Exam 21: International Cash Management

Assume that a U.S. firm considers investing in British one-year Treasury securities. The interest rate on these securities is 12 percent, while the U.S. interest rate on the same securities is 10 percent. 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:​

____ may complicate cash flow optimization.

According to the text:​

A ____ allows customers to send payments to a post office box.

When investing in a portfolio of foreign currencies, the currencies represented within the portfolio are ideally highly positively correlated.

In general, exchange rate fluctuations cause cash flows to be more volatile and uncertain.

Assume Scarlett 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 percent. 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.

When investing in a portfolio of foreign currencies, the currencies represented within the portfolio are ideally highly positively correlated if the goal is to reduce exchange rate risk.

The Swiss one-year interest rate is 7 percent, while the U.S. one-year interest rate is 2 percent. Assume that interest rate parity exists. If a U.S. firm invests in a Swiss one-year deposit and sells Swiss francs forward with a forward contract to hedge its exchange rate exposure, the effective yield from investing in a one-year deposit in Switzerland will be about:

The Mexican one-year interest rate is 9 percent, while the U.S. one-year interest rate is 3 percent. Assume that interest rate parity exists. If a U.S. firm uses the forward rate to forecast the exchange rate of the peso in one year, the expected effective yield from investing in a one-year deposit in Mexico is:​

Assume that there are several foreign currencies that exhibit a higher interest rate than the U.S. interest rate. The U.S. firm has a higher probability of generating a higher effective yield on a portfolio of currencies (relative to the domestic yield) if:​

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

The most useful measure of an MNC's liquidity is its:​

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

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

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

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. a.True b.False

Matis Corporation invests 1,500,000 South African rand at a nominal interest rate of 10 percent. 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?​

An MNC has determined that the degree of appreciation for the Singapore dollar that equates the foreign and domestic yield is 2 percent. If the Singapore dollar appreciates by less than 2 percent, the investment in Singapore will be more attractive.

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:​