Question 1

Forward rates are all of the following EXCEPT

Accepted Answer

A)  quoted in both direct and indirect form. 
B)  quoted at a premium or discount. 
C)  beneficial to risk-reduction. 
D)  equal to future spot rates. 
A)  quoted in both direct and indirect form. 
B)  quoted at a premium or discount. 
C)  beneficial to risk-reduction. 
D)  equal to future spot rates.

Question 2

The forward exchange rate quoted today should be equal to the spot rate in the future.

Accepted Answer

A) True 
 B)False

Question 3

A wide bid/ask spread could indicate which of the following?

Accepted Answer

A)  the presence of arbitrageurs 
B)  large volume transactions are taking place 
C)  frequent trading of a currency 
D)  an inefficient market 
A)  the presence of arbitrageurs 
B)  large volume transactions are taking place 
C)  frequent trading of a currency 
D)  an inefficient market

Question 4

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

Accepted Answer

A)  the forward rate theory. 
B)  the interest rate parity theory. 
C)  the exchange rate theory. 
D)  the covered interest arbitrage theory. 
A)  the forward rate theory. 
B)  the interest rate parity theory. 
C)  the exchange rate theory. 
D)  the covered interest arbitrage theory.

Question 5

Why do currency exchange rates throughout the world trade within a very narrow range on any given day?

Accepted Answer

A)  because of purchasing power parity 
B)  because of the international translation effect 
C)  because of arbitrage 
D)  because of the law of one price 
A)  because of purchasing power parity 
B)  because of the international translation effect 
C)  because of arbitrage 
D)  because of the law of one price

Question 6

Forward rates,like spot rates,are quoted in both direct and indirect form.

Accepted Answer

A) True 
 B)False

Question 7

WSM Wine Importers,Inc.purchased 75,000 cases of French wine at a cost of 6,000,000 euros.If the current exchange rate is 0.7576 euros to the U.S.dollar,what is the purchase price of the wine in U.S.dollars?

Accepted Answer

A)  $9,684,148 
B)  $9,328,651 
C)  $8,350,012 
D)  $ 7,919,747 
A)  $9,684,148 
B)  $9,328,651 
C)  $8,350,012 
D)  $ 7,919,747

Question 8

The efficiency of foreign currency markets is assured,in large measure,by the process of arbitrageurs.

Accepted Answer

A) True 
 B)False

Question 9

Interest rate parity theory states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.

Accepted Answer

A) True 
 B)False

Question 10

In an international trade contract involving one buyer and one seller,both parties may be exposed to exchange rate risk if the contract is denominated in a third currency.

Accepted Answer

A) True 
 B)False

Question 11

Strategies to counter exchange rate risk include all of the following EXCEPT

Accepted Answer

A)  futures contracts. 
B)  spot-market hedges. 
C)  forward-market hedges. 
D)  money-market hedges. 
A)  futures contracts. 
B)  spot-market hedges. 
C)  forward-market hedges. 
D)  money-market hedges.

Question 12

Who is an arbitrageur? How does an arbitrageur make money?

Accepted Answer

The foreign exchange quotes in two diffe

Question 13

A U.S.corporation investing in a foreign corporation by purchasing stock on a foreign stock exchange is an example of direct foreign investment.

Accepted Answer

A) True 
 B)False

Question 14

Exchange rate risk

Accepted Answer

A)  exists when the contract is written in terms of the foreign currency. 
B)  exists also in direct foreign investments and foreign portfolio investments. 
C)  does not exist if the international trade contract is written in terms of the domestic currency. 
D)  all of the above 
A)  exists when the contract is written in terms of the foreign currency. 
B)  exists also in direct foreign investments and foreign portfolio investments. 
C)  does not exist if the international trade contract is written in terms of the domestic currency. 
D)  all of the above

Question 15

Which of the following is a reason for international investment?

Accepted Answer

A)  to reduce portfolio risk 
B)  to increase P/E ratio 
C)  to gain an advantage in a foreign country 
D)  to gain access to foreign currency 
A)  to reduce portfolio risk 
B)  to increase P/E ratio 
C)  to gain an advantage in a foreign country 
D)  to gain access to foreign currency

Question 16

Problems of multinationals include

Accepted Answer

A)  cash management and positioning of funds. 
B)  managing receivables. 
C)  global control. 
D)  all of the above. 
A)  cash management and positioning of funds. 
B)  managing receivables. 
C)  global control. 
D)  all of the above.

Question 17

Suppose the current spot rate in New York is .0119 dollars per yen.Inflation for the coming year in the United States is expected to be 3%,while inflation for the coming year is Japan is expected to be only 1%.Using the purchasing power parity theory,what is the expected spot rate at the end of the year should be

Accepted Answer

A)  .0110147 dollars per yen. 
B)  .0108159 dollars per yen. 
C)  .0138373 dollars per yen. 
D)  .0121356 dollars per yen. 
A)  .0110147 dollars per yen. 
B)  .0108159 dollars per yen. 
C)  .0138373 dollars per yen. 
D)  .0121356 dollars per yen.

Question 18

If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms,which of the below is the correct term for the exchange rate that you will use?

Accepted Answer

A)  indirect rate 
B)  spot rate 
C)  direct rate 
D)  forward rate 
A)  indirect rate 
B)  spot rate 
C)  direct rate 
D)  forward rate

Question 19

If a U.S.company enters into a purchase agreement with a European company and the contract is denominated in euros,then direct exchange rate risk exists for both companies.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following parity conditions is (are)correct?

Accepted Answer

A)  The interest-rate parity theory states that the forward premium/discount should be equal and opposite in size to the national interest rate differential. 
B)  The purchasing-power parity theory states that in the long run exchange rate changes tend to reflect international differences in inflation rates. 
C)  The international Fisher effect states that national interest rate differentials are the result of inflation differentials. 
D)  All of the above are correct. 
A)  The interest-rate parity theory states that the forward premium/discount should be equal and opposite in size to the national interest rate differential. 
B)  The purchasing-power parity theory states that in the long run exchange rate changes tend to reflect international differences in inflation rates. 
C)  The international Fisher effect states that national interest rate differentials are the result of inflation differentials. 
D)  All of the above are correct.

Forward rates are all of the following EXCEPT

The forward exchange rate quoted today should be equal to the spot rate in the future.

A wide bid/ask spread could indicate which of the following?

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

Why do currency exchange rates throughout the world trade within a very narrow range on any given day?

Forward rates,like spot rates,are quoted in both direct and indirect form.

WSM Wine Importers,Inc.purchased 75,000 cases of French wine at a cost of 6,000,000 euros.If the current exchange rate is 0.7576 euros to the U.S.dollar,what is the purchase price of the wine in U.S.dollars?

The efficiency of foreign currency markets is assured,in large measure,by the process of arbitrageurs.

Interest rate parity theory states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.

In an international trade contract involving one buyer and one seller,both parties may be exposed to exchange rate risk if the contract is denominated in a third currency.

Strategies to counter exchange rate risk include all of the following EXCEPT

Who is an arbitrageur? How does an arbitrageur make money?

A U.S.corporation investing in a foreign corporation by purchasing stock on a foreign stock exchange is an example of direct foreign investment.

Exchange rate risk

Which of the following is a reason for international investment?

Problems of multinationals include

If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms,which of the below is the correct term for the exchange rate that you will use?

If a U.S.company enters into a purchase agreement with a European company and the contract is denominated in euros,then direct exchange rate risk exists for both companies.

Which of the following parity conditions is (are)correct?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Cash,receivables,and Inventory Management

Filters

Exam 16: International Business Finance

Forward rates are all of the following EXCEPT

The forward exchange rate quoted today should be equal to the spot rate in the future.

A wide bid/ask spread could indicate which of the following?

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

Why do currency exchange rates throughout the world trade within a very narrow range on any given day?

Forward rates,like spot rates,are quoted in both direct and indirect form.

WSM Wine Importers,Inc.purchased 75,000 cases of French wine at a cost of 6,000,000 euros.If the current exchange rate is 0.7576 euros to the U.S.dollar,what is the purchase price of the wine in U.S.dollars?

The efficiency of foreign currency markets is assured,in large measure,by the process of arbitrageurs.

Interest rate parity theory states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.

In an international trade contract involving one buyer and one seller,both parties may be exposed to exchange rate risk if the contract is denominated in a third currency.

Strategies to counter exchange rate risk include all of the following EXCEPT

Who is an arbitrageur? How does an arbitrageur make money?

A U.S.corporation investing in a foreign corporation by purchasing stock on a foreign stock exchange is an example of direct foreign investment.

Exchange rate risk

Which of the following is a reason for international investment?

Problems of multinationals include

If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms,which of the below is the correct term for the exchange rate that you will use?

If a U.S.company enters into a purchase agreement with a European company and the contract is denominated in euros,then direct exchange rate risk exists for both companies.

Which of the following parity conditions is (are)correct?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Cash,receivables,and Inventory Management

Filters