Exam 22: International Financial Management

To protect itself against transaction exchange rate risk, a U.S. company that purchases automobiles from a Japanese manufacturer may use all of the following techniques except:

If the annual nominal interest rate on 5-year U.S. Government Treasury bonds is 7 percent and the annual nominal interest rate on 5-year Canadian bonds is 7.75%, what is the expected future spot rate in 5 years given that the current spot exchange rate between U.S. dollars and Canadian dollars is $0.739?

Firms engaged in international transactions incur ____ because of fluctuations in the exchange rates among currencies.

Vroom Vroom Motors purchased several Mercedes Benz automobiles from its West German broker. The contract was for 10,000,000 euros, due in 180 days. The present exchange rate is $0.51 per euro and the 180 day forward rate is $0.514. If the rate actually goes to $0.50 in 180 days, what is the dollar gain or loss incurred if no hedge is taken relative to a hedged position?

Name the factors that affect exchange rates.

The 6 month interest rate on 180 day U.S. Treasury Bills is 7.5 percent. In the foreign exchange markets, the spot rate between U.S. dollars and Australian dollars is 1 Australian dollar = $0.452 and the 180 day (6 month) forward rate is 1 mark = $0.46. Determine the expected rate of interest on 6 month Australian government debt securities, assuming that the interest rate parity between the U.S. dollar and Australian dollar exists.

A U.S. company that purchases goods on credit from a German supplier can protect itself against transaction exchange risk by

Primary sources of demand for British pounds in the foreign exchange market include

According to Fisher, in the absence of government interference and holding risk constant, real rates of return across countries will be equalized through a process of _______________.

The international Fisher effect theory states that differences in interest rates between two countries will be offset by equal but opposite changes in ________________

Basic hedging techniques include all of the following except

The theory that the annual percentage differential in the forward market for a currency quoted in terms of another currency is equal to the approximate difference in interest rates in the two countries is known as

Government trade policies that restrict imports into a country tend to ____ the supply of the country's currency in the foreign exchange market and tend to ____ the value of the country's currency with respect to other currencies.

A parent company's foreign investment risk exposure depends on the foreign subsidiary's net ____ position.

How does a firm manage economic exposure due to changes in exchange rates?

In general, when a foreign subsidiary's assets are ____ than its liabilities, ____ will occur when the exchange rate on the currency of the country in which the foreign subsidiary operates loses value.

A euro is a

What is the nominal interest rate in Canada if the real rate of return is 2.5% and the expected inflation rate was 4.5%

Firms transacting business with foreign companies can lower exchange rate risk exposure by

Today, short-term interest rates in Australia are 8.50% and the corresponding U.S. rate is 6.0%. The current discount on forward Australian dollars is 2.0%. Can a U.S. trader use covered interest arbitrage to take advantage of this situation? If so what is the net effect?