Exam 24: International Financial Management

Consider the following spot exchange rates: $2.56/£,¥65.62/$,DM1.0/$,and L1,263/$.Which of the following seems to violate the law of one price if gold sells for $464 per ounce in the Canada? Dollars in the exchange rates are Canadian.

Which of the following is correct when foreign currency is contracted in the forward market?

One of the drawbacks of using forward contracts to hedge foreign-exchange risk is that the:

The difference in interest rates between countries is believed to be equal to the expected change in spot exchange rates.

During the 1980s,the Japanese Yen appreciated against the U.S.Dollar.As a result of this,the Japanese products became less price competitive in the U.S.This is an example of:

The ratio of expected spot rate to current spot rate for $/£ is 1.02 and the inflation rate in the U.S.is 5%.What is the approximate inflation rate in the United Kingdom?

If interest rates are higher in Italy than in Canada,the market expects that the Euro will:

Explain the interest rate parity theory.

A firm intends to hedge against exchange loss,a large future payment that must be made in a foreign currency.Which of the following identifies the cost of such a hedge?

An indirect exchange rate can be converted to a direct exchange rate by:

Assuming that the international Fisher effect is holding,what will be the effect of an increase in nominal interest rate on the currency?

Discuss similarities and differences between futures contracts and forward contracts.

If the difference between forward and spot exchange rates is positive,interest rate parity would predict that:

You are importing TV sets worth ¥10,000,000 from a Japanese manufacturer,and this amount is payable after six months.You can hedge your exchange risk by doing one of the following.

What do you think are the advantages of holding futures rather than the underlying commodity? What do you think are the disadvantages?

If the indirect exchange rate between French Francs and U.S.Dollars is 6.8/1,then the direct exchange rate between these currencies is:

What is the basic difference between hedgers and speculators?

If prices in the U.S.rise less rapidly than in Canada,which of the following would be expected according to purchasing power parity?

Explain the purchasing power parity.

Which of the following would you expect to be nearly equal across countries?