Question 1

Suppose the Japanese yen exchange rate is ¥114 = $1,and the United Kingdom pound exchange rate is £1 = $1.83.Also suppose the cross-rate is ¥191 = £1.What is the arbitrage profit per one U.S.dollar?

Accepted Answer

A)  $0.0743
B)  $0.0846
C)  $0.0857
D)  $0.0923
E)  $0.0948F) B) and E)
G) A) and B)

Question 2

Which one of the following formulas correctly describes the relative purchasing power parity relationship?

Accepted Answer

A)  E(St)  = S0 × [1 + (hFC - hUS) ]t
B)  E(St)  = S0 × [1 - (hFC - hUS) ]t
C)  E(St)  = S0 × [1 + (hUS + hF
C)  ]t
D)  E(St)  = S0 × [1 - (hUS - hF
C)  ]t
E)  E(St)  = S0 × [1 + (hUS - hF
C)  ]tF) A) and D)
G) A) and E) A

Question 3

A new coat costs 3,900 Russian rubles.How much will the identical coat cost in Euros if absolute purchasing power parity exists and the following exchange rates apply?   Country  U.S. $ Equivalent  Currency per U.S. $  Russia ? Euro 1.2762?\begin{array} { l c c } 	ext { Country } & 	ext { U.S. \$ Equivalent } & 	ext { Currency per U.S. \$ } \	ext { Russia } & ? & \	ext { Euro } & 1.2762 & ?\end{array} Country  Russia  Euro ​ U.S. $ Equivalent ?1.2762​ Currency per U.S. $ ?​

Accepted Answer

A)  €97.23
B)  €112.97
C)  €119.05
D)  €181.27
E)  €183.99 F) All of the above
G) D) and E)

Question 4

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Accepted Answer

A)  accounting and payroll functions
B)  partial assembly of components manufactured in the firm's home country
C)  military weapons manufacturing
D)  packing materials manufacturing for use by the home country firm
E)  production of minor parts, such as nuts and bolts, for use by the home country firmF) B) and C)
G) B) and E)

Question 5

Spot trades must be settled:

Accepted Answer

A)  at the time of the trade.
B)  on the day following the trade date.
C)  within two business days.
D)  within three business days.
E)  within one week of the trade date.F) B) and C)
G) A) and C)

Question 6

Mr.Black has agreed to a currency exchange with Mr.White.The parties have agreed to exchange C$12,500 for $10,000 with the exchange occurring 4 months from now.This agreed-upon exchange rate is called the:

Accepted Answer

A)  spot rate.
B)  swap rate.
C)  forward rate.
D)  parity rate.
E)  triangle rate.F) C) and D)
G) B) and C)

Question 7

On Friday evening,Bank A loans Bank B Eurodollars that must be repaid the following Monday morning.Which one of the following is most likely the interest rate that will be charged on this loan?

Accepted Answer

A)  Eurodollar yield to maturity
B)  London Interbank Offer Rate
C)  Paris Opening Interest Rate
D)  United States Treasury bill rate
E)  international prime rateF) B) and E)
G) A) and B)

Question 8

You would like to purchase a security that is issued by the British government.Which one of the following should you purchase?

Accepted Answer

A)  Samurai bond
B)  kronor
C)  Euro
D)  LIBOR
E)  giltF) C) and D)
G) A) and B)

Question 9

Assume you can buy 52 British pounds with 100 Canadian dollars.How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S.dollars?

Accepted Answer

A)  $0.78
B)  $1.04
C)  $1.33
D)  $1.56
E)  $1.64F) A) and E)
G) A) and D)

Question 10

Assume the euro is selling in the spot market for $1.33.Simultaneously,in the 3-month forward market the euro is selling for $1.35.Which one of the following statements correctly describes this situation?

Accepted Answer

A)  The spot market is out of equilibrium.
B)  The forward market is out of equilibrium.
C)  The dollar is selling at a premium relative to the euro.
D)  The euro is selling at a premium relative to the dollar.
E)  The euro is expected to depreciate in value.F) B) and D)
G) C) and D)

Question 11

How well do you think relative purchasing power parity (PPP)and uncovered interest parity (UIP)behave?
 That is,do you think it's possible to forecast the expected future spot exchange rate accurately?
 What complications might you run into?

Accepted Answer

Each of the variables in these equations...

Question 12

You are expecting a payment of 450,000PLN three years from now.The risk-free rate of return is 3 percent in the U.S.and 4 percent in Poland.The inflation rate is 2.5percent in the U.S.and 3 percent in Poland.Currently,you can buy 277PLN for 100USD.How much will the payment three years from now be worth in U.S.dollars?

Accepted Answer

A)  $154,751
B)  $157,677
C)  $219,511
D)  $1,317,269
E)  $1,369,888F) A) and E)
G) B) and E)

Question 13

The expected inflation rate in Finland is 2.8 percent while it is 3.2 percent in the U.S.A risk-free asset in the U.S.is yielding 4.9 percent.What approximate real rate of return should you expect on a risk-free Finnish security?

Accepted Answer

A)  1.2 percent
B)  1.7 percent
C)  2.1 percent
D)  2.5 percent
E)  2.8 percentF) A) and B)
G) A) and C)

Question 14

You want to import $147,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $0.0203?

Accepted Answer

A)  Rs 6,887,424
B)  Rs 7,238,911
C)  Rs 7,241,379
D)  Rs 8,367,594
E)  Rs 8,415,096F) B) and D)
G) B) and E) C

Question 15

The home currency approach:

Accepted Answer

A)  discounts all of a project's foreign cash flows using the current spot rate.
B)  employs uncovered interest parity to project future exchange rates.
C)  computes the net present value (NPV)  of a project in the foreign currency and then converts that NPV into U.S.dollars.
D)  utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency.
E)  utilizes the international Fisher effect to compute the relevant exchange rates needed to compute the NPV of foreign cash flows in U.S.dollars.F) A) and B)
G) A) and C) B

Question 16

A trader has just agreed to exchange $2 million U.S.dollars for $1.55 million Euros six months from today.This exchange is an example of a:

Accepted Answer

A)  spot trade.
B)  forward trade.
C)  currency swap.
D)  floating swap.
E)  triangle arbitrage.F) C) and D)
G) All of the above

Question 17

U.S.dollars deposited in a bank in Switzerland are called:

Accepted Answer

A)  foreign depository receipts.
B)  international exchange certificates.
C)  francs.
D)  Eurocurrency.
E)  Eurodollars.F) C) and D)
G) A) and D)

Question 18

Assume the spot rate on the Canadian dollar is C$0.9872.The risk-free nominal rate in the U.S.is 5.4 percent while it is only 4.2 percent in Canada.Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

Accepted Answer

A)  C$0.9407
B)  C$0.9608
C)  C$1.0267
D)  C$1.0519
E)  C$1.0597F) All of the above
G) C) and E)

Question 19

The type of exchange rate risk known as translation exposure is best described as:

Accepted Answer

A)  the risk that a positive net present value (NPV)  project could turn into a negative NPV project because of changes in the exchange rate between two countries.
B)  the problem encountered by an accountant of an international firm who is trying to record balance sheet account values.
C)  the fluctuation in prices faced by importers of foreign goods.
D)  the variance in relative pay rates based on the currency used to pay an employee.
E)  the variance between the revenue of an exporter who uses forward rates and an equivalent exporter who does not use forward rates.F) D) and E)
G) None of the above

Question 20

Uncovered interest parity is defined as:

Accepted Answer

A)  E(St)  = S0 × [1 + (hFC - hUS) ]t.
B)  E(St)  = S0 × [1 + (RFC - RUS) ]t.
C)  E(St)  = S0 × [1 - (RFC - RUS) ]t.
D)  E(St)  = S0 × [1 + (RUS - RF
C)  ]t.
E)  E(St)  = S0 × [1 + (RFC + RUS) ]t.F) C) and E)
G) C) and D)

Exam 21: International Corporate Finance

Suppose the Japanese yen exchange rate is ¥114 = $1,and the United Kingdom pound exchange rate is £1 = $1.83.Also suppose the cross-rate is ¥191 = £1.What is the arbitrage profit per one U.S.dollar?

Correct Answer
verified

Which one of the following formulas correctly describes the relative purchasing power parity relationship?

Correct Answer
verified
A

Correct Answer
verified

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Correct Answer
verified

Spot trades must be settled:

Correct Answer
verified

Mr.Black has agreed to a currency exchange with Mr.White.The parties have agreed to exchange C$12,500 for $10,000 with the exchange occurring 4 months from now.This agreed-upon exchange rate is called the:

Correct Answer
verified

On Friday evening,Bank A loans Bank B Eurodollars that must be repaid the following Monday morning.Which one of the following is most likely the interest rate that will be charged on this loan?

Correct Answer
verified

You would like to purchase a security that is issued by the British government.Which one of the following should you purchase?

Correct Answer
verified

Assume you can buy 52 British pounds with 100 Canadian dollars.How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S.dollars?

Correct Answer
verified

Assume the euro is selling in the spot market for $1.33.Simultaneously,in the 3-month forward market the euro is selling for $1.35.Which one of the following statements correctly describes this situation?

Correct Answer
verified

How well do you think relative purchasing power parity (PPP)and uncovered interest parity (UIP)behave? That is,do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?

Correct Answer
verified
Each of the variables in these equations...
View Answer

Correct Answer
verified

The expected inflation rate in Finland is 2.8 percent while it is 3.2 percent in the U.S.A risk-free asset in the U.S.is yielding 4.9 percent.What approximate real rate of return should you expect on a risk-free Finnish security?

Correct Answer
verified

You want to import $147,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $0.0203?

Correct Answer
verified
C

The home currency approach:

Correct Answer
verified
B

A trader has just agreed to exchange $2 million U.S.dollars for $1.55 million Euros six months from today.This exchange is an example of a:

Correct Answer
verified

U.S.dollars deposited in a bank in Switzerland are called:

Correct Answer
verified

Assume the spot rate on the Canadian dollar is C$0.9872.The risk-free nominal rate in the U.S.is 5.4 percent while it is only 4.2 percent in Canada.Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

Correct Answer
verified

The type of exchange rate risk known as translation exposure is best described as:

Correct Answer
verified

Uncovered interest parity is defined as:

Correct Answer
verified

Exam 21: International Corporate Finance

Suppose the Japanese yen exchange rate is ¥114 = $1,and the United Kingdom pound exchange rate is £1 = $1.83.Also suppose the cross-rate is ¥191 = £1.What is the arbitrage profit per one U.S.dollar?

Correct AnswerverifiedShow Answer

Which one of the following formulas correctly describes the relative purchasing power parity relationship?

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Correct AnswerverifiedShow Answer

Spot trades must be settled:

Correct AnswerverifiedShow Answer

Mr.Black has agreed to a currency exchange with Mr.White.The parties have agreed to exchange C$12,500 for $10,000 with the exchange occurring 4 months from now.This agreed-upon exchange rate is called the:

Correct AnswerverifiedShow Answer

On Friday evening,Bank A loans Bank B Eurodollars that must be repaid the following Monday morning.Which one of the following is most likely the interest rate that will be charged on this loan?

Correct AnswerverifiedShow Answer

You would like to purchase a security that is issued by the British government.Which one of the following should you purchase?

Correct AnswerverifiedShow Answer

Assume you can buy 52 British pounds with 100 Canadian dollars.How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S.dollars?

Correct AnswerverifiedShow Answer

Assume the euro is selling in the spot market for $1.33.Simultaneously,in the 3-month forward market the euro is selling for $1.35.Which one of the following statements correctly describes this situation?

Correct AnswerverifiedShow Answer

How well do you think relative purchasing power parity (PPP)and uncovered interest parity (UIP)behave? That is,do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?

Correct AnswerverifiedEach of the variables in these equations...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The expected inflation rate in Finland is 2.8 percent while it is 3.2 percent in the U.S.A risk-free asset in the U.S.is yielding 4.9 percent.What approximate real rate of return should you expect on a risk-free Finnish security?

Correct AnswerverifiedShow Answer

You want to import $147,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $0.0203?

Correct AnswerverifiedC

The home currency approach:

Correct AnswerverifiedB

A trader has just agreed to exchange $2 million U.S.dollars for $1.55 million Euros six months from today.This exchange is an example of a:

Correct AnswerverifiedShow Answer

U.S.dollars deposited in a bank in Switzerland are called:

Correct AnswerverifiedShow Answer

Assume the spot rate on the Canadian dollar is C$0.9872.The risk-free nominal rate in the U.S.is 5.4 percent while it is only 4.2 percent in Canada.Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

Correct AnswerverifiedShow Answer

The type of exchange rate risk known as translation exposure is best described as:

Correct AnswerverifiedShow Answer

Uncovered interest parity is defined as:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Each of the variables in these equations...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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C

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B

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Correct Answer
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Correct Answer
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