Exam 22: International Corporate Finance

The spot exchange rate for Indian rupees is 44 INR/CAD.The one-year forward exchange rate is 46 INR/CAD and the one-year Canadian interest rate is 5%.What is the implied one-year interest rate in India?

When would a firm be affected by exchange rate risk?

Canadian tax liabilities are ________ until the foreign subsidiary profits are repatriated to Canada.

Use the information for the question(s) below. You are a Canadian investor who is trying to calculate the present value (PV) of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = 1.8839 CAD/GBP and the forward rate is F₁ = 1.8862 CAD/GBP. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate GBP discount rate is 5.24%. -The present value (PV)of the £5 million cash inflow computed by first discounting the pounds and then converting into dollars is closest to:

A Canadian exporter will receive $1 million USD in September,and decides to buy a put option on the USD for September delivery.Suppose a put option on the USD with a September expiration and a strike price of 1.225 USD/CADtrades for 0.0225 CAD per put on 1 USD.If,by the September expiration date,the USD has depreciated to 1.275 USD/CAD,how much did the firm gain (in CAD)from hedging with the option,compared to remaining unhedged?

________ asserts that because a forward contract and a cash-and-carry strategy accomplish the same conversion,they must result in the same exchange rate.

Use the information for the question(s) below. KT Enterprises, a Canadian import-export trading company, is considering its international tax situation. Currently KT's Canadian tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -After the Irish taxes are paid,the amount of the earnings before interest and after taxes in dollars from the Ireland operations is closest to:

Firms that have a considerable amount of earnings abroad do not face any risk from changes in exchange rates.

What is the amount of Canadian taxes paid,in dollars,on KT's Irish operations?

A(n)________ capital market is one where all investors do not have access to all the financial securities in the various markets.

Consider the following equation: S × = The term S in this equation is

The spot exchange rate for the British pound is 0.65 GBP/CAD.The one-year interest rate in Canada is 5% and the one-year interest rate in Britain is 7%.Based on these rates,what one-year forward exchange rate is consistent with the absence of arbitrage?

IBM enters into a forward contract to purchase 200,000 euros at a rate of 1.90 USD/EUR one year from today.If the spot exchange rate is 2 USD/EUR one year later,what is the dollar amount that IBM must pay to receive the euros?

Even though a project may generate foreign currency cash flows,the firm cares about the home currency value of the project.

How can deferring repatriation of earnings benefit a firm?

A ________ exchange rate means that the rate changes constantly depending on the quantity supplied and demanded for the currency.

What is the importer-exporter dilemma?

Use the information for the question(s) below. The current spot exchange rate, S, is 1.8862 CAD/GBP. Suppose that the yield curve in both countries is flat. The risk-free rate on dollars, rCAD, is 5.35% and the risk-free interest rate on pounds, rGBP, is 4.80%. -Using the covered interest parity condition,the calculated three-year forward rate F₃ is closest to:

Your firm will be importing a large order of its inputs from the United States in six months and is concerned that the Canadian dollar might fall against the U.S.dollar over that time.To hedge your risk,you decide to enter into a currency forward contract to purchase 500,000 USD at a rate of 1.0232 CAD/USD.If the spot exchange rate in six months' time ends up being 0.9967 CAD/USD,what is your gain or loss from hedging compared to remaining unhedged?

Use the information for the question(s) below. KT Enterprises, a Canadian import-export trading company, is considering its international tax situation. Currently KT's Canadian tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -After the Japanese taxes are paid,the amount of the earnings before interest and after taxes in dollars from the Japanese operations is closest to: