Question 1

Which of the following statements is correct?

Accepted Answer

A) A currency with higher interest rate will sell at a forward discount. 
B) A currency with higher interest rate will sell at a forward premium. 
C) A currency with higher interest rate will have a higher spot rate. 
D) A currency with higher interest rates will have a lower spot rate. 
A) A currency with higher interest rate will sell at a forward discount. 
B) A currency with higher interest rate will sell at a forward premium. 
C) A currency with higher interest rate will have a higher spot rate. 
D) A currency with higher interest rates will have a lower spot rate.

Question 2

Knowing the value of compounding, a Canadian firm considers the opportunity to invest for ten years in a Japanese investment that will return 12% annually.The Canadian alternative for a ten-year investment appears to offer 7% annually.The spot exchange rate is ¥60/$(Canadian).What other concern should you have?

Accepted Answer

The logical concern is what the spot exc

Question 3

The French Euro is currently worth $0.24 and it's selling in the one-year forward market at a 10% premium relative to the Canadian Dollar.Approximately what rate would you expect to pay for a one-year loan in France if the rate would be 10% in Canada?

Accepted Answer

A) 10.00% 
B) 11.62% 
C) 14.55% 
D) 20.00% 
A) 10.00% 
B) 11.62% 
C) 14.55% 
D) 20.00%

Question 4

Assume PPP holds at a time when the exchange rate is €1.09/$(Canadian) and a market basket of goods costs €500.How many Dollars would you expect to spend on the goods? Germany is expecting 10% inflation while Canada is expecting 4% inflation.What would you predict to happen to exchange rates?

Accepted Answer

Since purchasing power parity is said to

Question 5

Arbitrageurs are said to look for riskless profits by:

Accepted Answer

A) contracting in the forward exchange markets. 
B) buying at the spot rate and selling at the forward rate. 
C) buying in one market and selling in another to take advantage of different prices for the same good. 
D) buying short-term bonds and converting them to long-term bonds. 
A) contracting in the forward exchange markets. 
B) buying at the spot rate and selling at the forward rate. 
C) buying in one market and selling in another to take advantage of different prices for the same good. 
D) buying short-term bonds and converting them to long-term bonds.

Question 6

The Toronto Stock Exchange is one of few markets to have a higher daily volume than the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following appears to be a safe assumption when there is no difference between the forward and spot exchange rates between two currencies?

Accepted Answer

A) The countries have equal nominal interest rates. 
B) The spot rate is expected to change. 
C) Expected inflation is less than the nominal rate. 
D) Both currencies are selling at a premium relative to the other. 
A) The countries have equal nominal interest rates. 
B) The spot rate is expected to change. 
C) Expected inflation is less than the nominal rate. 
D) Both currencies are selling at a premium relative to the other.

Question 8

A firm in Canada is due to receive payment of 1 million Australian Dollars in 10 year's time.It would like to protect itself against a decline in the value of the Australian Dollar but finds it difficult to arrange a forward sale for such a long period.Is there any other way that it can protect itself?

Accepted Answer

The firm can borrow the present value of

Question 9

Which of the following is correct when contracting ahead in the forward exchange market?

Accepted Answer

A) At contract close you pay either the forward rate that was contracted or the then-current rate 
B) Contracting ahead is always cheaper than waiting to pay spot rates 
C) Your cost is locked-in from the beginning of the contract, regardless of market changes 
D) Paying spot price is safer than contracting forward 
A) At contract close you pay either the forward rate that was contracted or the then-current rate 
B) Contracting ahead is always cheaper than waiting to pay spot rates 
C) Your cost is locked-in from the beginning of the contract, regardless of market changes 
D) Paying spot price is safer than contracting forward

Question 10

The Treasurer has noticed that the interest rate in Japan is below most other countries.It was suggested that the company issue bonds in Japanese Yen.What considerations should be taken to account?

Accepted Answer

If international capital markets are com

Question 11

What can be said about the spot exchange rate of Dollars for pounds if nominal interest rates are higher in Canada than in Great Britain?

Accepted Answer

A) It should exceed the forward rate of Dollars for pounds 
B) It should be less than the forward rate of Dollars for pounds 
C) It is expected to increase 
D) It is expected to remain constant 
A) It should exceed the forward rate of Dollars for pounds 
B) It should be less than the forward rate of Dollars for pounds 
C) It is expected to increase 
D) It is expected to remain constant

Question 12

According to the theory of purchasing power parity, exchange rates will adjust so that differences in:

Accepted Answer

A) interest rates across countries are offset. 
B) forward rates across countries are offset. 
C) expected inflation across countries is offset. 
D) international Fisher rates are offset. 
A) interest rates across countries are offset. 
B) forward rates across countries are offset. 
C) expected inflation across countries is offset. 
D) international Fisher rates are offset.

Question 13

Your firm, which operates in Canada and has a contractual payment of £1 million due in three months.Which of the following methods would be considered speculative regarding your exchange-rate risk?

Accepted Answer

A) Buy 1 million pounds now at the current spot rate. 
B) Buy 1 million pounds in three months at the current spot rate. 
C) Contract forward to buy 1 million pounds in three months. 
D) Borrow Dollars, convert to pounds at spot, invest for three months. 
A) Buy 1 million pounds now at the current spot rate. 
B) Buy 1 million pounds in three months at the current spot rate. 
C) Contract forward to buy 1 million pounds in three months. 
D) Borrow Dollars, convert to pounds at spot, invest for three months.

Question 14

The difference in interest rates between countries is believed to be equal to the expected change in spot exchange rates.

Accepted Answer

A) True 
 B)False

Question 15

If the difference between forward and spot exchange rates is positive, interest rate parity would predict that:

Accepted Answer

A) the difference in interest rates between countries will be negative. 
B) the difference in interest rates between countries will be positive. 
C) there will be no difference in interest rates between countries. 
D) the difference will be quickly eliminated. 
A) the difference in interest rates between countries will be negative. 
B) the difference in interest rates between countries will be positive. 
C) there will be no difference in interest rates between countries. 
D) the difference will be quickly eliminated.

Question 16

What is the international Fisher effect and how would you test it, knowing that 6% inflation is expected in Canada but only 3% is expected in Spain.The nominal Canadian interest rate is 9%.

Accepted Answer

The international Fisher effect theorize

Question 17

Forward rates are always equal to the actual future exchange rates.

Accepted Answer

A) True 
 B)False

Question 18

If managers intend to adjust the projections of foreign investments, it is probably better to make the adjustments in:

Accepted Answer

A) the discount rate used. 
B) the cash flows projected. 
C) both the discount rate and cash flows. 
D) exchange rate, but never in the discount rate. 
A) the discount rate used. 
B) the cash flows projected. 
C) both the discount rate and cash flows. 
D) exchange rate, but never in the discount rate.

Question 19

Suppose that: $$\begin{array}{l}
\begin{array} {lll } 
\text {U.K. (pound)}
&\frac { \text { Spot Rate } } { 1.5331 }
&\frac { 3 \text { Month Forward Rate } } { 1.5372 }
&\frac { 1 \text { Year Forward Rate } } { 1.5502 }
\end{array}
\end{array}$$ What is the annualized percentage discount or premium of the U.K.pound on the U.S.Dollar?

Accepted Answer

A) 1.10% premium 
B) 1.10% discount 
C) 2.20% premium 
D) 2.20% discount 
A) 1.10% premium 
B) 1.10% discount 
C) 2.20% premium 
D) 2.20% discount

Question 20

If real interest rates are different across countries, investors will shift their money into countries with high real interest rates.

Accepted Answer

A) True 
 B)False

Exam 24: International Financial Management

Which of the following statements is correct?

The French Euro is currently worth $0.24 and it's selling in the one-year forward market at a 10% premium relative to the Canadian Dollar.Approximately what rate would you expect to pay for a one-year loan in France if the rate would be 10% in Canada?

Assume PPP holds at a time when the exchange rate is €1.09/$(Canadian) and a market basket of goods costs €500.How many Dollars would you expect to spend on the goods? Germany is expecting 10% inflation while Canada is expecting 4% inflation.What would you predict to happen to exchange rates?

Arbitrageurs are said to look for riskless profits by:

The Toronto Stock Exchange is one of few markets to have a higher daily volume than the foreign exchange market.

Which of the following appears to be a safe assumption when there is no difference between the forward and spot exchange rates between two currencies?

Which of the following is correct when contracting ahead in the forward exchange market?

The Treasurer has noticed that the interest rate in Japan is below most other countries.It was suggested that the company issue bonds in Japanese Yen.What considerations should be taken to account?

What can be said about the spot exchange rate of Dollars for pounds if nominal interest rates are higher in Canada than in Great Britain?

According to the theory of purchasing power parity, exchange rates will adjust so that differences in:

Your firm, which operates in Canada and has a contractual payment of £1 million due in three months.Which of the following methods would be considered speculative regarding your exchange-rate risk?

The difference in interest rates between countries is believed to be equal to the expected change in spot exchange rates.

If the difference between forward and spot exchange rates is positive, interest rate parity would predict that:

What is the international Fisher effect and how would you test it, knowing that 6% inflation is expected in Canada but only 3% is expected in Spain.The nominal Canadian interest rate is 9%.

Forward rates are always equal to the actual future exchange rates.

If managers intend to adjust the projections of foreign investments, it is probably better to make the adjustments in:

Suppose that: U.K. (pound) What is the annualized percentage discount or premium of the U.K.pound on the U.S.Dollar?

If real interest rates are different across countries, investors will shift their money into countries with high real interest rates.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

Options

Risk Management

Filters