Question 1

Investments in capital markets in foreign countries are motivated by the desire to earn higher returns and reduce risk through international diversification.

Accepted Answer

A) True 
 B)False

Question 2

Spot exchange markets provide the potential for arbitrage opportunities.

Accepted Answer

A) True 
 B)False

Question 3

If you are an importer of goods and you need to make payment for the purchase of inventory before the close of business today,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 4

Forward contracts benefit only the customer due to a reduction in uncertainty.

Accepted Answer

A) True 
 B)False

Question 5

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.Therefore,pounds in the forward market are selling at a ________ to the current spot rate.

Accepted Answer

A)  .958 discount 
B)  .958 premium 
C)  .04 discount 
D)  .04 premium 
A)  .958 discount 
B)  .958 premium 
C)  .04 discount 
D)  .04 premium

Question 6

Money-market hedges and forward-market hedges rely on the

Accepted Answer

A)  interest rate parity theory. 
B)  purchasing power parity theory. 
C)  law of large numbers. 
D)  capital asset pricing model. 
A)  interest rate parity theory. 
B)  purchasing power parity theory. 
C)  law of large numbers. 
D)  capital asset pricing model.

Question 7

A bottle of German wine costs €21 (euros)in Berlin.According to the purchasing power parity theory,what would the bottle sell for in New York if it costs the New York company $1.25 per bottle to transport the wine to the United States? Assume the exchange rate is $1.32 per euro.

Accepted Answer

A)  $40.54 
B)  $28.97 
C)  $27.22 
D)  $39.50 
A)  $40.54 
B)  $28.97 
C)  $27.22 
D)  $39.50

Question 8

A corporate investment manager needs to invest $1,000,000 for the next 6 months.The current nominal rate of interest in the United States is 5%,while the nominal rate of interest in Argentina is 8%.Which of the following statements is MOST correct?

Accepted Answer

A)  The manager should invest the funds in Argentina and make an extra $30,000 for the year. 
B)  The manager may decide to invest the funds in the United States due to the international Fisher effect, which suggests inflation in Argentina may make the extra interest income worth less in one year. 
C)  The manager is indifferent between investing the funds in the United States or Argentina because real returns will always be the same in the end. 
D)  The manager cannot invest in Argentina because his company is investing dollars. 
A)  The manager should invest the funds in Argentina and make an extra $30,000 for the year. 
B)  The manager may decide to invest the funds in the United States due to the international Fisher effect, which suggests inflation in Argentina may make the extra interest income worth less in one year. 
C)  The manager is indifferent between investing the funds in the United States or Argentina because real returns will always be the same in the end. 
D)  The manager cannot invest in Argentina because his company is investing dollars.

Question 9

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.The percent-per-year discount on the 30-day pound is

Accepted Answer

A)  32.77%. 
B)  30.57%. 
C)  48.00%. 
D)  45.93%. 
A)  32.77%. 
B)  30.57%. 
C)  48.00%. 
D)  45.93%.

Question 10

What is direct foreign investment? What are the additional risks that a multinational corporation must consider before undertaking direct investment in a foreign country?

Accepted Answer

Direct foreign investment is the purchas

Question 11

A U.S.-based multinational corporation has 100% owned subsidiary in Argentina.The subsidiary operates only domestically,that is,all transactions occur within Argentina.Therefore,the U.S.multinational corporation

Accepted Answer

A)  is exposed to translation risk only. 
B)  is not exposed to exchange rate risk because the subsidiary operates 100% domestically. 
C)  is exposed to both translation exposure and economic exposure. 
D)  is most concerned with transactions exposure. 
A)  is exposed to translation risk only. 
B)  is not exposed to exchange rate risk because the subsidiary operates 100% domestically. 
C)  is exposed to both translation exposure and economic exposure. 
D)  is most concerned with transactions exposure.

Question 12

Exchange rate changes tend to reflect international differences in inflation rates.What is the name of this theory?

Accepted Answer

A)  the purchasing power parity theory 
B)  the IMF effect 
C)  interest rate parity theory 
D)  the law of one price 
A)  the purchasing power parity theory 
B)  the IMF effect 
C)  interest rate parity theory 
D)  the law of one price

Question 13

Suppose the 360-day forward exchange rate is 1.657 dollars per British pound,and the current spot rate is 1.625 dollars per British pound.If the 360-day interest rate in the United States is 5% and the 360-day interest rate in Great Britain is 3%,is the market in equilibrium according to the interest rate parity theory?

Accepted Answer

A)  Yes, because the forward premium on the pound (2%) is exactly offset by the lower interest rate in Great Britain. 
B)  No, because the higher interest rate in the United States (2%) implies that the forward exchange rate should be 2% lower than the current spot rate. 
C)  No, because the forward premium on the pound is 2% while the interest rate in the United States is 67% higher than the interest rate in Great Britain. 
D)  Cannot be determined without knowing the amount of money being exchanged. 
A)  Yes, because the forward premium on the pound (2%) is exactly offset by the lower interest rate in Great Britain. 
B)  No, because the higher interest rate in the United States (2%) implies that the forward exchange rate should be 2% lower than the current spot rate. 
C)  No, because the forward premium on the pound is 2% while the interest rate in the United States is 67% higher than the interest rate in Great Britain. 
D)  Cannot be determined without knowing the amount of money being exchanged.

Question 14

Suppose a U.S.importer purchases an Italian product today but will not pay for it for 90 days.The cost of the product today is 85,000 euros.The spot exchange rate today is .7559 euros per dollar.How much is the cost today in dollars?

Accepted Answer

A)  $58,062 
B)  $56,153 
C)  $65,683 
D)  $64,252 
A)  $58,062 
B)  $56,153 
C)  $65,683 
D)  $64,252

Investments in capital markets in foreign countries are motivated by the desire to earn higher returns and reduce risk through international diversification.

Spot exchange markets provide the potential for arbitrage opportunities.

If you are an importer of goods and you need to make payment for the purchase of inventory before the close of business today,which of the below is the correct term for the exchange rate that you will use?

Forward contracts benefit only the customer due to a reduction in uncertainty.

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.Therefore,pounds in the forward market are selling at a ________ to the current spot rate.

Money-market hedges and forward-market hedges rely on the

A bottle of German wine costs €21 (euros)in Berlin.According to the purchasing power parity theory,what would the bottle sell for in New York if it costs the New York company $1.25 per bottle to transport the wine to the United States? Assume the exchange rate is $1.32 per euro.

A corporate investment manager needs to invest $1,000,000 for the next 6 months.The current nominal rate of interest in the United States is 5%,while the nominal rate of interest in Argentina is 8%.Which of the following statements is MOST correct?

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.The percent-per-year discount on the 30-day pound is

What is direct foreign investment? What are the additional risks that a multinational corporation must consider before undertaking direct investment in a foreign country?

A U.S.-based multinational corporation has 100% owned subsidiary in Argentina.The subsidiary operates only domestically,that is,all transactions occur within Argentina.Therefore,the U.S.multinational corporation

Exchange rate changes tend to reflect international differences in inflation rates.What is the name of this theory?

Suppose a U.S.importer purchases an Italian product today but will not pay for it for 90 days.The cost of the product today is 85,000 euros.The spot exchange rate today is .7559 euros per dollar.How much is the cost today in dollars?

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

Investments in capital markets in foreign countries are motivated by the desire to earn higher returns and reduce risk through international diversification.

Spot exchange markets provide the potential for arbitrage opportunities.

If you are an importer of goods and you need to make payment for the purchase of inventory before the close of business today,which of the below is the correct term for the exchange rate that you will use?

Forward contracts benefit only the customer due to a reduction in uncertainty.

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.Therefore,pounds in the forward market are selling at a ________ to the current spot rate.

Money-market hedges and forward-market hedges rely on the

A bottle of German wine costs €21 (euros)in Berlin.According to the purchasing power parity theory,what would the bottle sell for in New York if it costs the New York company $1.25 per bottle to transport the wine to the United States? Assume the exchange rate is $1.32 per euro.

A corporate investment manager needs to invest $1,000,000 for the next 6 months.The current nominal rate of interest in the United States is 5%,while the nominal rate of interest in Argentina is 8%.Which of the following statements is MOST correct?

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.The percent-per-year discount on the 30-day pound is

What is direct foreign investment? What are the additional risks that a multinational corporation must consider before undertaking direct investment in a foreign country?

A U.S.-based multinational corporation has 100% owned subsidiary in Argentina.The subsidiary operates only domestically,that is,all transactions occur within Argentina.Therefore,the U.S.multinational corporation

Exchange rate changes tend to reflect international differences in inflation rates.What is the name of this theory?

Suppose a U.S.importer purchases an Italian product today but will not pay for it for 90 days.The cost of the product today is 85,000 euros.The spot exchange rate today is .7559 euros per dollar.How much is the cost today in dollars?

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