Question 1

A ________ strategy replicates the forward contract by borrowing in one currency,converting to the other currency,and investing in the new currency.

Accepted Answer

A)  cash-and-carry 
B)  futures 
C)  forward 
D)  foreign investment 
E)  covered interest 
A)  cash-and-carry 
B)  futures 
C)  forward 
D)  foreign investment 
E)  covered interest

Question 2

A Canadian firm acquires a British firm that will generate cash flows of 10,000 pounds next year and these cash flows will grow at 6% a year.If the British WACC is 9% and the spot exchange rate is 1.9 CAD/GBP,what is the present value (PV)of the cash flows from this acquisition to domestic shareholders?

Accepted Answer

A)  $633,333 
B)  $654,876 
C)  $691,543 
D)  $716,289 
E)  $677,914 
A)  $633,333 
B)  $654,876 
C)  $691,543 
D)  $716,289 
E)  $677,914

Question 3

Use the table for the question(s) below.
  
-You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 30% and a WACC of 7.4%,what is the NPV of the investment.?

Accepted Answer

A)  $6.9 million CAD 
B)  $10.5 million CAD 
C)  $1.4 million CAD 
D)  $16 million CAD 
E)  -$1.4 million CAD 
A)  $6.9 million CAD 
B)  $10.5 million CAD 
C)  $1.4 million CAD 
D)  $16 million CAD 
E)  -$1.4 million CAD

Question 4

The importer-exporter dilemma is caused by

Accepted Answer

A)  changing interest rates. 
B)  increases in inflation. 
C)  fluctuating exchange rates. 
D)  deflation. 
E)  regulatory differences. 
A)  changing interest rates. 
B)  increases in inflation. 
C)  fluctuating exchange rates. 
D)  deflation. 
E)  regulatory differences.

Question 5

If a foreign project is owned by a domestic corporation,managers and shareholders need to determine the home currency value of the foreign currency cash flows.

Accepted Answer

A) True 
 B)False

Question 6

If a firm hedges a future purchase of euros by purchasing a call option,the firm ________ the potential cost but will benefit if the euro ________.

Accepted Answer

A)  fixes, depreciates 
B)  fixes, appreciates 
C)  caps, depreciates 
D)  caps, appreciates 
E)  eliminates, depreciates 
A)  fixes, depreciates 
B)  fixes, appreciates 
C)  caps, depreciates 
D)  caps, appreciates 
E)  eliminates, depreciates

Question 7

A Canadian firm is planning to make an investment in the UK.The firm estimates that the project will generate a single cash flow of 1 million GBP after one year.If the one year forward exchange rate is 2.12 CAD/GBP,and the Canadian cost of capital is 5.4%,what is the PV of the project cash flow?

Accepted Answer

A)  $2.12 million 
B)  $2.01 million 
C)  $447,531 
D)  $497,170 
E)  $948,767 
A)  $2.12 million 
B)  $2.01 million 
C)  $447,531 
D)  $497,170 
E)  $948,767

Question 8

The one-year forward exchange rate is 45 INR/USD.If the one-year interest rate in the United States is 5% and in India is 8%,what is the spot exchange rate so as to preclude arbitrage?

Accepted Answer

A)  43.23 
B)  43.75 
C)  43.99 
D)  44.32 
E)  44.51 
A)  43.23 
B)  43.75 
C)  43.99 
D)  44.32 
E)  44.51

Question 9

The ________ market is where currencies are traded twenty-four hours a day and with a large turnover.

Accepted Answer

A)  foreign exchange 
B)  bond 
C)  stock 
D)  interbank 
E)  derivatives 
A)  foreign exchange 
B)  bond 
C)  stock 
D)  interbank 
E)  derivatives

Question 10

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):
  
-The amount of the taxes paid in dollars for the Irish operations is closest to:

Accepted Answer

A)  $20.5 million 
B)  $5.1 million 
C)  $29.5 million 
D)  $50.0 million 
E)  $23.0 million 
A)  $20.5 million 
B)  $5.1 million 
C)  $29.5 million 
D)  $50.0 million 
E)  $23.0 million

Question 11

Use the table for the question(s) below.
  
-You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 35% and a WACC of 6.9%,what is the NPV of the investment.?

Accepted Answer

A)  $16 million CAD 
B)  $10.5 million CAD 
C)  $1.1 million CAD 
D)  $7.5 million CAD 
E)  -$1.1 million CAD 
A)  $16 million CAD 
B)  $10.5 million CAD 
C)  $1.1 million CAD 
D)  $7.5 million CAD 
E)  -$1.1 million CAD

Question 12

A(n)________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

Accepted Answer

A)  financial 
B)  limit order 
C)  internationally integrated capital 
D)  over-the-counter 
A)  financial 
B)  limit order 
C)  internationally integrated capital 
D)  over-the-counter

Question 13

Hedging with currency options involves a commitment by a firm to buy currency at a fixed rate.

Accepted Answer

A) True 
 B)False

Question 14

One British pound can be purchased for $1.65.What is the exchange rate in terms of pounds per dollar?

Accepted Answer

A)  0.551 
B)  0.606 
C)  0.626 
D)  0.645 
E)  0.652 
A)  0.551 
B)  0.606 
C)  0.626 
D)  0.645 
E)  0.652

Question 15

You have just landed in Paris with $750 in your wallet.At the foreign exchange booth,you see that euros are being quoted at 1.34 CAD/EUR .How many euros can you exchange for your $750?

Accepted Answer

A)  1,005 euros 
B)  559.70 euros 
C)  750.00 euros 
D)  179.56 euros 
E)  641.64 euros 
A)  1,005 euros 
B)  559.70 euros 
C)  750.00 euros 
D)  179.56 euros 
E)  641.64 euros

Question 16

The spot exchange rate for Indian rupees is 42 INR/CAD.The one-year forward exchange rate is 43 INR/CAD and the one-year Canadian interest rate is 4%.What is the implied one-year interest rate in India?

Accepted Answer

A)  5.56% 
B)  6.48% 
C)  7.25% 
D)  8.91% 
E)  9.04% 
A)  5.56% 
B)  6.48% 
C)  7.25% 
D)  8.91% 
E)  9.04%

Question 17

The spot exchange rate for Indian rupees is 41 INR/CAD.The one-year forward exchange rate is 42 INR/CAD and the one-year Canadian interest rate is 4%.What is the implied one-year interest rate in India?

Accepted Answer

A)  6.54% 
B)  6.24% 
C)  6.77% 
D)  6.29% 
E)  6.41% 
A)  6.54% 
B)  6.24% 
C)  6.77% 
D)  6.29% 
E)  6.41%

Question 18

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 one-year forward rate F₁ is closest to:

Accepted Answer

A)  1.8568 CAD/GBP 
B)  1.8764 CAD/GBP 
C)  1.9161 CAD/GBP 
D)  1.8961 CAD/GBP 
E)  1.8842 CAD/GBP 
A)  1.8568 CAD/GBP 
B)  1.8764 CAD/GBP 
C)  1.9161 CAD/GBP 
D)  1.8961 CAD/GBP 
E)  1.8842 CAD/GBP

Question 19

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

Accepted Answer

A)  the appropriate cost of capital from the standpoint of a Canadian investor. 
B)  the risk-free rate for a foreign investor. 
C)  the risk-free rate for a Canadian investor. 
D)  the appropriate cost of capital from the standpoint of a foreign investor. 
E)  the forward exchange rate. 
A)  the appropriate cost of capital from the standpoint of a Canadian investor. 
B)  the risk-free rate for a foreign investor. 
C)  the risk-free rate for a Canadian investor. 
D)  the appropriate cost of capital from the standpoint of a foreign investor. 
E)  the forward exchange rate.

Question 20

A ________ exchange rate is the rate that a firm can tie in for a future transaction date.

Accepted Answer

A)  fixed 
B)  forward 
C)  floating 
D)  spot 
E)  pegged 
A)  fixed 
B)  forward 
C)  floating 
D)  spot 
E)  pegged

Exam 22: International Corporate Finance

A ________ strategy replicates the forward contract by borrowing in one currency,converting to the other currency,and investing in the new currency.

Use the table for the question(s) below. -You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 30% and a WACC of 7.4%,what is the NPV of the investment.?

The importer-exporter dilemma is caused by

If a foreign project is owned by a domestic corporation,managers and shareholders need to determine the home currency value of the foreign currency cash flows.

If a firm hedges a future purchase of euros by purchasing a call option,the firm ________ the potential cost but will benefit if the euro ________.

A Canadian firm is planning to make an investment in the UK.The firm estimates that the project will generate a single cash flow of 1 million GBP after one year.If the one year forward exchange rate is 2.12 CAD/GBP,and the Canadian cost of capital is 5.4%,what is the PV of the project cash flow?

The one-year forward exchange rate is 45 INR/USD.If the one-year interest rate in the United States is 5% and in India is 8%,what is the spot exchange rate so as to preclude arbitrage?

The ________ market is where currencies are traded twenty-four hours a day and with a large turnover.

Use the table for the question(s) below. -You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 35% and a WACC of 6.9%,what is the NPV of the investment.?

A(n)________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

Hedging with currency options involves a commitment by a firm to buy currency at a fixed rate.

One British pound can be purchased for $1.65.What is the exchange rate in terms of pounds per dollar?

You have just landed in Paris with $750 in your wallet.At the foreign exchange booth,you see that euros are being quoted at 1.34 CAD/EUR .How many euros can you exchange for your $750?

The spot exchange rate for Indian rupees is 42 INR/CAD.The one-year forward exchange rate is 43 INR/CAD and the one-year Canadian interest rate is 4%.What is the implied one-year interest rate in India?

The spot exchange rate for Indian rupees is 41 INR/CAD.The one-year forward exchange rate is 42 INR/CAD and the one-year Canadian interest rate is 4%.What is the implied one-year interest rate in India?

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

A ________ exchange rate is the rate that a firm can tie in for a future transaction date.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

If a firm hedges a future purchase of euros by purchasing a call option,the firm the potential cost but will benefit if the euro .