Exam 22: International Corporate Finance

The spot exchange rate for the Mexican peso is 0.093 CAD/MXN.If the one-year Canadian interest rate is 3.5% and the one-year Mexican interest rate is 9.0%,compute the implied one-year forward rate in CAD/MXN.

The one-year forward exchange rate is 50 INR/USD.If the one-year interest rate in the United States is 5% and in India it is 8%,what is the spot exchange rate so as to preclude arbitrage?

A firm wants to hedge a potential transaction but is also concerned about the possibility that it may not take place.In this case it is better to hedge potential risks using

One British pound can be purchased for $1.90.What is the exchange rate in terms of pounds per dollar?

The implied foreign interest rate computed using spot and forward exchange rates may be lower than the actual foreign interest rate if the foreign country has a high

Your firm needs to pay its British supplier 1,000,000 British pounds.If the exchange rate is 1.61 CAD/GBP,how many dollars will you need to pay the British supplier?

IBM enters into a forward contract to purchase 200,000 euros at a rate of 1.50 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?

A Canadian exporter will receive $1.5 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 1.275 USD/CADtrades for 0.0115CAD per put on 1 USD.If,by the September expiration date,the USD has appreciated to 1.250 USD/CAD,how much did the firm lose (in CAD)from hedging with the option,compared to remaining unhedged?

Your firm will be importing a large order of its inputs from the United States in three 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 750,000 USD at a rate of 1.0114 CAD/USD.If the spot exchange rate in 3 months' time ends up being 1.0346 CAD/USD,what is your gain or loss from hedging compared to remaining unhedged?

Which two currencies account for more than half of all the trading volume in the foreign exchange market?

At current exchange rates it takes 1.3955 Canadian dollars to buy one euro (EUR),and 0.3188 Canadian dollars to buy one Malaysian ringgit (MYR).What must the euro/ringgit exchange rate be in order to eliminate arbitrage opportunities?

All investors in the developed and developing world have access to the financial securities in all markets.

Why do purely domestic businesses,with no international operations and no imports or exports,still need to be aware of FX markets?

Luther Industries,a Canadian firm,is considering an investment in Japan.The dollar cost of equity for Luther is 12%.The risk-free interest rates on dollars and yen are rCAD = 5.5% and rJPY = 1.5%,respectively.Luther industries is willing to assume that capital markets are internationally integrated.Luther Industries needs to know the comparable cost of equity in Japanese yen for a project with free cash flows that are uncorrelated with spot exchange rates.The yen cost of equity for Luther Industries is closest to:

Suppose the WACC for a Canadian company is 8%,and the Canadian risk-free interest rate is 2.5%.If the Japanese risk-free interest rate is 0.5%,what is the company's Japanese WACC?

What are the three factors that drive the supply and demand for each currency?

What is a cash-and-carry strategy?

The spot exchange rate for the Mexican peso is 0.081 CAD/MXN.If the one-year Canadian interest rate is 4.5% and the one-year Mexican interest rate is 7.6%,compute the implied one-year forward rate in CAD/MXN.

A Canadian firm is planning to make an investment in Japan.The firm estimates that the project will generate a single cash flow of 10 million JPY after one year.If the one year forward exchange rate is 105 JPY/CAD,and the Canadian cost of capital is 7.5%,what is the PV of the project cash flow?

What is covered interest parity?