Exam 21: International Cash Management

Assume that in recent months,most currencies of industrialized countries depreciated substantially against the dollar.  Assume that their interest rates were similar to the U.S.interest rate.  If nonU.S.firms invested in U.S.Treasury securities during this period,their effective yield would have been:

A subsidiary will normally have a more difficult time forecasting future outflow payments if its purchases are international rather than domestic.

In what is known as dynamic hedging,banks periodically hedge those currencies expected to move unfavorably and remove currencies that are expected to move favorably.

Bullock Corporation invests 1,500,000 South African rand at a nominal interest rate of 10%.At the time the investment is made,the spot rate of the rand is $.205.If the spot rate of the rand at maturity of the investment is $.203,what is the effective yield of investing in rand

Assume that a U.S.firm considers investing in British oneyear Treasury securities.  The interest rate on these securities is 12%,while the interest rate on the same securities in the U.S.is 10%.  The firm believes that today's spot rate is an appropriate forecast for the spot rate of the pound in one year.  Based on this information,the effective yield on British securities from the U.S.firm's perspective is:

Which of the following is true

Assume Costner Corporation,a U.S.-based MNC,invests 2,500,000 Zambian kwacha (ZMK)for a one-year period at a nominal interest rate of 9%.At the time the loan is extended,the spot rate of the kwacha is $.00060.If the spot rate of the kwacha in one year is $.00056,the dollar amount initially invested in Zambia is $__________,and $___________ are paid out after one year.

Generally,if interest rate parity holds and the forward rate is an unbiased predictor of the future spot rate,then the international Fisher effect will also hold.

Preauthorized payment is an arrangement that allows a corporation to charge a customer's bank account up to some limit.

What is the probability that the yield of the two-currency portfolio is less than the domestic yield

Assume that you forecast the value of the euro as follows for the next year: If the interest rate on the euro is 12%,the expected effective yield from a euro-denominated deposit is:

According to _______,the effective yield earned by U.S.investors will be the same as the effective yield earned by nonU.S.investors in any given period.

MNCs often use ____________ to invest excess cash while retaining liquidity.

What is the standard deviation of the portfolio contemplated by Moore Corporation

Centralized cash management is more complicated when the MNC uses multiple currencies.

Assume that interest rate parity holds.The U.S.one-year interest rate is 10% and the Australian one-year interest rate is 8%.What will the approximate effective yield be for an Australian citizen of a one-year deposit denominated in U.S.dollars Assume the deposit is covered by a forward sale of dollars.

If the international Fisher effect (IFE)exists,then a U.S.firm that has access to banks offering high interest rates in deposits denominated in foreign currencies should:

Netting can achieve all but one of the following:

To _________________,MNCs can use preauthorized payments.

In a bilateral netting system,transactions between the parent and a subsidiary or between two subsidiaries are consolidated over a specific period of time.