Question 1

If the direct rate for French francs (FF)  is $.143 and the direct rate for Australian dollars (A$)  is $.44, what must the cross rate between A$ and FF be to prevent triangular arbitrage?

Accepted Answer

A)   FF3.08.
B)   FF .063
C)   FF15.89
D)   FF .325E) B) and D)
F) None of the above

Question 2

The inflation rates in the U.S. and Canada are predicted to be 3 and 5%, respectively, in the coming year. The exchange rate is currently 1.44 Canadian dollars for 1 U.S. dollars. Assuming RPPP holds, how many U.S. dollars will it take to buy 1 Canadian dollar at the end of the year? What will it cost to buy a U.S. dollar?

Accepted Answer

[1.03/1.05] = [SCD(1...

Question 3

The forward rate market is dependent upon:

Accepted Answer

A)   current forward rates exceeding current spot rates.
B)   current spot rates exceeding current forward rates over time.
C)   current spot rates equaling current forward rates on average over time.
D)   forward rates equaling the actual future spot rates on average over time.E) All of the above
F) A) and B)

Question 4

Describe the foreign currency and home currency approaches to capital budgeting. Which is better? Which approach would you recommend a U.S. firm use? Justify your answer.

Accepted Answer

In the home currency approach, you must ...

Question 5

The Brazilian inflation rate is expected to be 30% per year for the next 4 years. The U.S. inflation rate is expected to be 3% per year over the same period. A Brazilian real currently costs 87.36 cents. Assuming RPPP holds, how many reals will you need to buy a dollar in four years?

Accepted Answer

A)   11.447.
B)   2.905.
C)   2.862.
D)   1.676.E) B) and C)
F) C) and D)

Question 6

What kind of trade would involve settling a foreign exchange transaction today?

Accepted Answer

A)   Spot trade.
B)   Futures trade.
C)   Forward trade.
D)   Triangle trade.E) B) and D)
F) B) and C)

Question 7

A swap can be an agreement between two parties to:

Accepted Answer

A)   exchange a floating rate currency for a fixed rate currency.
B)   exchange a floating rate currency for a fixed interest rate currency.
C)   exchange a floating rate debt payment for a fixed rate debt payment.
D)   all are legitimate swaps.E) A) and D)
F) B) and C)

Question 8

British government securities are called:

Accepted Answer

A)   sterlings.
B)   gilts.
C)   ten-pounders.
D)   Eurobonds.E) A) and B)
F) None of the above

Question 9

"A commodity costs the same regardless of what currency is used to purchase it." This is a statement of:

Accepted Answer

A)   The Law of One Price (LOP) .
B)   Relative Purchasing Power Parity (RPPP) .
C)   The First Principle of International Finance.
D)   The Conservation of Currency Value.E) A) and C)
F) All of the above A

Question 10

When the German mark is quoted as 1.923 marks this quote is a(n) :

Accepted Answer

A)   indirect rate.
B)   direct rate.
C)   cross rate.
D)   triangular rate.E) All of the above
F) None of the above

Question 11

A Yankee bond is a:

Accepted Answer

A)   dollar-denominated Eurobond issued by a non-U.S. company.
B)   a bond issued in the U.S. by a foreign entity.
C)   Eurobond issued by a U.S. company.
D)   ECU-denominated bond issued by a non-U.S. company.E) A) and B)
F) A) and C)

Question 12

Dollar-denominated bonds issued in several European countries by a U.S. company are called:

Accepted Answer

A)   Eurobonds.
B)   American Depository Bonds (ADBs) .
C)   Foreign bonds.
D)   European Original Issue (EOI)  bonds.E) B) and D)
F) None of the above

Question 13

The Peruvian economy is predicted to average double digit inflation over the next three years of 40% per annum. The forecast for the U.S. is 3% per annum. If the current exchange rate is $.2777/Sol, how much will a Sol cost you in three years?

Accepted Answer

A)   $.1986.
B)   $.1421.
C)   $.1016.
D)   $.1928.
E)   $.2334.F) B) and E)
G) B) and D)

Question 14

The NPV of a foreign investment will be lower if:

Accepted Answer

A)   not all cash flows are remitted to the parent and unremitted cashflows are reinvested at a rate equal to the domestic cost of capital.
B)   not all cash flows are remitted to the parent and unremitted cashflows are reinvested at a rate less than the domestic cost of capital.
C)   all cash flows are remitted to the parent and are reinvested at a rate equal to the domestic cost of capital.
D)   remittance rates nor foreign reinvestment rates do not affect the NPV.E) A) and B)
F) A) and C) B

Question 15

Newsat Telco is planning on investing $40 billion in Europe this year for a satellite communications systems. The expected cashflow over the next three years is 20.6 billion Euros per year growing at the rate of inflation. After three year they will abandon the system as worthless. The European current and expected inflation rate is 5.2% per annum over this period and the U.S. inflation rate is expected to be 2.8% per annum. The current exchange rate is $.9/Euro. Newsat has a U.S. cost of capital of 15%. Should Newsat invest?
Calculate cashflows for each year and convert back with the yearly exchange rate based on RPPP.

Accepted Answer

Should invest, the high grow...

Question 16

The two terms Purchasing Power Parity (PPP) and Relative Purchasing Power Parity (RPPP) are similar but not synonymous. Explain these two, their differences and why differences in exchange rates in the market may vary from the values implied by PPP or RPPP.

Accepted Answer

Law of One Price explains PPP, the price...

Question 17

Currently, $1 will buy C$1.36 while $1.10 will buy €1. What is the exchange rate between the Canadian dollar and the euro?

Accepted Answer

A)   C$1 = €1.10
B)   C$1 = €.9091
C)   C$1 = €1.2364
D)   C$1.36 = €1.10
E)   C$1.36 = €.9091F) None of the above
G) B) and E)

Question 18

When the German mark is quoted as $.52 this quote is a(n) :

Accepted Answer

A)   triangular rate.
B)   indirect rate.
C)   direct rate.
D)   cross rate.
E)   none of the above.F) None of the above
G) A) and E)

Question 19

The direct spot exchange rate for British pounds is 1.4329. The 180 day risk-free rates in the U.S. and Britain are 4.5% and 5.2%, respectively. What is the direct forward exchange rate?

Accepted Answer

A)   1.4281.
B)   1.4234.
C)   1.4425
D)   1.4368E) All of the above
F) A) and C)

Question 20

You want to import $45,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.0218?

Accepted Answer

A)   1,843,010Rs
B)   2,032,018Rs
C)   2,064,220Rs
D)   2,075,002Rs
E)   2,076,289RsF) All of the above
G) A) and C) C

Exam 32: International Corporate Finance

If the direct rate for French francs (FF) is $.143 and the direct rate for Australian dollars (A$) is $.44, what must the cross rate between A$ and FF be to prevent triangular arbitrage?

Correct Answer
verified

Correct Answer
verified
[1.03/1.05] = [SCD(1...
View Answer

The forward rate market is dependent upon:

Correct Answer
verified

Describe the foreign currency and home currency approaches to capital budgeting. Which is better? Which approach would you recommend a U.S. firm use? Justify your answer.

Correct Answer
verified
In the home currency approach, you must ...
View Answer

The Brazilian inflation rate is expected to be 30% per year for the next 4 years. The U.S. inflation rate is expected to be 3% per year over the same period. A Brazilian real currently costs 87.36 cents. Assuming RPPP holds, how many reals will you need to buy a dollar in four years?

Correct Answer
verified

What kind of trade would involve settling a foreign exchange transaction today?

Correct Answer
verified

A swap can be an agreement between two parties to:

Correct Answer
verified

British government securities are called:

Correct Answer
verified

"A commodity costs the same regardless of what currency is used to purchase it." This is a statement of:

Correct Answer
verified
A

When the German mark is quoted as 1.923 marks this quote is a(n) :

Correct Answer
verified

A Yankee bond is a:

Correct Answer
verified

Dollar-denominated bonds issued in several European countries by a U.S. company are called:

Correct Answer
verified

The Peruvian economy is predicted to average double digit inflation over the next three years of 40% per annum. The forecast for the U.S. is 3% per annum. If the current exchange rate is $.2777/Sol, how much will a Sol cost you in three years?

Correct Answer
verified

The NPV of a foreign investment will be lower if:

Correct Answer
verified
B

Correct Answer
verified

Should invest, the high grow...
View Answer

The two terms Purchasing Power Parity (PPP) and Relative Purchasing Power Parity (RPPP) are similar but not synonymous. Explain these two, their differences and why differences in exchange rates in the market may vary from the values implied by PPP or RPPP.

Correct Answer
verified
Law of One Price explains PPP, the price...
View Answer

Currently, $1 will buy C$1.36 while $1.10 will buy €1. What is the exchange rate between the Canadian dollar and the euro?

Correct Answer
verified

When the German mark is quoted as $.52 this quote is a(n) :

Correct Answer
verified

The direct spot exchange rate for British pounds is 1.4329. The 180 day risk-free rates in the U.S. and Britain are 4.5% and 5.2%, respectively. What is the direct forward exchange rate?

Correct Answer
verified

You want to import $45,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.0218?

Correct Answer
verified
C

Exam 32: International Corporate Finance

If the direct rate for French francs (FF) is $.143 and the direct rate for Australian dollars (A$) is $.44, what must the cross rate between A$ and FF be to prevent triangular arbitrage?

Correct AnswerverifiedShow Answer

Correct Answerverified[1.03/1.05] = [SCD(1...View AnswerShow Answer

The forward rate market is dependent upon:

Correct AnswerverifiedShow Answer

Describe the foreign currency and home currency approaches to capital budgeting. Which is better? Which approach would you recommend a U.S. firm use? Justify your answer.

Correct AnswerverifiedIn the home currency approach, you must ...View AnswerShow Answer

The Brazilian inflation rate is expected to be 30% per year for the next 4 years. The U.S. inflation rate is expected to be 3% per year over the same period. A Brazilian real currently costs 87.36 cents. Assuming RPPP holds, how many reals will you need to buy a dollar in four years?

Correct AnswerverifiedShow Answer

What kind of trade would involve settling a foreign exchange transaction today?

Correct AnswerverifiedShow Answer

A swap can be an agreement between two parties to:

Correct AnswerverifiedShow Answer

British government securities are called:

Correct AnswerverifiedShow Answer

"A commodity costs the same regardless of what currency is used to purchase it." This is a statement of:

Correct AnswerverifiedA

When the German mark is quoted as 1.923 marks this quote is a(n) :

Correct AnswerverifiedShow Answer

A Yankee bond is a:

Correct AnswerverifiedShow Answer

Dollar-denominated bonds issued in several European countries by a U.S. company are called:

Correct AnswerverifiedShow Answer

The Peruvian economy is predicted to average double digit inflation over the next three years of 40% per annum. The forecast for the U.S. is 3% per annum. If the current exchange rate is $.2777/Sol, how much will a Sol cost you in three years?

Correct AnswerverifiedShow Answer

The NPV of a foreign investment will be lower if:

Correct AnswerverifiedB

Correct Answerverified Should invest, the high grow...View AnswerShow Answer

The two terms Purchasing Power Parity (PPP) and Relative Purchasing Power Parity (RPPP) are similar but not synonymous. Explain these two, their differences and why differences in exchange rates in the market may vary from the values implied by PPP or RPPP.

Correct AnswerverifiedLaw of One Price explains PPP, the price...View AnswerShow Answer

Currently, $1 will buy C$1.36 while $1.10 will buy €1. What is the exchange rate between the Canadian dollar and the euro?

Correct AnswerverifiedShow Answer

When the German mark is quoted as $.52 this quote is a(n) :

Correct AnswerverifiedShow Answer

The direct spot exchange rate for British pounds is 1.4329. The 180 day risk-free rates in the U.S. and Britain are 4.5% and 5.2%, respectively. What is the direct forward exchange rate?

Correct AnswerverifiedShow Answer

You want to import $45,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.0218?

Correct AnswerverifiedC

Correct Answer
verified

Correct Answer
verified
[1.03/1.05] = [SCD(1...
View Answer

Correct Answer
verified

Correct Answer
verified
In the home currency approach, you must ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Should invest, the high grow...
View Answer

Correct Answer
verified
Law of One Price explains PPP, the price...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C