Question 1

________ is a term used to describe the transfer of profits from a foreign subsidiary to the home country.

Accepted Answer

A)  Repatriation 
B)  Depreciation 
C)  Privatization 
D)  Reversion 
E)  Nationalization 
A)  Repatriation 
B)  Depreciation 
C)  Privatization 
D)  Reversion 
E)  Nationalization

Question 2

The one-year forward exchange rate for the British pound is 1.80 CAD/GBP.If the one-year Canadian interest rate is 4.5% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

Accepted Answer

A)  1.75 
B)  1.79 
C)  1.83 
D)  1.88 
E)  1.92 
A)  1.75 
B)  1.79 
C)  1.83 
D)  1.88 
E)  1.92

Question 3

Use the information for the question(s) below.
You are a Canadian investor who is trying to calculate the present value (PV) of a 15 million British pound cash inflow that will occur one year from now. The spot exchange rate is 1.5742 CAD/GBP and the forward rate is F₁ = 1.5682 CAD/GBP. The appropriate dollar discount rate for this cash flow is 1.05% and the appropriate British pound discount rate is 1.45%.
-What is the present value of the pound cash inflow computed by first discounting the pounds and converting them into dollars?

Accepted Answer

A)  $23,275,505 
B)  $23,186,792 
C)  $23,367,640 
D)  $23,278,575 
E)  $23,176,344 
A)  $23,275,505 
B)  $23,186,792 
C)  $23,367,640 
D)  $23,278,575 
E)  $23,176,344

Question 4

A Canadian importer needs 1 million U.S.dollars in September,and decides to buy a call option on the USD for September delivery.Suppose a call option on the USD with a September expiration and a strike price of 1.25 USD/CAD trades for 0.0215 CAD per call on 1 USD.If,by the September expiration date,the USD has appreciated to 1.20 USD/CAD,how much did the firm gain (in CAD)from hedging with the option,compared to remaining unhedged?

Accepted Answer

A)  $11,833 
B)  $50,000 
C)  $28,500 
D)  $21,500 
E)  $33,333 
A)  $11,833 
B)  $50,000 
C)  $28,500 
D)  $21,500 
E)  $33,333

Question 5

A Canadian.firm acquires a British firm that will generate cash flows of 20,000 pounds next year and these cash flows will grow at 4% a year.If the British WACC is 9% and the spot exchange rate is 1.8 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)  $720,000 
E)  $704,300 
A)  $633,333 
B)  $654,876 
C)  $691,543 
D)  $720,000 
E)  $704,300

Question 6

Your firm will be importing a large order of its inputs from the United States in eight 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 1.5 million USD at a rate of 0.9957 CAD/USD.If the spot exchange rate in 8 months' time ends up being 0.9673 CAD/USD,what is your gain or loss from hedging compared to remaining unhedged?

Accepted Answer

A)  $0 
B)  $44,230 
C)  -$42,600 
D)  $42,600 
E)  -$44,230 
A)  $0 
B)  $44,230 
C)  -$42,600 
D)  $42,600 
E)  -$44,230

Question 7

A Canadian firm acquires a British firm that will generate cash flows of 30,000 pounds next year and these cash flows will grow at 3% a year.If the British WACC is 9% and the spot exchange rate is 1.7 CAD/GBP,what is the present value (PV)of the cash flows from this acquisition to domestic shareholders?

Accepted Answer

A)  $820,000 
B)  $850,000 
C)  $870,000 
D)  $890,000 
E)  $910,000 
A)  $820,000 
B)  $850,000 
C)  $870,000 
D)  $890,000 
E)  $910,000

Question 8

Why do firms prefer forward contracts rather than the cash-can-carry strategy?

Accepted Answer

The forward contract is simpler,requirin

________ is a term used to describe the transfer of profits from a foreign subsidiary to the home country.

The one-year forward exchange rate for the British pound is 1.80 CAD/GBP.If the one-year Canadian interest rate is 4.5% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

Why do firms prefer forward contracts rather than the cash-can-carry strategy?

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

Exam 22: International Corporate Finance

________ is a term used to describe the transfer of profits from a foreign subsidiary to the home country.

The one-year forward exchange rate for the British pound is 1.80 CAD/GBP.If the one-year Canadian interest rate is 4.5% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

Why do firms prefer forward contracts rather than the cash-can-carry strategy?

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