Question 1

The international Fisher effect is valid in the long run, because:

Accepted Answer

A) inflation rates are equal in different countries. 
B) investors will move their money into countries with high real interest rates. 
C) investors will move their money into countries with high nominal interest rates. 
D) investors will move their money into countries with low inflation. 
A) inflation rates are equal in different countries. 
B) investors will move their money into countries with high real interest rates. 
C) investors will move their money into countries with high nominal interest rates. 
D) investors will move their money into countries with low inflation.

Question 2

How many Dollars will it take for a U.S.citizen to purchase a Japanese product priced at 60,000 Yen if the indirect exchange rate is yen104/$1?

Accepted Answer

A) $577 
B) $700 
C) $5,769 
D) $62,400 
A) $577 
B) $700 
C) $5,769 
D) $62,400

Question 3

If the exchange rate of German marks/Canadian Dollars is 2.04/1, then:

Accepted Answer

A) it takes $2.04 to buy each mark. 
B) the mark is worth more than one Canadian Dollar. 
C) each mark is worth approximately 49 cents. 
D) 20 cents will purchase one mark. 
A) it takes $2.04 to buy each mark. 
B) the mark is worth more than one Canadian Dollar. 
C) each mark is worth approximately 49 cents. 
D) 20 cents will purchase one mark.

Question 4

Canadian investments with a one-year maturity can be made for 6% and Swiss one-year investments can be made for 3%.If the spot exchange rate is Sf1.6/$, which of the following one-year forward exchange rates would convince you to invest in Switzerland?

Accepted Answer

A) Sf1.55/$ 
B) Sf1.60/$ 
C) Sf1.65/$ 
D) Sf1.70/$ 
A) Sf1.55/$ 
B) Sf1.60/$ 
C) Sf1.65/$ 
D) Sf1.70/$

Question 5

If Purchasing Power Parity is holding, what will happen to the currency of a country with high inflation?

Accepted Answer

A) Currency will appreciate. 
B) Currency will depreciate. 
C) No significant change in exchange rate. 
D) Currency will sell at a forward premium. 
A) Currency will appreciate. 
B) Currency will depreciate. 
C) No significant change in exchange rate. 
D) Currency will sell at a forward premium.

Question 6

The law of one price implies that the same commodity should be sold at the same price in all countries.

Accepted Answer

A) True 
 B)False

Question 7

The direct exchange rate quotes the number of Canadian Dollars required to buy one unit of a foreign currency.

Accepted Answer

A) True 
 B)False

Question 8

If prices in the U.S.rise less rapidly than in Canada, which of the following would be expected according to purchasing power parity?

Accepted Answer

A) The value of the Canadian Dollar will decline, relative to the U.S.Dollar 
B) The value of the U.S.Dollar will decline, relative to the Canadian Dollar 
C) Inflation will increase in Canada 
D) The price of gold will decline 
A) The value of the Canadian Dollar will decline, relative to the U.S.Dollar 
B) The value of the U.S.Dollar will decline, relative to the Canadian Dollar 
C) Inflation will increase in Canada 
D) The price of gold will decline

Question 9

That Italian antique was priced at 3 million lire that, fortunately, does not have to be paid for three months.The Euro has a spot exchange rate of L2,000/$(U.S.) but is trading three months forward at a 5% discount.If you contract ahead now, how many U.S.Dollars will the antique cost?

Accepted Answer

A) $1,425 
B) $1,429 
C) $1,575 
D) $1,579 
A) $1,425 
B) $1,429 
C) $1,575 
D) $1,579

Question 10

If the indirect exchange rate between French Francs and U.S.Dollars is 6.8/1, then the direct exchange rate between these currencies is:

Accepted Answer

A) $.1471/FFr 
B) $/6.8FFr 
C) FFr/$6.8 
D) FFr/$.1471 
A) $.1471/FFr 
B) $/6.8FFr 
C) FFr/$6.8 
D) FFr/$.1471

Question 11

If the Euro is trading at a forward discount relative to the Dollar, then you'll receive fewer marks per Dollar in the future.

Accepted Answer

A) True 
 B)False

Question 12

Where would you prefer to invest, and why, if nominal rates are 10% in Canada and 25% in Holland, while the expected rates of inflation are 5% and 19% respectively? Assume investments of equal risk.

Accepted Answer

A) Invest in Holland due to higher nominal rate. 
B) Invest in Canada; real return is 1.1% higher. 
C) Invest in Canada; real return is 0.1% higher. 
D) Invest in Holland; real return is 0.28% higher. 
A) Invest in Holland due to higher nominal rate. 
B) Invest in Canada; real return is 1.1% higher. 
C) Invest in Canada; real return is 0.1% higher. 
D) Invest in Holland; real return is 0.28% higher.

Question 13

What is the expected spot rate of ¥/$(Canadian) one year from now if the current spot rate is ¥66/$and the Yen is selling one-year forward at ¥70/$?

Accepted Answer

A) ¥78.9/$ 
B) ¥98.0/$ 
C) ¥66/$ 
D) ¥70/$ 
A) ¥78.9/$ 
B) ¥98.0/$ 
C) ¥66/$ 
D) ¥70/$

Question 14

How can companies use swaps to change the risk of securities that they have issued?

Accepted Answer

Swaps allow firms to exchange one series

Question 15

Explain the interest rate parity theory.

Accepted Answer

This states that the interest differenti

Question 16

If the interest rate of one country increases, then the value of that country's currency increases in the forward market.

Accepted Answer

A) True 
 B)False

Question 17

The spot exchange rate for Canadian Dollar(C$) is U.S.$0.68/C$.The six-month interest rate in U.S.is 2.5% and 3.0% in Canada.What is the six-month forward rate for Canadian Dollar?

Accepted Answer

A) U.S.$0.6734/C$ 
B) U.S.$0.6767/C$ 
C) U.S.$0.6833/C$ 
D) U.S.$0.6866/C$ 
A) U.S.$0.6734/C$ 
B) U.S.$0.6767/C$ 
C) U.S.$0.6833/C$ 
D) U.S.$0.6866/C$

Question 18

Which of the following is correct if you have contracted to purchase 1,000 Swiss Francs three months forward at a rate of Sf1.6/$?

Accepted Answer

A) You pay approximately $625 today for the Francs 
B) You pay $1,600 today for the Francs 
C) You pay approximately $625 three months from now for the Francs 
D) You pay $1,600 three months from now for the Francs 
A) You pay approximately $625 today for the Francs 
B) You pay $1,600 today for the Francs 
C) You pay approximately $625 three months from now for the Francs 
D) You pay $1,600 three months from now for the Francs

Question 19

A U.S.firm can invest DM10 million in its German subsidiary and receive a return of €4.3 million annually for 3 years.The spot rate is €1.6/$(U.S.), the U.S.rate of inflation is expected to be 4% annually, and the German rate is expected to be 3% annually.If the appropriate risk-adjusted cost of capital in Dollars is 14%, does the project appear to have a positive NPV?

Accepted Answer

The mark should appreciate
against the D

Question 20

If you buy Yen forward when the Yen is selling at a forward premium, you will get:

Accepted Answer

A) more Yen than if you buy on spot market. 
B) fewer Yen than if you buy on spot market. 
C) the same number of Yen as on the spot market, but with a lower commission. 
D) the expectation of more Yen, but the difference is not locked in. 
A) more Yen than if you buy on spot market. 
B) fewer Yen than if you buy on spot market. 
C) the same number of Yen as on the spot market, but with a lower commission. 
D) the expectation of more Yen, but the difference is not locked in.

Exam 24: International Financial Management

The international Fisher effect is valid in the long run, because:

How many Dollars will it take for a U.S.citizen to purchase a Japanese product priced at 60,000 Yen if the indirect exchange rate is yen104/$1?

If the exchange rate of German marks/Canadian Dollars is 2.04/1, then:

Canadian investments with a one-year maturity can be made for 6% and Swiss one-year investments can be made for 3%.If the spot exchange rate is Sf1.6/$, which of the following one-year forward exchange rates would convince you to invest in Switzerland?

If Purchasing Power Parity is holding, what will happen to the currency of a country with high inflation?

The law of one price implies that the same commodity should be sold at the same price in all countries.

The direct exchange rate quotes the number of Canadian Dollars required to buy one unit of a foreign currency.

If prices in the U.S.rise less rapidly than in Canada, which of the following would be expected according to purchasing power parity?

That Italian antique was priced at 3 million lire that, fortunately, does not have to be paid for three months.The Euro has a spot exchange rate of L2,000/$(U.S.) but is trading three months forward at a 5% discount.If you contract ahead now, how many U.S.Dollars will the antique cost?

If the indirect exchange rate between French Francs and U.S.Dollars is 6.8/1, then the direct exchange rate between these currencies is:

If the Euro is trading at a forward discount relative to the Dollar, then you'll receive fewer marks per Dollar in the future.

Where would you prefer to invest, and why, if nominal rates are 10% in Canada and 25% in Holland, while the expected rates of inflation are 5% and 19% respectively? Assume investments of equal risk.

What is the expected spot rate of ¥/$(Canadian) one year from now if the current spot rate is ¥66/$and the Yen is selling one-year forward at ¥70/$?

How can companies use swaps to change the risk of securities that they have issued?

Explain the interest rate parity theory.

If the interest rate of one country increases, then the value of that country's currency increases in the forward market.

The spot exchange rate for Canadian Dollar(C$) is U.S.$0.68/C$.The six-month interest rate in U.S.is 2.5% and 3.0% in Canada.What is the six-month forward rate for Canadian Dollar?

Which of the following is correct if you have contracted to purchase 1,000 Swiss Francs three months forward at a rate of Sf1.6/$?

If you buy Yen forward when the Yen is selling at a forward premium, you will get:

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