Exam 21: International Corporate Finance

Assume the euro is selling in the spot market for $1.15. Simultaneously, in the three-month forward market the euro is selling for $1.17. Which one of the following statements correctly describes this situation?

Suppose the current spot rate for the Norwegian krone is NKr5.9433 while the expected inflation rate in Norway is 3.1 percent and 1.7 percent in the U.S. A risk-free asset in the U.S. is yielding 3.2 percent. What risk-free rate of return should you expect on a Norwegian security?

The home currency approach:

You are analyzing a project with an initial cost of £50,000. The project is expected to return £12,000 the first year, £36,000 the second year, and £40,000 the third and final year. There is no salvage value. Assume the current spot rate is £.6346. The nominal return relevant to the project is 12 percent in the U.S. The nominal risk-free rate in the U.S. is 3.4 percent while it is 4.1 percent in the U.K. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?

Which one of the following securities is used as a means of investing in a foreign stock that otherwise could not be traded in the United States?

International bonds issued in multiple countries but denominated in a single currency are called:

Assume that on Friday, one South African rand was worth $.0953 and on the following Monday the value was $.0962. Also assume one Kuwaiti dinar was worth $3.56 on Friday and $3.54 on the following Monday. Given these rates, which one of the following statements must be correct?

Which one of the following conditions is not required for absolute purchasing power parity to exist?

The forward rate market is dependent upon:

Suppose the spot and three-month forward rates for the yen are ¥102.32 and ¥102.27, respectively. What is the approximate annual percent difference between the inflation rate in Japan and in the U.S.?

The price of one euro expressed in U.S. dollars is referred to as a(n):

Which one of the following supports the idea that real interest rates are equal across countries?

Spot trades must be settled:

Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S. dollar and the British pound?

The unbiased forward rate condition supports the idea that the current forward rate is a:

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?

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

Assume the current spot rate is C$1.2568 and the one-year forward rate is C$1.2455. Also assume the nominal risk-free rate in Canada is 3.7 percent compared to 4.1 percent in the U.S. Using covered interest arbitrage, how much additional profit can you earn over that which you would earn if you invested $1 in the U.S for one year?

Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?

International bonds and domestic bonds issued by the same domestic issuer are usually: