Question 1

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Accepted Answer

A) True 
 B)False

Question 2

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Accepted Answer

A) True 
 B)False

Question 3

The cash flows relevant for a foreign investment should,from the parent company's perspective,include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.

Accepted Answer

A) True 
 B)False

Question 4

LIBOR is an acronym for London Interbank Offered Rate,which is an average of interest rates offered by London banks to smaller U.S.corporations on all deposits.

Accepted Answer

A) True 
 B)False

Question 5

If the inflation rate in the United States is greater than the inflation rate in Britain,other things held constant,the British pound will

Accepted Answer

A)  appreciate against the U.S.dollar. 
B)  depreciate against the U.S.dollar. 
C)  remain unchanged against the U.S.dollar. 
D)  appreciate against other major currencies. 
E)  appreciate against the dollar and other major currencies. 
A)  appreciate against the U.S.dollar. 
B)  depreciate against the U.S.dollar. 
C)  remain unchanged against the U.S.dollar. 
D)  appreciate against other major currencies. 
E)  appreciate against the dollar and other major currencies.

Question 6

Suppose 6 months ago a Swiss investor bought a 6-month U.S.Treasury bill at a price of $9,708.74,with a maturity value of $10,000.00.The exchange rate at that time was 1.441 Swiss francs per dollar.Today,at maturity,the exchange rate is 1.324 Swiss francs per dollar.What is the annualized rate of return to the Swiss investor? Do not round the intermediate calculations and round the final answer to two decimal places.

Accepted Answer

A)  -11.26% 
B)  -10.73% 
C)  -9.98% 
D)  -9.76% 
E)  -10.83% 
A)  -11.26% 
B)  -10.73% 
C)  -9.98% 
D)  -9.76% 
E)  -10.83%

Question 7

In Japan,90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return.In the United States,90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%.All securities are of equal risk,and Japanese securities are denominated in terms of the Japanese yen.Assuming that interest rate parity holds in all markets,which of the following statements is most CORRECT?

Accepted Answer

A)  The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market. 
B)  The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market. 
C)  The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market. 
D)  The yen-dollar exchange rate in the 180-day forward market equals the yen-dollar exchange rate in the 90-day spot market. 
E)  The relationship between spot and forward interest rates cannot be inferred. 
A)  The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market. 
B)  The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market. 
C)  The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market. 
D)  The yen-dollar exchange rate in the 180-day forward market equals the yen-dollar exchange rate in the 90-day spot market. 
E)  The relationship between spot and forward interest rates cannot be inferred.

Question 8

Which of the following statements is NOT CORRECT?

Accepted Answer

A)  Any bond sold outside the country of the borrower is called an international bond. 
B)  Foreign bonds and Eurobonds are two important types of international bonds. 
C)  Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. 
D)  The term Eurobond applies only to foreign bonds denominated in U.S.currency. 
E)  A Eurodollar is a U.S.dollar deposited in a bank outside the U.S. 
A)  Any bond sold outside the country of the borrower is called an international bond. 
B)  Foreign bonds and Eurobonds are two important types of international bonds. 
C)  Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. 
D)  The term Eurobond applies only to foreign bonds denominated in U.S.currency. 
E)  A Eurodollar is a U.S.dollar deposited in a bank outside the U.S.

Question 9

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.76 shekels per dollar,then the forward rate for the Israeli shekel is selling at a(n)______________ to the spot rate.

Accepted Answer

A)  3.68% premium 
B)  3.72% premium 
C)  4.99% discount 
D)  4.54% discount 
E)  5.58% discount 
A)  3.68% premium 
B)  3.72% premium 
C)  4.99% discount 
D)  4.54% discount 
E)  5.58% discount

Question 10

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 141 yen per dollar,what would the car be selling for today in U.S.dollars?

Accepted Answer

A)  $10,259 
B)  $12,980 
C)  $12,562 
D)  $10,468 
E)  $11,515 
A)  $10,259 
B)  $12,980 
C)  $12,562 
D)  $10,468 
E)  $11,515

Question 11

A currency trader observes the following quotes in the spot market:
$\begin{array} { l l l } 
1 \text { U.S. dollar } = & 1.34 & \text { Japanese yen } \
1 \text { British pound } = & 2.25 & \text { Swiss francs } \
1 \text { British pound } = & 1.65 & \text { U.S. dollars }
\end{array}$
Given this information,how many yen can be purchased for 1 Swiss franc? Do not round the intermediate calculations and round the final answer to four decimal places.

Accepted Answer

A)  0.8156 
B)  1.1301 
C)  0.7370 
D)  0.8844 
E)  0.9827 
A)  0.8156 
B)  1.1301 
C)  0.7370 
D)  0.8844 
E)  0.9827

Question 12

Blenman Corporation,based in the United States,arranged a 2-year,$1,000,000 loan to fund a project in Mexico.The loan is denominated in Mexican pesos,carries a 6.5% nominal rate,and requires equal semiannual payments.The exchange rate at the time of the loan was 5.75 pesos per dollar,but it dropped to 5.10 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus,Blenman must convert U.S.funds to Mexican pesos to make its payments.If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period,what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places.

Accepted Answer

A)  14.14% 
B)  13.25% 
C)  21.21% 
D)  19.62% 
E)  17.67% 
A)  14.14% 
B)  13.25% 
C)  21.21% 
D)  19.62% 
E)  17.67%

Question 13

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market,then the forward currency is said to be selling at a discount to the spot rate.

Accepted Answer

A) True 
 B)False

Question 14

If one U.S.dollar buys 1.59 Canadian dollars,how many U.S.dollars can you purchase for one Canadian dollar?

Accepted Answer

A)  0.6667 
B)  0.7547 
C)  0.5786 
D)  0.5346 
E)  0.6289 
A)  0.6667 
B)  0.7547 
C)  0.5786 
D)  0.5346 
E)  0.6289

Question 15

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Accepted Answer

A) True 
 B)False

Question 16

Suppose one British pound can purchase 1.86 U.S.dollars today in the foreign exchange market,and currency forecasters predict that the U.S.dollar will depreciate by 12.00% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

Accepted Answer

A)  $2.1665 
B)  $2.2082 
C)  $1.8957 
D)  $2.0832 
E)  $2.3540 
A)  $2.1665 
B)  $2.2082 
C)  $1.8957 
D)  $2.0832 
E)  $2.3540

Question 17

Multinational financial management requires that

Accepted Answer

A)  the effects of changing currency values be included in financial analyses. 
B)  legal and economic differences need not be considered in financial decisions because these differences are insignificant. 
C)  political risk should be excluded from multinational corporate financial analyses. 
D)  traditional U.S.and European financial models incorporating the existence of a competitive marketplace not be recast when analyzing projects in other parts of the world. 
E)  cultural differences need not be accounted for when considering firm goals and employee management. 
A)  the effects of changing currency values be included in financial analyses. 
B)  legal and economic differences need not be considered in financial decisions because these differences are insignificant. 
C)  political risk should be excluded from multinational corporate financial analyses. 
D)  traditional U.S.and European financial models incorporating the existence of a competitive marketplace not be recast when analyzing projects in other parts of the world. 
E)  cultural differences need not be accounted for when considering firm goals and employee management.

Question 18

Suppose DeGraw Corporation,a U.S.exporter,sold a solar heating station to a Japanese customer at a price of 130.5 million yen,when the exchange rate was 140.0 yen per dollar.In order to close the sale,DeGraw agreed to make the bill payable in yen,thus agreeing to take some exchange rate risk for the transaction.The terms were net 6 months.If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid,what dollar amount would DeGraw actually receive after it exchanged yen for U.S.dollars?

Accepted Answer

A)  $845,207.25 
B)  $1,039,604.92 
C)  $1,048,056.99 
D)  $676,165.80 
E)  $659,261.66 
A)  $845,207.25 
B)  $1,039,604.92 
C)  $1,048,056.99 
D)  $676,165.80 
E)  $659,261.66

Question 19

When considering the risk of a foreign investment,a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

Accepted Answer

A) True 
 B)False

Question 20

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 141 yen per dollar,what would the car be selling for today in U.S.dollars?

Accepted Answer

A)  $10,259 
B)  $12,980 
C)  $12,562 
D)  $10,468 
E)  $11,515 
A)  $10,259 
B)  $12,980 
C)  $12,562 
D)  $10,468 
E)  $11,515

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

The cash flows relevant for a foreign investment should,from the parent company's perspective,include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.

LIBOR is an acronym for London Interbank Offered Rate,which is an average of interest rates offered by London banks to smaller U.S.corporations on all deposits.

If the inflation rate in the United States is greater than the inflation rate in Britain,other things held constant,the British pound will

Which of the following statements is NOT CORRECT?

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.76 shekels per dollar,then the forward rate for the Israeli shekel is selling at a(n)______________ to the spot rate.

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 141 yen per dollar,what would the car be selling for today in U.S.dollars?

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market,then the forward currency is said to be selling at a discount to the spot rate.

If one U.S.dollar buys 1.59 Canadian dollars,how many U.S.dollars can you purchase for one Canadian dollar?

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Suppose one British pound can purchase 1.86 U.S.dollars today in the foreign exchange market,and currency forecasters predict that the U.S.dollar will depreciate by 12.00% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

Multinational financial management requires that

When considering the risk of a foreign investment,a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 141 yen per dollar,what would the car be selling for today in U.S.dollars?

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Time Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Hybrid Financing: Preferred Stock,leasing,warrants,and Convertibles

Mergers and Acquisitions

Filters

Exam 19: Multinational Financial Management

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

The cash flows relevant for a foreign investment should,from the parent company's perspective,include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.

LIBOR is an acronym for London Interbank Offered Rate,which is an average of interest rates offered by London banks to smaller U.S.corporations on all deposits.

If the inflation rate in the United States is greater than the inflation rate in Britain,other things held constant,the British pound will

Which of the following statements is NOT CORRECT?

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.76 shekels per dollar,then the forward rate for the Israeli shekel is selling at a(n)______________ to the spot rate.

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 141 yen per dollar,what would the car be selling for today in U.S.dollars?

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market,then the forward currency is said to be selling at a discount to the spot rate.

If one U.S.dollar buys 1.59 Canadian dollars,how many U.S.dollars can you purchase for one Canadian dollar?

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Suppose one British pound can purchase 1.86 U.S.dollars today in the foreign exchange market,and currency forecasters predict that the U.S.dollar will depreciate by 12.00% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

Multinational financial management requires that

When considering the risk of a foreign investment,a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 141 yen per dollar,what would the car be selling for today in U.S.dollars?

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Time Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Hybrid Financing: Preferred Stock,leasing,warrants,and Convertibles

Mergers and Acquisitions

Filters