 13 In a currency board regime, country's central bank commits to back its money supply entirely with foreign reserves at all times. TRUE FALSE Question 14 In a currency peg regime, a country fixes its exchange rate against a ...

1. Question 1
A hedge fund is an actively managed investment fund that seeks
an attractive absolute return, that is, a return whether markets
go up or down.
TRUE
FALSE
Question 2
All else being equal, the greater the demand for a currency, the
lower its price; the lower the demand for a currency, the higher
its price.
TRUE
FALSE
Question 3
All else being equal, the greater the supply of a currency, the
lower its price; the lower the supply of a currency, the higher
its price
TRUE
FALSE
Question 4
An oversupply of money in a country eventually leads to a
decrease in the value of the nation's currency.

2. TRUE
FALSE
Question 5
Assume that current spot rate of MXP is MXP13 per USD.
Expected inflation rate in Mexico for the coming year is 12%
and expected US inflation is 2%. What is the approximate
expected change in the value of USD against Mexican peso?
10% appreciation
10% depreciation
12% appreciation
2% appreciation
Question 6
Assume that the inflation rate becomes much higher in the U.K.
relative to the U.S. This will place upward pressure on the value
of the British pound.
TRUE
FALSE
Question 7
Big Mac prices in Mexico and the US are MXP49 and $4.78
respectively. If the current exchange rate (i.e. actual exchange
rate) is MXP 14.63 per US dollar MXP is _________ by

3. ________%.
0vervalued; 30%
Undervalued; 30%
Overvalued; 42.7%
Undervalued; 42.7%
Question 8
Hedge funds ______ engage in speculative market bets ______
take extensive derivative positions.
cannot; and cannot
cannot; but can
can; and can
can; but cannot
None of these is correct
Question 9
Hedge funds are ______ transparent than mutual funds because
of ______ strict SEC regulation on hedge funds.

4. more; more
more; less
less; less
less; more
None of these is correct
Question 10
Hedge funds may invest or engage in
distressed firms
convertible bonds
currency speculation
merger arbitrage
All of these are correct
Question 11
If corporate profits in the US are expected to increase, investors
would expect to earn higher returns on their investments. This
would ______demand for US dollar and _____the value of US
dollar against other currencies.

5. reduce-decrease
reduce-increase
increase-decrease
increase-increase
Question 12
If last year one dollar equaled one euro, and then the exchange
rate shifted so that today one dollar equals two euros, which of
the following would most likely NOT occur?
European firms would pay more for raw materials imported
from the United States.
European consumers would purchase fewer U.S. products and
services.
Fewer Europeans would travel to the U.S. or study at U.S.
universities.
European firms would lower their prices on goods made with
U.S. parts.
Question 13
In a currency board regime, country's central bank commits to

6. back its money supply entirely with foreign reserves at all
times.
TRUE
FALSE
Question 14
In a currency peg regime, a country fixes its exchange rate
against a major currencyl like US dollar or Euro. This
arrangement is expected to remove currency risk from trade and
investment flows. If the exchange rate is fixed at an
undervalued rate as China did 1990, this arrangement boosts
exports of the country and attract substantial investment.
However, currency pegs are difficult to maintain. Chinese
experience 聽is an isolated example of a successful currency
peg.
TRUE
FALSE
Question 15
In a currency peg regime, central bank of the currency
frequently intervenes to maintain the peg. A case in point is
Chinese peg against US dollar. During the period China pegged
its currency against US dollars, it had to intervene in the
currency markets and buy excess dollars to prevent appreciation
of Yuan.
TRUE

7. FALSE
Question 16
In a merger arbitrage, a hedge fund
Buys securities of the acquirer firm
Buys securities of the target firm
Short sells the securities of the target firm
Short sells the securities of the acquirer firm
Buys the securities of the target firm and sells the securities of
the acquirer firm
Question 17
In an equity market neutral hedge fund strategy the manager
identifies a group of securities based on the fundamental value,
growth rate, and price patterns, then buys securities whose
value is expected to increase and short sell securities whose
value is expected to decline. The investments in long and short
positons are usually similar and the net exposure to market is
very low. Since the portfolio's net exposure to market is very
low, portfolio performance is insulated from market volatility.
TRUE
FALSE
Question 18
In most high-inflation nations, increase in domestic prices

8. reduces demand for these countries’ goods and therefore
reduces demand for their currency. This leads to depreciation of
the high inflation countries’ currencies.
TRUE
FALSE
Question 19
It is argued that the rise of Private Equity funds create value by
operational, financial and Corporate governance engineering.
Corporate governance engineering refers to
_________________.
Changing debt-equity ratio of the firm
Improving operational efficiency of the firm
Changing managerial incentives, compensation and board
oversight
Laying off excess workforce to cut costs
Divesting poorly performing assets
Question 20
Like mutual funds, hedge funds
allow private investors to pool assets to be managed by a fund
manager.

9. are commonly open to ordinary investors
are subject to extensive SEC regulations.
allow small investment accounts
are limited in what type of risk they can take
Question 21
The United States currently uses a ________ exchange rate
regime.
crawling peg
pegged
floating
fixed
Question 22
The monetary authority in each country that regulates the
money supply, issues currency, and manages the exchange rate
of the nation's currency relative to other currencies is called the
Central Bank.
TRUE

10. FALSE
Question 23
Which of the following is a characteristic of the fixed exchange
rate system?
utilized by most advanced economies
rates based on supply and demand forces
value of currency is fixed relative to the value of another
allows for monetary policy flexibility
Question 24
Which one of the following is NOT accurate about Macro
funds?
Macro funds aim to profit from changes in global economic
dynamics
They build their strategies to take advantage of shifts in govt.
policy that impact interest rates, in turn affecting currency,
stock, and bond markets
They extensively use derivatives to amplify the gains from the
market moves
They hedge their positions, but largest performance impact is

11. from the leveraged directional investments
Because they hedge their positions, macro fund portfolios'
volatility are usually low.
Question 25
Which one of the following is a not one of the top Private
Equity Firms?
Black Stone Group
Carlyle Group
Kohlberg, Kravis, Roberts (KKR)
Bain Capital
Fidelity Investments
Question 26
Which one of the following is not accurate about Hedge Funds?
Hedge Funds are relatively new institutions that emerged after
the massive wave of deregulation in financial markets in 1980s
and 1990s.
Hedge fund assets under management have increased sharply
from 2000 to 2007 and declined substantially after the financial
crisis.

12. Hedge Fund assets under management started to recover its
decline by 2010.
Including the considerable leverage that hedge funds employ to
boost returns, the industry’s gross investment assets are
estimated to be around $12 trillion.
Pension Funds have doubled their hedge fund investments from
2006 to 2011.
Question 27
Which one of the following is not accurate about Hedge Funds?
takes both long and short positions
uses arbitrage
buys and sells undervalued securities
trades options on commodities, stocks and bonds
invest in only high risk-high return opportunities
Question 28
Which one of the following is not accurate about Private Equity
Funds?
In 1980s Private Equity was referred to as Leveraged Buy Outs
or LBOs; but after LBOs got a bad name, the term “private

13. equity” was adopted by these funds.
It is estimated that are now somewhere around 2,700 funds that
can mobilize half a trillion dollars for investments. With
leverage this represents an enormous amount of investment and
purchasing power.
20 years ago, there were probably only four private equity firms
that had $1 billion funds under management. Today there are
more than 150 firms of that size.
Today, Private Equity Funds have reputation as corporate
philanthropists and good corporate citizens; communities strive
to attract Private Equity funds to revitalize their economies.
Their impact on job creation and positive economic impact is
widely commended.
Question 29
Which one of the following is not accurate about Private Equity
funds/firms?
Private equity firms provide capital to private or publicly-traded
businesses as an alternative to raising funds through the public
equity or debt markets.
Private equity firms often have an industry focus,
Private Equity funds specialize in investment in various types of
companies from early stage to mature firms.

14. Private equity firms usually acquire companies through
“Leveraged Buy Out” which requires substantial amount of
equity investment by the Private Equity Fund
Question 30
Which one of the following is not accurate for a distressed
investment strategy?
It is an investment strategy exploited by the Hedge Funds
because majority of institutional investors are not allowed to
invest in below investment grade securities.
Hedge Funds use their expertise in analysis of the true value of
distressed securities and profit from the market's lack of
understanding of the true value of the deeply discounted
securities
The Hedge funds lose money if the distressed companies cannot
successfully reorganize and return to profitability.
Hedge funds profit from distressed investments if the securities
acquired in distressed firms are senior debt and they are
acquired at prices less than its liquidation value.
Hedge funds may also profit by taking short positions in
companies whose situations are expected to worsen, rather than
improve, in the short term.
Question 31
Which one of the following is/are among the key participants in
FX markets?

15. Dealer banks,
Hedge Funds
Multinational Corporations
Central banks
All of the above
Question 32
You received CHF1,500,000 from your customer in Switzerland
in exchange for your shipment of a machinery. When you called
your bank to exchange CHF into USD, your bank quoted you the
following rates: Bid Rate: $1.2010 per CHF and Offer Rate:
$1.2020 per CHF. How much USD you will receive in exchange
for your CHF?
$1,801,500
$1,803,000
$1,248,959
$1,247,920
Question 33
______ are the dominant form of investing in securities markets
for most individuals but ______ have enjoyed a far greater
growth rate in the last decade.

16. Hedge funds; hedge funds
Mutual funds; hedge funds
Hedge funds; mutual funds
Mutual funds; mutual funds
None of these is correct.
Question 34
You are an importer and required to make a payment of EUR
10,000,000 in two days. You called the banks around and you
received the following quotes from the banks. Which one of the
following quotes will be best for you?(all the quotes below
express bid and offer rates in USDs per EURO).
EUR/USD 1.0200-1.0250
EUR/USD 1.0210-1.0240
EUR/USD 1.0230-1.0260
EUR/USD 1.0220-1.0300
Question 35
25.A U.S. company buys from a supplier whose currency’s
value is increasing against the dollar. Which of the following

17. will the company most likely have to do if the US company is
billed in the supplier's currency and terms of the sales contract
cannot be changed?
pay less in dollars than originally expected
pay more in dollars than originally expected
pay the same amount of dollars as originally expected
pay part of the transaction in the supplier's currency
Question 36
In class we have discussed causes and implications of changes
in the value of US dollar. Briefly explain the reasons behind the
appreciation of US dollar in the last six months and also discuss
its implications. As much as possible make references to
specific class discussions about this issue. Your answer should
be substantive, clear and to the point.
Question 37
We discussed Chinese exchange rate regime in several class
sessions. Explain the each of the following briefly:
A. Why China decided to use a currency peg against US dollar
in 1990s?
B. Why China has allowed Yuan to appreciate or practically
decided to change its exchange rate regime?
C. Why China has almost accumulated $4tr worth of reserves?
Notched Bar Impact Testing of Materials
Abstract
The “Notched Bar Impact Testing of Materials” is an

18. experiment that requires using of the Charpy Testing Machine.
This experiment required group number 4 to examine five
samples of each of the 1018 steel and 2024 aluminum when
placed under different temperatures for a certain amount of
time. These specimens are later transferred to the Charpy
machine using the notched-bar impact test to place the
specimens in the right position. Moreover, Materials sometimes
display brittleness which precludes their use in a given design.
Brittleness is characterized by fracturing with low energy under
impact. The fracture energy is proportional to the area under the
tensile stress-strain curve and is called the toughness. Tough
steel is generally ductile and requires 100 ft-lbs of energy to
cause failure. Brittle steel does not deform very much during
failure and requires less than 15 ft-lbs energy to cause failure.
Furthermore, characterizing the toughness of a material is done
in many ways. The most common method used is the notched-
bar impact test for which two different types of specimens
prevail, Charpy and Izod. By subjecting a specimen to an impact
load, it will fail if the load exceeds the breaking strength of the
material either Steel or Aluminum. By using a swinging
pendulum to impart the load, the energy required to fracture the
specimen can be calculated by observing the height the
pendulum swings after fracture. Therefore, this experiment gave
group number 4 the knowledge about the impact energy, width,
and shear percentage for each of the samples.
Introduction
There are many steps on experiment number two, which is,
(Notched Bar Impact Testing of Materials). For example, testing
1018 steel and 2024 aluminum in the Charpy testing Machine.
Moreover, sometimes when materials face frailty or being under
pressure that precludes their use in a given design. Brittleness is
characterized by fracturing with low energy under impact. For
this experiment the main ideas we experienced were:
1- Charpy impact tester, sample positioned in anvil and general

19. testing results.
2- Impact Energy transition from ductile to brittle behavior.
3- Lateral expansion of Charpy impact specimen.
Procedure
The procedure for experiment number 4:
First of all group four had to make sure of the safety and
review the safety considerations. Label each specimen using a
hammer and punch. Second, identify and measure the initial
lateral dimensions of all specimens. Third, conduct impact tests
on 5 as received 1018-steel and five 2024-Al specimens heated
or cooled to dry ice, antifreeze bath with some dry ice, ice
water, boiling water and room temperature. For example results,
it is important that all specimens be positioned identically in the
anvil of the Charpy impact tester; use the special tongs provided
to correctly position the specimen. The notch on the specimen
must face 180o opposite to the hammer. Then the engineer
student had to measure lateral dimensions after impact. Observe
the nature of the fracture surface of steel specimens. The
fracture specimens should all be carefully examined and
particular attention should be paid to the type of fracture that is
obtained in each particular case. Try to relate the type of
fracture to the energy absorbed by the metal being fractured. A
binocular microscope is available to study these fractures
carefully. Look for cleavage and shear and estimate the fraction
area of each. Moreover, the group applied the impact test of
each of the five 1018 steel samples, as well as the 2024
aluminum samples by placing them under different conditions
and temperature. That is place the specimens in dry ice/acetone
bath (at -79°C), anti-freeze/ water mix with some dry ice (-
40°C), ice water (0°C), room temperature (23°C), and boiling
water(100°C) for ten minutes. After all, the group used the
notched-bar impact test to place the specimens in the right
position. Then record the impact energy and measure and
record the lateral dimensions after impact. Last but not least,
the group had to examine and analyze the fractures of each of

20. the specimens and look for cleavage and shear, and approximate
the fraction area of each of the single sharps.
Results and Discussions
After doing the experiment “Notched Bar Impact Testing of
Materials” and applying all the required conditions and tests it
is shown that the initial width for both, Aluminum 2024 and
steel 1018, were lower than the width measured after the
reaction has taken place. The lateral dimensions for each of the
steel and aluminum are presented in Tables 1.1 and 2.1
respectively. Moreover, it is also recognized that after applying
the impact test, the fracture energy for steel 1018 is higher than
that of 2024 Aluminum. Also, it is shown that the shear
percentages for the 2024 Aluminum is constant; while for the
1018 steel, it starts to increase as temperatures increases.
Furthermore, the variation of impact energy versus temperature
for each of the 1018 steel and the 2024 aluminum are shown In
addition, Graph 1.2 represents the changes in width versus
Temperature for each of the 2024 Aluminum and 1018 Steel. As
temperature increases, the change in width slightly decreases
for aluminum 2024. While for 1018 steel, the change in width
starts low, then when temperature reaches -40°C it starts to
increase till reaching 0°C; after this temperature it starts to
decrease slightly again.
Conclusion
On experiment number two, which is “Notched Bar Impact
Testing of Materials” group number four have gone through a
lot of steps in order to complete it. For example, cutting the
samples of the 1018 Steel and 2024 Aluminum. In fact, the
experiment helped the group to obtain lots of knowledge about

21. the differences in cutting between Steel and Aluminum. Also,
the outsider temperature effects on the sharp, which makes a lot
of differences when it comes to cutting such as, the room
temperature, dry ice/acetone, antifreeze/water mix with some
dry ice, ice/pure water, and boiling water. Last but not least,
after those tests the group figured out the differences between
the cold and the hot sharps for the Aluminum and Steel. From
this experience our group learned more information about
materials that will help us when it comes to real life’s work. It
gave us the opportunity to know how the outsider temperatures
could affect the sharps. The Charpy impact test is a
standardized high strain-rate test which determines the amount
of energy absorbed by a material during fracture. This absorbed
energy is a measure of a given material's notch toughness and
acts as a tool to study temperature-dependent ductile-brittle
transition.