Question 1

According to interest rate parity,the interest rate differential must be equal to the differential between forward and spot exchange rates.

Accepted Answer

A) True 
 B)False  True

Question 2

What can be said about the spot exchange rate of Dollars for pounds if nominal interest rates are higher in Canada than in Great Britain?

Accepted Answer

A)  It should exceed the forward rate of Dollars for pounds 
B)  It should be less than the forward rate of Dollars for pounds 
C)  It is expected to increase 
D)  It is expected to remain constant 
A)  It should exceed the forward rate of Dollars for pounds 
B)  It should be less than the forward rate of Dollars for pounds 
C)  It is expected to increase 
D)  It is expected to remain constant B

Question 3

If the spot exchange rate between marks and Dollars is DM1.5/$ before the Dollar depreciates by 10%,how many Dollars will it now take a U.S.payer to remit an invoice of DM500?

Accepted Answer

A)  $366.67 
B)  $370.37 
C)  $750.00 
D)  $825.00 
A)  $366.67 
B)  $370.37 
C)  $750.00 
D)  $825.00 B

Question 4

You can value overseas investments using the NPV of the cash flows.Which of the following adjustment is necessary to calculate the NPV?

Accepted Answer

A)  Convert the opportunity cost of capital and cash flows into foreign currency. 
B)  Convert the foreign cash flows into domestic currency and use the domestic opportunity cost of capital for discounting. 
C)  Use domestic discount rate to discount foreign cash flows. 
D)  Convert the foreign cash flow into domestic currency and use the foreign cost of capital for discounting. 
A)  Convert the opportunity cost of capital and cash flows into foreign currency. 
B)  Convert the foreign cash flows into domestic currency and use the domestic opportunity cost of capital for discounting. 
C)  Use domestic discount rate to discount foreign cash flows. 
D)  Convert the foreign cash flow into domestic currency and use the foreign cost of capital for discounting.

Question 5

Explain the expectations theory of exchange rates.

Accepted Answer

This theory tells us that the

Question 6

If the exchange rate of German marks/U.S.Dollars is 2.04/1,then:

Accepted Answer

A)  it takes $2.04 to buy each mark. 
B)  the mark is worth more than one U.S. Dollar. 
C)  each mark is worth approximately 49 cents. 
D)  20 cents will purchase one mark. 
A)  it takes $2.04 to buy each mark. 
B)  the mark is worth more than one U.S. Dollar. 
C)  each mark is worth approximately 49 cents. 
D)  20 cents will purchase one mark.

Question 7

What do you expect to happen to prices in Japan,given nominal interest rates of 10% in Canada and 6% in Japan,and expected Canadian inflation of 6%?

Accepted Answer

A)  Expected Japanese inflation is 1.79% 
B)  Expected Japanese inflation is 2.15% 
C)  Expected Japanese inflation is 6.22% 
D)  Expected Japanese inflation is 10.00% 
A)  Expected Japanese inflation is 1.79% 
B)  Expected Japanese inflation is 2.15% 
C)  Expected Japanese inflation is 6.22% 
D)  Expected Japanese inflation is 10.00%

Question 8

Indirect quotes describe units of domestic currency bought by a unit of foreign unit.

Accepted Answer

A) True 
 B)False

Question 9

The law of one price implies that the same commodity should be sold at the same price in all countries.

Accepted Answer

A) True 
 B)False

Question 10

If the interest rate of one country increases,then the value of that country's currency increases in the forward market.

Accepted Answer

A) True 
 B)False

Question 11

Would you be willing to exchange Dollars for pounds at a rate of $2.40(Canadian)/£ to invest in London and earn a one-year rate of 10%,as opposed to investing in Canada for a 5% return? What things might you first consider before investing?

Accepted Answer

You may want to consider the forward rat

Question 12

If the Euro is trading at a forward discount relative to the Dollar,then you'll receive fewer marks per Dollar in the future.

Accepted Answer

A) True 
 B)False

Question 13

A foreign manufacturer must make a $2 million payment to its Canadian supplier in 60 days.Which of the following is correct?

Accepted Answer

A)  The firm hopes that the Canadian Dollar appreciates within the 60 days. 
B)  The firm's exchange rate risk is hedged. 
C)  The firm faces contractual exchange rate risk. 
D)  The current spot exchange rate is likely to be trading at a premium. 
A)  The firm hopes that the Canadian Dollar appreciates within the 60 days. 
B)  The firm's exchange rate risk is hedged. 
C)  The firm faces contractual exchange rate risk. 
D)  The current spot exchange rate is likely to be trading at a premium.

Question 14

Which of the following statements is correct?

Accepted Answer

A)  A currency with higher interest rate will sell at a forward discount. 
B)  A currency with higher interest rate will sell at a forward premium. 
C)  A currency with higher interest rate will have a higher spot rate. 
D)  A currency with higher interest rates will have a lower spot rate. 
A)  A currency with higher interest rate will sell at a forward discount. 
B)  A currency with higher interest rate will sell at a forward premium. 
C)  A currency with higher interest rate will have a higher spot rate. 
D)  A currency with higher interest rates will have a lower spot rate.

Question 15

If the International Fisher effect is valid,then real interest rates in all countries should be equal.

Accepted Answer

A) True 
 B)False

Question 16

By using forward contracts an importer can avoid transaction risk.

Accepted Answer

A) True 
 B)False

Question 17

The international Fisher effect predicts that differences in nominal interest rates between countries reflect differences in:

Accepted Answer

A)  real rates of interest. 
B)  purchasing power parity. 
C)  the standard of living. 
D)  expected inflation. 
A)  real rates of interest. 
B)  purchasing power parity. 
C)  the standard of living. 
D)  expected inflation.

Question 18

The six-month forward quote for German Euro is E1.6/US$,and the spot price of German Euro is €1.7/US$.Which of the following statements is true?

Accepted Answer

A)  Forward discount on German Euro is 6.25% 
B)  Forward premium on German Euro is 6.25% 
C)  Forward discount on US$ is 7.25% 
D)  Forward premium on US$ is 6.25% 
A)  Forward discount on German Euro is 6.25% 
B)  Forward premium on German Euro is 6.25% 
C)  Forward discount on US$ is 7.25% 
D)  Forward premium on US$ is 6.25%

Question 19

How much wealthier would you be one year from now if you exchange $100,000 (U.S.)into Hong Kong Dollars today at an indirect rate of HK$7.8/$,earn 7% on your Hong Kong investment,and exchange back at a rate of HK$8.0/$,as compared to investing in the U.S.at 4.0%?

Accepted Answer

A)  $(2,600) 
B)  $325 
C)  $2,000 
D)  $5,744 
A)  $(2,600) 
B)  $325 
C)  $2,000 
D)  $5,744

Question 20

Assume PPP holds at a time when the exchange rate is €1.09/$(Canadian)and a market basket of goods costs €500.How many Dollars would you expect to spend on the goods? Germany is expecting 10% inflation while Canada is expecting 4% inflation.What would you predict to happen to exchange rates?

Accepted Answer

Since purchasing power parity is said to

Exam 24: International Financial Management

According to interest rate parity,the interest rate differential must be equal to the differential between forward and spot exchange rates.

What can be said about the spot exchange rate of Dollars for pounds if nominal interest rates are higher in Canada than in Great Britain?

If the spot exchange rate between marks and Dollars is DM1.5/$ before the Dollar depreciates by 10%,how many Dollars will it now take a U.S.payer to remit an invoice of DM500?

You can value overseas investments using the NPV of the cash flows.Which of the following adjustment is necessary to calculate the NPV?

Explain the expectations theory of exchange rates.

If the exchange rate of German marks/U.S.Dollars is 2.04/1,then:

What do you expect to happen to prices in Japan,given nominal interest rates of 10% in Canada and 6% in Japan,and expected Canadian inflation of 6%?

Indirect quotes describe units of domestic currency bought by a unit of foreign unit.

The law of one price implies that the same commodity should be sold at the same price in all countries.

If the interest rate of one country increases,then the value of that country's currency increases in the forward market.

Would you be willing to exchange Dollars for pounds at a rate of $2.40(Canadian)/£ to invest in London and earn a one-year rate of 10%,as opposed to investing in Canada for a 5% return? What things might you first consider before investing?

If the Euro is trading at a forward discount relative to the Dollar,then you'll receive fewer marks per Dollar in the future.

A foreign manufacturer must make a $2 million payment to its Canadian supplier in 60 days.Which of the following is correct?

Which of the following statements is correct?

If the International Fisher effect is valid,then real interest rates in all countries should be equal.

By using forward contracts an importer can avoid transaction risk.

The international Fisher effect predicts that differences in nominal interest rates between countries reflect differences in:

The six-month forward quote for German Euro is E1.6/US$,and the spot price of German Euro is €1.7/US$.Which of the following statements is true?

How much wealthier would you be one year from now if you exchange $100,000 (U.S.)into Hong Kong Dollars today at an indirect rate of HK$7.8/$,earn 7% on your Hong Kong investment,and exchange back at a rate of HK$8.0/$,as compared to investing in the U.S.at 4.0%?

Assume PPP holds at a time when the exchange rate is €1.09/$(Canadian)and a market basket of goods costs €500.How many Dollars would you expect to spend on the goods? Germany is expecting 10% inflation while Canada is expecting 4% inflation.What would you predict to happen to exchange rates?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

Options

Risk Management

Filters