Question 1

An American Depositary Receipt is defined as a security:

Accepted Answer

A) that has been deposited in an interest-bearing account at a U.S.bank. 
B) issued outside the U.S.that represents shares of a U.S.stock. 
C) issued in the U.S.that represents shares of a foreign stock. 
D) that has a guarantee of payment from a U.S.bank. 
E) issued in multiple countries but denominated in U.S.currency. 
A) that has been deposited in an interest-bearing account at a U.S.bank. 
B) issued outside the U.S.that represents shares of a U.S.stock. 
C) issued in the U.S.that represents shares of a foreign stock. 
D) that has a guarantee of payment from a U.S.bank. 
E) issued in multiple countries but denominated in U.S.currency.

Question 2

Rembrandt, Samurai, Yankee, and Bulldog are all names associated with which one of the following?

Accepted Answer

A) Eurobonds 
B) Currencies 
C) Cross-rate 
D) Foreign bonds 
E) Foreign interest rates 
A) Eurobonds 
B) Currencies 
C) Cross-rate 
D) Foreign bonds 
E) Foreign interest rates

Question 3

You just returned from a trip to Germany and have 277 euros in your pocket.How many dollars will you receive when you exchange this money if the U.S.dollar equivalent of the euro is 0.89?

Accepted Answer

A) $202.56 
B) $246.53 
C) $204.35 
D) $397.18 
E) $262.56 
A) $202.56 
B) $246.53 
C) $204.35 
D) $397.18 
E) $262.56

Question 4

Which one of these most likely represents the greatest political risk for a U.S.-based firm?

Accepted Answer

A) A product assembly plant located in a foreign country 
B) A foreign sales office 
C) Accounting office that handles all payroll functions and is located in a foreign country 
D) Natural ore mine in a foreign country 
E) Subassembly plant in a foreign country that uses U.S.-made components 
A) A product assembly plant located in a foreign country 
B) A foreign sales office 
C) Accounting office that handles all payroll functions and is located in a foreign country 
D) Natural ore mine in a foreign country 
E) Subassembly plant in a foreign country that uses U.S.-made components

Question 5

You have just agreed to a forward trade that will be settled six months from now.When is the exchange rate for this transaction determined?

Accepted Answer

A) Today 
B) Three months from today because that is the halfway point 
C) Anytime you prefer within the next six months 
D) Whenever the spot rate six months from today is known 
E) Six months from now 
A) Today 
B) Three months from today because that is the halfway point 
C) Anytime you prefer within the next six months 
D) Whenever the spot rate six months from today is known 
E) Six months from now

Question 6

Which one of the following is the best definition of Eurocurrency?

Accepted Answer

A) Any paper money used by a country that has adopted the euro as its common currency 
B) Money deposited in a financial institution outside the country whose currency is involved 
C) Both paper and coins officially adopted under the euro system of coinage 
D) U.S.dollars owned by any country that has adopted the euro as its currency 
E) Any exchange of funds between two countries that have adopted the euro as their official currency 
A) Any paper money used by a country that has adopted the euro as its common currency 
B) Money deposited in a financial institution outside the country whose currency is involved 
C) Both paper and coins officially adopted under the euro system of coinage 
D) U.S.dollars owned by any country that has adopted the euro as its currency 
E) Any exchange of funds between two countries that have adopted the euro as their official currency

Question 7

The U.S.dollar equivalent is .3897 for the Brazilian real and 1.5649 for the UK pound.Which one of the following statements is correct given this information?

Accepted Answer

A) One U.S.dollar will buy .3897 Brazilian reals. 
B) If you have .3897 Brazilian reals, they are worth 1.5649 UK pounds. 
C) One UK pound will buy 1.5649 U.S.dollars. 
D) One Brazilian real will buy 1.5649 UK pounds. 
E) One U.S.dollar will buy 1.5649 UK pounds. 
A) One U.S.dollar will buy .3897 Brazilian reals. 
B) If you have .3897 Brazilian reals, they are worth 1.5649 UK pounds. 
C) One UK pound will buy 1.5649 U.S.dollars. 
D) One Brazilian real will buy 1.5649 UK pounds. 
E) One U.S.dollar will buy 1.5649 UK pounds.

Question 8

Eurobonds are best defined as international bonds issued in _____ and denominated in ____.

Accepted Answer

A) a single country; multiple currencies 
B) a single country; a single currency 
C) multiple countries; multiple currencies 
D) multiple countries; a single currency 
E) Euroland; euros 
A) a single country; multiple currencies 
B) a single country; a single currency 
C) multiple countries; multiple currencies 
D) multiple countries; a single currency 
E) Euroland; euros

Question 9

Assume the current spot rate between the UK and the U.S.is £0.6391 per $1, the expected inflation rate in the U.S.is 1.9 percent, and the expected inflation rate in the UK is 2.1 percent.If relative purchasing power parity exists, what will the exchange rate be next year?

Accepted Answer

A) £.6389/$1 
B) £.6404/$1 
C) £.6823/$1 
D) £.6322/$1 
E) £.6336/$1 
A) £.6389/$1 
B) £.6404/$1 
C) £.6823/$1 
D) £.6322/$1 
E) £.6336/$1

Question 10

Assume the spot rate is SF.9652 = $1.A hotel room in a resort area of Switzerland costs SF375.Based on absolute purchasing power parity, what should an identical room in the U.S.cost?

Accepted Answer

A) $374.24 
B) $388.52 
C) $387.05 
D) $361.95 
E) $339.90 
A) $374.24 
B) $388.52 
C) $387.05 
D) $361.95 
E) $339.90

Question 11

Which of these states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Accepted Answer

A) Arbitrage equilibrium 
B) Relative purchasing power parity 
C) Absolute purchasing power parity 
D) Interest rate parity 
E) Cross-rate parity 
A) Arbitrage equilibrium 
B) Relative purchasing power parity 
C) Absolute purchasing power parity 
D) Interest rate parity 
E) Cross-rate parity

Question 12

Later this week, you are traveling from the U.S.to Canada for a week's vacation.This morning, you exchanged some U.S.dollars for Canadian dollars in preparation for that trip.Which one of the following best describes this exchange?

Accepted Answer

A) Forward trade 
B) Spot trade 
C) Arbitrage transaction 
D) Cross-rate exchange 
E) Eurocurrency transaction 
A) Forward trade 
B) Spot trade 
C) Arbitrage transaction 
D) Cross-rate exchange 
E) Eurocurrency transaction

Question 13

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 2.8 percent.The expected inflation rate in the UK is 2.4 percent.If relative purchasing power parity exists, what will the exchange rate be two years from now?

Accepted Answer

A) £.6349/$1 
B) £.6204/$1 
C) £.6351/$1 
D) £.6182/$1 
E) £.6253/$1 
A) £.6349/$1 
B) £.6204/$1 
C) £.6351/$1 
D) £.6182/$1 
E) £.6253/$1

Question 14

Suppose you could buy 1,115 South Korean won or 100 Pakistani rupees last year for $1.Today, $1 will buy you 1,113 won or 102 rupees.Which one of the following occurred over the past year?

Accepted Answer

A) The dollar appreciated against the won. 
B) The dollar depreciated against the rupee. 
C) The dollar appreciated against both the won and the rupee. 
D) The won depreciated against the dollar. 
E) The rupee depreciated against the dollar. 
A) The dollar appreciated against the won. 
B) The dollar depreciated against the rupee. 
C) The dollar appreciated against both the won and the rupee. 
D) The won depreciated against the dollar. 
E) The rupee depreciated against the dollar.

Question 15

Which one of the following is an example of long-run exposure to exchange rate risk? Ignore all fees and transaction costs.

Accepted Answer

A) A U.S.firm owns land in Mexico valued at three million pesos.That value has remained constant in Mexican pesos for the past year.However, the firm's financial statement reflects a 3 percent decrease in the value of that land for last year. 
B) A U.S.firm sells $250,000 worth of goods to Peru.However, when the payment for those goods arrives and the U.S.firm exchanges the foreign currency, it receives only $248,700. 
C) A U.S.firm purchases $120,000 worth of goods from Canada.However, by the time the goods arrive and the invoice is payable, the cost of those goods has increased to $120,400. 
D) A few years ago, a U.S.firm built a factory in Asia to take advantage of the lower labor costs.Today, the Asian labor costs have increased such that the Asian factory no longer provides a cost advantage over a U.S.factory. 
E) A U.S.traveler withdrew an extra $2,000 in cash from her savings account to take with her as emergency funds when she traveled to Mexico.Before leaving on her trip, she exchanged this money into Mexican pesos.She never used any of this money during her vacation, so exchanged all of it back into U.S.dollars on her return and received $1,960. 
A) A U.S.firm owns land in Mexico valued at three million pesos.That value has remained constant in Mexican pesos for the past year.However, the firm's financial statement reflects a 3 percent decrease in the value of that land for last year. 
B) A U.S.firm sells $250,000 worth of goods to Peru.However, when the payment for those goods arrives and the U.S.firm exchanges the foreign currency, it receives only $248,700. 
C) A U.S.firm purchases $120,000 worth of goods from Canada.However, by the time the goods arrive and the invoice is payable, the cost of those goods has increased to $120,400. 
D) A few years ago, a U.S.firm built a factory in Asia to take advantage of the lower labor costs.Today, the Asian labor costs have increased such that the Asian factory no longer provides a cost advantage over a U.S.factory. 
E) A U.S.traveler withdrew an extra $2,000 in cash from her savings account to take with her as emergency funds when she traveled to Mexico.Before leaving on her trip, she exchanged this money into Mexican pesos.She never used any of this money during her vacation, so exchanged all of it back into U.S.dollars on her return and received $1,960.

An American Depositary Receipt is defined as a security:

Rembrandt, Samurai, Yankee, and Bulldog are all names associated with which one of the following?

You just returned from a trip to Germany and have 277 euros in your pocket.How many dollars will you receive when you exchange this money if the U.S.dollar equivalent of the euro is 0.89?

Which one of these most likely represents the greatest political risk for a U.S.-based firm?

You have just agreed to a forward trade that will be settled six months from now.When is the exchange rate for this transaction determined?

Which one of the following is the best definition of Eurocurrency?

The U.S.dollar equivalent is .3897 for the Brazilian real and 1.5649 for the UK pound.Which one of the following statements is correct given this information?

Eurobonds are best defined as international bonds issued in _ and denominated in .

Assume the current spot rate between the UK and the U.S.is £0.6391 per $1, the expected inflation rate in the U.S.is 1.9 percent, and the expected inflation rate in the UK is 2.1 percent.If relative purchasing power parity exists, what will the exchange rate be next year?

Assume the spot rate is SF.9652 = $1.A hotel room in a resort area of Switzerland costs SF375.Based on absolute purchasing power parity, what should an identical room in the U.S.cost?

Which of these states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Later this week, you are traveling from the U.S.to Canada for a week's vacation.This morning, you exchanged some U.S.dollars for Canadian dollars in preparation for that trip.Which one of the following best describes this exchange?

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 2.8 percent.The expected inflation rate in the UK is 2.4 percent.If relative purchasing power parity exists, what will the exchange rate be two years from now?

Suppose you could buy 1,115 South Korean won or 100 Pakistani rupees last year for $1.Today, $1 will buy you 1,113 won or 102 rupees.Which one of the following occurred over the past year?

Which one of the following is an example of long-run exposure to exchange rate risk? Ignore all fees and transaction costs.

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

Filters

Exam 18: International Aspects of Financial Management

An American Depositary Receipt is defined as a security:

Rembrandt, Samurai, Yankee, and Bulldog are all names associated with which one of the following?

You just returned from a trip to Germany and have 277 euros in your pocket.How many dollars will you receive when you exchange this money if the U.S.dollar equivalent of the euro is 0.89?

Which one of these most likely represents the greatest political risk for a U.S.-based firm?

You have just agreed to a forward trade that will be settled six months from now.When is the exchange rate for this transaction determined?

Which one of the following is the best definition of Eurocurrency?

The U.S.dollar equivalent is .3897 for the Brazilian real and 1.5649 for the UK pound.Which one of the following statements is correct given this information?

Eurobonds are best defined as international bonds issued in _____ and denominated in ____.

Assume the current spot rate between the UK and the U.S.is £0.6391 per $1, the expected inflation rate in the U.S.is 1.9 percent, and the expected inflation rate in the UK is 2.1 percent.If relative purchasing power parity exists, what will the exchange rate be next year?

Assume the spot rate is SF.9652 = $1.A hotel room in a resort area of Switzerland costs SF375.Based on absolute purchasing power parity, what should an identical room in the U.S.cost?

Which of these states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Later this week, you are traveling from the U.S.to Canada for a week's vacation.This morning, you exchanged some U.S.dollars for Canadian dollars in preparation for that trip.Which one of the following best describes this exchange?

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 2.8 percent.The expected inflation rate in the UK is 2.4 percent.If relative purchasing power parity exists, what will the exchange rate be two years from now?

Suppose you could buy 1,115 South Korean won or 100 Pakistani rupees last year for $1.Today, $1 will buy you 1,113 won or 102 rupees.Which one of the following occurred over the past year?

Which one of the following is an example of long-run exposure to exchange rate risk? Ignore all fees and transaction costs.

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

Filters

Eurobonds are best defined as international bonds issued in _ and denominated in .