Exam 26: International Financial Management

To protect itself against transaction exchange rate risk, a U.S. company that purchases automobiles from a Japanese manufacturer may use all of the following techniques EXCEPT ____.

All of the following items are needed to compute relative purchasing power parity EXCEPT ____.

A U.S. company that purchases goods on credit from a German supplier can protect itself against transaction exchange risk by ____.

If the annual nominal interest rate on 10-year U.S. Government Treasury bonds is 7.35% and the annual nominal interest rate on 10-year Japanese bonds is 5.75%, what is the expected future spot rate in 10 years given that the current spot exchange rate between U.S. dollars and Japanese yen is $0.00959?

The 6-month interest rate on 180-day U.S. Treasury bills is 7.64%. In the foreign exchange markets, the spot rate between U.S. dollars and British pounds is 1 pound = $1.5525. The 180-day (6-month) forward rate is 1 pound = $1.5188. Determine the expected rate of interest on 6-month British government debt securities, assuming interest rate parity between the dollar and pound exists.

Motorola has a contract to deliver cellular telephones in Japan 6 months from now and the payment for these telephones will be in Japanese yen. What type of foreign exchange risk does Motorola face?

When a multinational firm has one or more foreign subsidiaries with assets and liabilities denominated in a foreign currency, it faces ____ exposure.

What is the nominal interest rate in Canada if the real rate of return is 2.5% and the expected inflation rate was 4.5%?

Which of the following is not a primary category of foreign exchange risk that multinational firms must consider?

The 6-month interest rate on 180 day U.S. Treasury Bills is 7.5%. In the foreign exchange markets, the spot rate between U.S. dollars and Australian dollars is 1 Australian dollar = $0.452 and the 180-day (6-month) forward rate is 1 mark = $0.46. Determine the expected rate of interest on 6-month Australian government debt securities, assuming that the interest rate parity between the U.S. dollar and Australian dollar exists.

Vroom Vroom Motors purchased several Mercedes Benz automobiles from its West German broker. The contract was for 10,000,000 euros, due in 180 days. The present exchange rate is $0.51 per euro, and the 180-day forward rate is $0.514. If the rate actually goes to $0.50 in 180 days, what is the dollar gain or loss incurred if no hedge is taken relative to a hedged position?

Firms engaged in international transactions incur ____ risk because of fluctuations in the exchange rates among currencies.

A less restrictive form of purchasing power parity is ____.

Which of the following is NOT one of the basic hedging techniques?

Primary sources of demand for British pounds in the foreign exchange market include ____.

When interest rate parity exists, the forward rate will differ from the spot rate by just enough to ____.

An increase in the value of a foreign currency relative to the U.S. dollar ____ the conversion value of the foreign subsidiary's liabilities.

Under current accounting procedures, all of the following except which balance sheet items are translated into dollars at the rate of exchange prevailing on the date of the balance sheet?

The ____ states that the differences in interest rates between two countries should be offset by equal, but opposite, changes in the future spot exchange rate.

In general, when a foreign subsidiary's assets are ____ than its liabilities, ____ will occur when the exchange rate on the currency of the country in which the foreign subsidiary operates loses value.