Question 1

If managers intend to adjust the projections of foreign investments,it is probably better to make the adjustments in:

Accepted Answer

A)  the discount rate used. 
B)  the cash flows projected. 
C)  both the discount rate and cash flows. 
D)  exchange rate, but never in the discount rate. 
A)  the discount rate used. 
B)  the cash flows projected. 
C)  both the discount rate and cash flows. 
D)  exchange rate, but never in the discount rate.

Question 2

If exchange rates adjust to reflect inflation differentials across countries,then:

Accepted Answer

A)  the law of one price will always hold. 
B)  no one will use forward currency markets. 
C)  interest rates will be equal across countries. 
D)  PPP is said to hold. 
A)  the law of one price will always hold. 
B)  no one will use forward currency markets. 
C)  interest rates will be equal across countries. 
D)  PPP is said to hold.

Question 3

Knowing the value of compounding,a Canadian firm considers the opportunity to invest for ten years in a Japanese investment that will return 12% annually.The Canadian alternative for a ten-year investment appears to offer 7% annually.The spot exchange rate is ¥60/$(Canadian).What other concern should you have?

Accepted Answer

The logical concern is what the spot exc

Question 4

Countries with high inflation will have the:

Accepted Answer

A)  weakest currency. 
B)  highest nominal interest rate. 
C)  strongest currency. 
D)  highest real interest rate. 
A)  weakest currency. 
B)  highest nominal interest rate. 
C)  strongest currency. 
D)  highest real interest rate.

Question 5

The Yen is currently trading at ¥105.89 per USD,while the forward rate is ¥102.33 per USD.Given this information,calculate the forward premium.

Accepted Answer

A)  3.48% 
B)  5.48% 
C)  7.48% 
D)  9.48% 
A)  3.48% 
B)  5.48% 
C)  7.48% 
D)  9.48%

Question 6

It is much easier for a firm to hedge non-contractual rather than contractual exchange rate risk.

Accepted Answer

A) True 
 B)False

Question 7

What are some simple strategies to protect the firm against exchange rate risk?

Accepted Answer

Our simple theories about forward rates

Question 8

The spot exchange rate for Canadian Dollar(C$)is U.S.$0.68/C$.The six-month interest rate in U.S.is 2.5% and 3.0% in Canada.What is the six-month forward rate for Canadian Dollar?

Accepted Answer

A)  U.S.$0.6734/C$ 
B)  U.S.$0.6767/C$ 
C)  U.S.$0.6833/C$ 
D)  U.S.$0.6866/C$ 
A)  U.S.$0.6734/C$ 
B)  U.S.$0.6767/C$ 
C)  U.S.$0.6833/C$ 
D)  U.S.$0.6866/C$

Question 9

Why should interest rate parity mean that the forward premium should equal the interest rate differential between countries?

Accepted Answer

If this were not the case,then investors

Question 10

How much would you expect to receive for a nominal interest rate in Holland if funds can be invested in the U.S.at a rate of 7% when inflation is expected to be 4% in the U.S.and 8% in Holland?

Accepted Answer

A)  5.19% 
B)  7.93% 
C)  9.08% 
D)  11.11% 
A)  5.19% 
B)  7.93% 
C)  9.08% 
D)  11.11%

Question 11

U.S.investments with a one-year maturity can be made for 6% and Swiss one-year investments can be made for 3%.If the spot exchange rate is Sf1.6/$,which of the following one-year forward exchange rates would convince you to invest in Switzerland?

Accepted Answer

A)  Sf1.55/$ 
B)  Sf1.60/$ 
C)  Sf1.65/$ 
D)  Sf1.70/$ 
A)  Sf1.55/$ 
B)  Sf1.60/$ 
C)  Sf1.65/$ 
D)  Sf1.70/$

Question 12

If the direct quote for French Euro is $0.22/$(Canadian),then the indirect quote for French Euro will be:

Accepted Answer

A)  3.55Euro/$. 
B)  1.22Euro/$. 
C)  .044Euro/$. 
D)  4.55Euro/$. 
A)  3.55Euro/$. 
B)  1.22Euro/$. 
C)  .044Euro/$. 
D)  4.55Euro/$.

Question 13

Suppose that the current spot rate for the euro is $1.6215/€ and that the six-month forward rate is $1.614/€.What is the cost to a Canadian company of hedging its future need for euros by buying them in the forward market? Assume the expectation theory of exchange rates.

Accepted Answer

According to the expectation theory of e

Question 14

A Canadian firm owes ¥10 million three months from now.The spot exchange rate is ¥60/$and the forward rate is ¥61/$.Is the Yen selling at a forward premium or discount,related to the Dollar? Does the firm face exchange risk? Would you suggest that they buy now or later?

Accepted Answer

The Yen is selling at a forward discount

Question 15

Which of the following is correct if you have contracted to purchase 1,000 Swiss Francs three months forward at a rate of Sf1.6/$?

Accepted Answer

A)  You pay approximately $625 today for the Francs 
B)  You pay $1,600 today for the Francs 
C)  You pay approximately $625 three months from now for the Francs 
D)  You pay $1,600 three months from now for the Francs 
A)  You pay approximately $625 today for the Francs 
B)  You pay $1,600 today for the Francs 
C)  You pay approximately $625 three months from now for the Francs 
D)  You pay $1,600 three months from now for the Francs

Question 16

How do we perform an NPV analysis for projects with cash flows in foreign currencies?

Accepted Answer

Overseas investment decisions are no dif

Question 17

Buying currency in the forward market is a costly way of hedging the currency risk.

Accepted Answer

A) True 
 B)False

Question 18

The direct exchange rate quotes the number of Canadian Dollars required to buy one unit of a foreign currency.

Accepted Answer

A) True 
 B)False

Question 19

A firm in Canada is due to receive payment of 1 million Australian Dollars in 10 year's time.It would like to protect itself against a decline in the value of the Australian Dollar but finds it difficult to arrange a forward sale for such a long period.Is there any other way that it can protect itself?

Accepted Answer

The firm can borrow the present value of

Question 20

What is the expected German inflation rate if 3% inflation is expected in the United States,the spot exchange rate is €1.5/$and the expected spot rate is €1.6/$?

Accepted Answer

A)  2.81% 
B)  7.10% 
C)  9.87% 
D)  11.43% 
A)  2.81% 
B)  7.10% 
C)  9.87% 
D)  11.43%

Exam 24: International Financial Management

If managers intend to adjust the projections of foreign investments,it is probably better to make the adjustments in:

If exchange rates adjust to reflect inflation differentials across countries,then:

Countries with high inflation will have the:

The Yen is currently trading at ¥105.89 per USD,while the forward rate is ¥102.33 per USD.Given this information,calculate the forward premium.

It is much easier for a firm to hedge non-contractual rather than contractual exchange rate risk.

What are some simple strategies to protect the firm against exchange rate risk?

The spot exchange rate for Canadian Dollar(C$)is U.S.$0.68/C$.The six-month interest rate in U.S.is 2.5% and 3.0% in Canada.What is the six-month forward rate for Canadian Dollar?

Why should interest rate parity mean that the forward premium should equal the interest rate differential between countries?

How much would you expect to receive for a nominal interest rate in Holland if funds can be invested in the U.S.at a rate of 7% when inflation is expected to be 4% in the U.S.and 8% in Holland?

U.S.investments with a one-year maturity can be made for 6% and Swiss one-year investments can be made for 3%.If the spot exchange rate is Sf1.6/$,which of the following one-year forward exchange rates would convince you to invest in Switzerland?

If the direct quote for French Euro is $0.22/$(Canadian),then the indirect quote for French Euro will be:

Suppose that the current spot rate for the euro is $1.6215/€ and that the six-month forward rate is $1.614/€.What is the cost to a Canadian company of hedging its future need for euros by buying them in the forward market? Assume the expectation theory of exchange rates.

A Canadian firm owes ¥10 million three months from now.The spot exchange rate is ¥60/$and the forward rate is ¥61/$.Is the Yen selling at a forward premium or discount,related to the Dollar? Does the firm face exchange risk? Would you suggest that they buy now or later?

Which of the following is correct if you have contracted to purchase 1,000 Swiss Francs three months forward at a rate of Sf1.6/$?

How do we perform an NPV analysis for projects with cash flows in foreign currencies?

Buying currency in the forward market is a costly way of hedging the currency risk.

The direct exchange rate quotes the number of Canadian Dollars required to buy one unit of a foreign currency.

What is the expected German inflation rate if 3% inflation is expected in the United States,the spot exchange rate is €1.5/$and the expected spot rate is €1.6/$?

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