Question 1

The international Fisher effect predicts that differences in nominal interest rates between countries reflect differences in:

Accepted Answer

A) real rates of interest. 
B) purchasing power parity. 
C) the standard of living. 
D) expected inflation. 
A) real rates of interest. 
B) purchasing power parity. 
C) the standard of living. 
D) expected inflation.

Question 2

Explain the international Fisher Effect.

Accepted Answer

The international Fisher effect suggests

Question 3

Countries with high inflation will have the:

Accepted Answer

A) weakest currency. 
B) highest nominal interest rate. 
C) strongest currency. 
D) highest real interest rate. 
A) weakest currency. 
B) highest nominal interest rate. 
C) strongest currency. 
D) highest real interest rate.

Question 4

How do we perform an NPV analysis for projects with cash flows in foreign currencies?

Accepted Answer

Overseas investment decisions are no dif

Question 5

The forward exchange rate for foreign currency is the rate for immediate exchanges.

Accepted Answer

A) True 
 B)False

Question 6

Current one-year interest rates are 4% and 8% in Canada and Spain respectively.The anticipated inflation in Canada is 2%.If international Fisher effect holds, what is the expected inflation in Spain?

Accepted Answer

A) 4.00% 
B) 4.04% 
C) 5.92% 
D) 6.00% 
A) 4.00% 
B) 4.04% 
C) 5.92% 
D) 6.00%

Question 7

Which of the following would you expect to improve the Dollar-NPV of a foreign capital budgeting proposal?

Accepted Answer

A) The Dollar is expected to appreciate against the foreign currency 
B) Lower inflation is expected in the foreign country than in the United States 
C) The foreign country has a less stable political environment 
D) The risk-free rate in the foreign country is higher than in the United States 
A) The Dollar is expected to appreciate against the foreign currency 
B) Lower inflation is expected in the foreign country than in the United States 
C) The foreign country has a less stable political environment 
D) The risk-free rate in the foreign country is higher than in the United States

Question 8

What do you expect to happen to prices in Japan, given nominal interest rates of 10% in Canada and 6% in Japan, and expected Canadian inflation of 6%?

Accepted Answer

A) Expected Japanese inflation is 1.79% 
B) Expected Japanese inflation is 2.15% 
C) Expected Japanese inflation is 6.22% 
D) Expected Japanese inflation is 10.00% 
A) Expected Japanese inflation is 1.79% 
B) Expected Japanese inflation is 2.15% 
C) Expected Japanese inflation is 6.22% 
D) Expected Japanese inflation is 10.00%

Question 9

Which of the following is correct if the spot exchange rate on the pound sterling is $2.56 (Canadian)/£ and the one-year forward exchange rate is $2.48 (Canadian)/£? The pound is trading:

Accepted Answer

A) at a 3.13% forward discount relative to the Dollar. 
B) at a 3.13% forward premium relative to the Dollar. 
C) at a 3.22% forward discount relative to the Dollar. 
D) at a 3.22% forward premium relative to the Dollar. 
A) at a 3.13% forward discount relative to the Dollar. 
B) at a 3.13% forward premium relative to the Dollar. 
C) at a 3.22% forward discount relative to the Dollar. 
D) at a 3.22% forward premium relative to the Dollar.

Question 10

The Yen is currently trading at ¥109.66 per USD, while the forward rate is ¥112.96 per USD.Given this information, calculate the forward premium or discount.

Accepted Answer

A) 5.92% premium 
B) 2.92% premium 
C) 5.92% discount 
D) 2.92% discount 
A) 5.92% premium 
B) 2.92% premium 
C) 5.92% discount 
D) 2.92% discount

Question 11

What are some simple strategies to protect the firm against exchange rate risk?

Accepted Answer

Expectation theory states that hedging e

Question 12

You can value overseas investments using the NPV of the cash flows.Which of the following adjustment is necessary to calculate the NPV?

Accepted Answer

A) Convert the opportunity cost of capital and cash flows into foreign currency. 
B) Convert the foreign cash flows into domestic currency and use the domestic opportunity cost of capital for discounting. 
C) Use domestic discount rate to discount foreign cash flows. 
D) Convert the foreign cash flow into domestic currency and use the foreign cost of capital for discounting. 
A) Convert the opportunity cost of capital and cash flows into foreign currency. 
B) Convert the foreign cash flows into domestic currency and use the domestic opportunity cost of capital for discounting. 
C) Use domestic discount rate to discount foreign cash flows. 
D) Convert the foreign cash flow into domestic currency and use the foreign cost of capital for discounting.

Question 13

Transaction risk arises when a firm is committed either to pay or receive a known amount of foreign currency.

Accepted Answer

A) True 
 B)False

Question 14

Predict the expected spot exchange rate between the Japanese Yen and U.S.Dollar, given that inflation in Japan, at 8%, is 4% higher than in the U.S.and that the current spot rate is ¥107/$.

Accepted Answer

A) ¥102.72/$ 
B) ¥103.04/$ 
C) ¥111.12/$ 
D) ¥111.28/$ 
A) ¥102.72/$ 
B) ¥103.04/$ 
C) ¥111.12/$ 
D) ¥111.28/$

Question 15

What is the difference between forward and spot exchange rate rates?

Accepted Answer

The exchange rate is the amount of one c

Question 16

The Japanese Yen exchange rate is ¥115 = $1, while the British Pound exchange rate is £1 = $2.05.Given this information, calculate the cross-rate in terms of Yen per pound.

Accepted Answer

A) ¥235.75 per £1 
B) ¥275.35 per £1 
C) ¥56.10 per £1 
D) ¥51.60 per £1 
A) ¥235.75 per £1 
B) ¥275.35 per £1 
C) ¥56.10 per £1 
D) ¥51.60 per £1

Question 17

Suppose the interest rate on 1-year loans in the United States is 5% while in the United Kingdom the interest rate is 6%.The spot exchange rate is $1.55/£ and the forward rate is $1.54/£.In what country would you choose to borrow? To lend? Can you profit from this situation?

Accepted Answer

The interest rate in the U.S.is 5%.Borro

Question 18

Suppose that: $$\begin{array} { | l | c | c | c | } 
\hline & \text { Spot Rate } & \text { 3 Month Forward Rate } & \text { 1 Year Forward Rate } \
\hline \text { sweden (krona) } & 9.3924 & 9.4554 & 9.6239 \
\hline \text { switzerland (frarc) } & 1.5231 & 1.5206 & 1.5143 \
\hline \text { Japan (Yer) } & 123.380 & 122.81 & 120.63 \
\hline
\end{array}$$ What arbitrage gains can be achieved if the bank quotes a rate of 75Yen per Swiss Francs?

Accepted Answer

A) 8% 
B) 9% 
C) 10% 
D) 11% 
A) 8% 
B) 9% 
C) 10% 
D) 11%

Question 19

During the 1980s, the Japanese Yen appreciated against the U.S.Dollar.As a result of this, the Japanese products became less price competitive in the U.S.This is an example of:

Accepted Answer

A) contractual risk. 
B) non-contractual risk. 
C) exchange rate risk. 
D) forward premium. 
A) contractual risk. 
B) non-contractual risk. 
C) exchange rate risk. 
D) forward premium.

Question 20

Suppose that: $$\begin{array}{l}
\begin{array} {lll } 
\text {U.K. (pound)}
&\frac { \text { Spot Rate } } { 1.4994 }
&\frac { 3 \text { Month Forward Rate } } { 1.491 }
&\frac { 1 \text { Year Forward Rate } } { 1.4658 }
\end{array}
\end{array}$$ If the 3-month interest rate on Dollars is 2% (effective annual rate), what do you think is the 3-month sterling (U.K.) interest rate?

Accepted Answer

A) 1.07% 
B) 2.07% 
C) 3.07% 
D) 4.07% 
A) 1.07% 
B) 2.07% 
C) 3.07% 
D) 4.07%

Exam 24: International Financial Management

The international Fisher effect predicts that differences in nominal interest rates between countries reflect differences in:

Explain the international Fisher Effect.

Countries with high inflation will have the:

How do we perform an NPV analysis for projects with cash flows in foreign currencies?

The forward exchange rate for foreign currency is the rate for immediate exchanges.

Current one-year interest rates are 4% and 8% in Canada and Spain respectively.The anticipated inflation in Canada is 2%.If international Fisher effect holds, what is the expected inflation in Spain?

Which of the following would you expect to improve the Dollar-NPV of a foreign capital budgeting proposal?

What do you expect to happen to prices in Japan, given nominal interest rates of 10% in Canada and 6% in Japan, and expected Canadian inflation of 6%?

Which of the following is correct if the spot exchange rate on the pound sterling is $2.56 (Canadian)/£ and the one-year forward exchange rate is $2.48 (Canadian)/£? The pound is trading:

The Yen is currently trading at ¥109.66 per USD, while the forward rate is ¥112.96 per USD.Given this information, calculate the forward premium or discount.

What are some simple strategies to protect the firm against exchange rate risk?

You can value overseas investments using the NPV of the cash flows.Which of the following adjustment is necessary to calculate the NPV?

Transaction risk arises when a firm is committed either to pay or receive a known amount of foreign currency.

Predict the expected spot exchange rate between the Japanese Yen and U.S.Dollar, given that inflation in Japan, at 8%, is 4% higher than in the U.S.and that the current spot rate is ¥107/$.

What is the difference between forward and spot exchange rate rates?

The Japanese Yen exchange rate is ¥115 = $1, while the British Pound exchange rate is £1 = $2.05.Given this information, calculate the cross-rate in terms of Yen per pound.

Suppose the interest rate on 1-year loans in the United States is 5% while in the United Kingdom the interest rate is 6%.The spot exchange rate is $1.55/£ and the forward rate is $1.54/£.In what country would you choose to borrow? To lend? Can you profit from this situation?

Suppose that: Spot Rate 3 Month Forward Rate 1 Year Forward Rate sweden (krona) 9.3924 9.4554 9.6239 switzerland (frarc) 1.5231 1.5206 1.5143 Japan (Yer) 123.380 122.81 120.63 What arbitrage gains can be achieved if the bank quotes a rate of 75Yen per Swiss Francs?

During the 1980s, the Japanese Yen appreciated against the U.S.Dollar.As a result of this, the Japanese products became less price competitive in the U.S.This is an example of:

Suppose that: U.K. (pound) If the 3-month interest rate on Dollars is 2% (effective annual rate), what do you think is the 3-month sterling (U.K.) interest rate?

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

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