Question 1

An indirect exchange rate can be converted to a direct exchange rate by:

Accepted Answer

A) dividing the indirect rate by number of U.S.Dollars required to purchase one unit of the other currency. 
B) dividing the indirect rate by 100. 
C) multiplying the indirect rate by the spot rate. 
D) taking the inverse of the indirect rate. 
A) dividing the indirect rate by number of U.S.Dollars required to purchase one unit of the other currency. 
B) dividing the indirect rate by 100. 
C) multiplying the indirect rate by the spot rate. 
D) taking the inverse of the indirect rate.

Question 2

Suppose that: $$\begin{array}{l}
\begin{array} {lll } 
\text {U.K. (pound)}
&\frac { \text { Spot Rate } } { 1.5331 }
&\frac { 3 \text { Month Forward Rate } } { 1.5372 }
&\frac { 1 \text { Year Forward Rate } } { 1.5502 }
\end{array}
\end{array}$$ If no other information is available, what will your guess about the spot rate in one year be?

Accepted Answer

A) 1.5331 
B) 1.5372 
C) 1.5502 
D) 2.0000 
A) 1.5331 
B) 1.5372 
C) 1.5502 
D) 2.0000

Question 3

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

Accepted Answer

Our simple theories about forward rates

Question 4

Indirect quotes describe units of domestic currency bought by a unit of foreign unit.

Accepted Answer

A) True 
 B)False

Question 5

If the International Fisher effect is valid, then real interest rates in all countries should be equal.

Accepted Answer

A) True 
 B)False

Question 6

The following information is provided to you: $$\begin{array} { | l | l | } 
\hline \text { Spot exchange rate for Swiss franc } & = \$ 0.61 ( \mathrm { U } . ) / \mathrm { Sfr } \
\hline \text { One-year forward rate for Swiss frane } & = \$ 0.63 ( \mathrm { U } . ) / \mathrm { Sfr } \
\hline \text { One-year U.S. interest rate } & = 5 \% \
\hline
\end{array}$$ What is the one-year interest rate for Swiss franc?

Accepted Answer

A) 2.00% 
B) 1.67% 
C) 1.50% 
D) 1.33% 
A) 2.00% 
B) 1.67% 
C) 1.50% 
D) 1.33%

Question 7

What do you think are the advantages of holding futures rather than the underlying commodity? What do you think are the disadvantages?

Accepted Answer

One advantage of holding futures is the

Question 8

High inflation rates are usually associated with:

Accepted Answer

A) low nominal interest rates. 
B) high nominal interest rates. 
C) high real interest rates. 
D) low real interest rates. 
A) low nominal interest rates. 
B) high nominal interest rates. 
C) high real interest rates. 
D) low real interest rates.

Question 9

Suppose that the current spot rate for the euro is $1.6215/€ and that the six-month forward rate is $1.614/€.What is the cost to a Canadian company of hedging its future need for euros by buying them in the forward market? Assume the expectation theory of exchange rates.

Accepted Answer

According to the expectation theory of e

Question 10

The ratio of expected spot rate to current spot rate for $/£ is 1.02 and the inflation rate in the U.S.is 5%.What is the approximate inflation rate in the United Kingdom?

Accepted Answer

A) 1.3% 
B) 2.9% 
C) 4.1% 
D) 7.0% 
A) 1.3% 
B) 2.9% 
C) 4.1% 
D) 7.0%

Question 11

History has shown a positive relationship between higher interest rates and higher subsequent rates of inflation.

Accepted Answer

A) True 
 B)False

Question 12

What is the basic difference between hedgers and speculators?

Accepted Answer

The difference between hedging and specu

Question 13

By using forward contracts an importer can avoid transaction risk.

Accepted Answer

A) True 
 B)False

Question 14

The six-month forward quote for German Euro is E1.6/US$, and the spot price of German Euro is €1.7/US$.Which of the following statements is true?

Accepted Answer

A) Forward discount on German Euro is 6.25% 
B) Forward premium on German Euro is 6.25% 
C) Forward discount on US$ is 7.25% 
D) Forward premium on US$ is 6.25% 
A) Forward discount on German Euro is 6.25% 
B) Forward premium on German Euro is 6.25% 
C) Forward discount on US$ is 7.25% 
D) Forward premium on US$ is 6.25%

Question 15

How much wealthier would you be one year from now if you exchange $100,000 (U.S.) into Hong Kong Dollars today at an indirect rate of HK$7.8/$, earn 7% on your Hong Kong investment, and exchange back at a rate of HK$8.0/$, as compared to investing in the U.S.at 4.0%?

Accepted Answer

A) $(2,600) 
B) $325 
C) $2,000 
D) $5,744 
A) $(2,600) 
B) $325 
C) $2,000 
D) $5,744

Question 16

If the direct exchange rate between U.S.Dollars and pounds sterling is 1.50/1, how much should you be willing to pay to receive 350 pounds?

Accepted Answer

A) $175.00 
B) $233.33 
C) $367.50 
D) $525.00 
A) $175.00 
B) $233.33 
C) $367.50 
D) $525.00

Question 17

If interest rates are higher in Italy than in Canada, the market expects that the Euro will:

Accepted Answer

A) appreciate against the Canadian Dollar. 
B) depreciate against the Canadian Dollar. 
C) offer a higher real rate of return than the Canadian Dollar. 
D) be selling at a forward discount. 
A) appreciate against the Canadian Dollar. 
B) depreciate against the Canadian Dollar. 
C) offer a higher real rate of return than the Canadian Dollar. 
D) be selling at a forward discount.

Question 18

Assuming that the international Fisher effect is holding, what will be the effect of an increase in nominal interest rate on the currency?

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 19

You have the opportunity to invest in Canada at 6% or invest in an equally risky Australian investment that offers 20%.This is too good to be true! The current exchange rate is A$1.65/$.Which of the following do you suspect about this one-year investment?

Accepted Answer

A) Expected inflation is higher in Canada. 
B) The one-year forward exchange rate is A$1.8679/$. 
C) Real interest rates are higher in Canada. 
D) The Australian Dollar is selling forward at an 8.48% premium relative to the Canada. 
A) Expected inflation is higher in Canada. 
B) The one-year forward exchange rate is A$1.8679/$. 
C) Real interest rates are higher in Canada. 
D) The Australian Dollar is selling forward at an 8.48% premium relative to the Canada.

Question 20

What is the law of one price? When would you expect it to hold and when would you not expect it to hold?

Accepted Answer

The law of one price holds that prices o

Exam 24: International Financial Management

An indirect exchange rate can be converted to a direct exchange rate by:

Suppose that: U.K. (pound) If no other information is available, what will your guess about the spot rate in one year be?

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

Indirect quotes describe units of domestic currency bought by a unit of foreign unit.

If the International Fisher effect is valid, then real interest rates in all countries should be equal.

The following information is provided to you: Spot exchange rate for Swiss franc =\ 0.61(.)/ One-year forward rate for Swiss frane =\ 0.63(.)/ One-year U.S. interest rate =5\% What is the one-year interest rate for Swiss franc?

What do you think are the advantages of holding futures rather than the underlying commodity? What do you think are the disadvantages?

High inflation rates are usually associated with:

Suppose that the current spot rate for the euro is $1.6215/€ and that the six-month forward rate is $1.614/€.What is the cost to a Canadian company of hedging its future need for euros by buying them in the forward market? Assume the expectation theory of exchange rates.

The ratio of expected spot rate to current spot rate for $/£ is 1.02 and the inflation rate in the U.S.is 5%.What is the approximate inflation rate in the United Kingdom?

History has shown a positive relationship between higher interest rates and higher subsequent rates of inflation.

What is the basic difference between hedgers and speculators?

By using forward contracts an importer can avoid transaction risk.

The six-month forward quote for German Euro is E1.6/US$, and the spot price of German Euro is €1.7/US$.Which of the following statements is true?

How much wealthier would you be one year from now if you exchange $100,000 (U.S.) into Hong Kong Dollars today at an indirect rate of HK$7.8/$, earn 7% on your Hong Kong investment, and exchange back at a rate of HK$8.0/$, as compared to investing in the U.S.at 4.0%?

If the direct exchange rate between U.S.Dollars and pounds sterling is 1.50/1, how much should you be willing to pay to receive 350 pounds?

If interest rates are higher in Italy than in Canada, the market expects that the Euro will:

Assuming that the international Fisher effect is holding, what will be the effect of an increase in nominal interest rate on the currency?

You have the opportunity to invest in Canada at 6% or invest in an equally risky Australian investment that offers 20%.This is too good to be true! The current exchange rate is A$1.65/$.Which of the following do you suspect about this one-year investment?

What is the law of one price? When would you expect it to hold and when would you not expect it to hold?

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