Question 1

Transaction risk arises when a firm is committed either to pay or receive a known amount of foreign currency.

Accepted Answer

A) True 
 B)False

Question 2

You have the opportunity to invest in the United States at 6% or invest in an equally risky Australian investment that offers 20%.This is too good to be true! The current exchange rate is A$1.65/$.Which of the following do you suspect about this one-year investment?

Accepted Answer

A)  Expected inflation is higher in the United States. 
B)  The one-year forward exchange rate is A$1.8679/$. 
C)  Real interest rates are higher in the United States. 
D)  The Australian Dollar is selling forward at an 8.48% premium relative to the U.S. Dollar. 
A)  Expected inflation is higher in the United States. 
B)  The one-year forward exchange rate is A$1.8679/$. 
C)  Real interest rates are higher in the United States. 
D)  The Australian Dollar is selling forward at an 8.48% premium relative to the U.S. Dollar.

Question 3

What is the expected spot rate of ¥/$(Canadian)one year from now if the current spot rate is ¥66/$and the Yen is selling one-year forward at ¥70/$?

Accepted Answer

A)  ¥78.9/$ 
B)  ¥98.0/$ 
C)  ¥66/$ 
D)  ¥70/$ 
A)  ¥78.9/$ 
B)  ¥98.0/$ 
C)  ¥66/$ 
D)  ¥70/$

Question 4

That Italian antique was priced at 3 million lire that,fortunately,does not have to be paid for three months.The Euro has a spot exchange rate of L2,000/$(U.S.)but is trading three months forward at a 5% discount.If you contract ahead now,how many U.S.Dollars will the antique cost?

Accepted Answer

A)  $1,425 
B)  $1,429 
C)  $1,575 
D)  $1,579 
A)  $1,425 
B)  $1,429 
C)  $1,575 
D)  $1,579

Question 5

Arbitrageurs are said to look for riskless profits by:

Accepted Answer

A)  contracting in the forward exchange markets. 
B)  buying at the spot rate and selling at the forward rate. 
C)  buying in one market and selling in another to take advantage of different prices for the same good. 
D)  buying short-term bonds and converting them to long-term bonds. 
A)  contracting in the forward exchange markets. 
B)  buying at the spot rate and selling at the forward rate. 
C)  buying in one market and selling in another to take advantage of different prices for the same good. 
D)  buying short-term bonds and converting them to long-term bonds.

Question 6

If the spot exchange rate between Euro and Dollars is E26/$(Canadian)and the forward exchange rate is €25.5/$,what would you predict to be the expected future spot rate? Is the lira appreciating or depreciating against the Dollar?

Accepted Answer

According to the expectations theory of

Question 7

You are hoarse from explaining to your supervisor that the cost,if any,of hedging exchange-rate risk can be thought of as an insurance premium to avoid surprises.What is the cost of hedging a €2 million commitment if the spot rate is €1.6/$,the forward rate is €1.55/$,and the expected spot rate at the end of the hedge is €1.6/$?

Accepted Answer

A)  $0 
B)  $25,000 
C)  $40,323 
D)  $68,966 
A)  $0 
B)  $25,000 
C)  $40,323 
D)  $68,966

Question 8

The forward exchange rate for foreign currency is the rate for immediate exchanges.

Accepted Answer

A) True 
 B)False

Question 9

According to the theory of purchasing power parity,exchange rates will adjust so that differences in:

Accepted Answer

A)  interest rates across countries are offset. 
B)  forward rates across countries are offset. 
C)  expected inflation across countries is offset. 
D)  international Fisher rates are offset. 
A)  interest rates across countries are offset. 
B)  forward rates across countries are offset. 
C)  expected inflation across countries is offset. 
D)  international Fisher rates are offset.

Question 10

How many Dollars will it take for a U.S.citizen to purchase a Japanese product priced at 60,000 Yen if the indirect exchange rate is yen104/$1?

Accepted Answer

A)  $577 
B)  $700 
C)  $5,769 
D)  $62,400 
A)  $577 
B)  $700 
C)  $5,769 
D)  $62,400

Question 11

What is the difference between forward and spot exchange rate rates?

Accepted Answer

The exchange rate is the amount of one c

Question 12

Predict the expected spot exchange rate between the Japanese Yen and U.S.Dollar,given that inflation in Japan,at 8%,is 4% higher than in the U.S.and that the current spot rate is ¥107/$.

Accepted Answer

A)  ¥102.72/$ 
B)  ¥103.04/$ 
C)  ¥111.12/$ 
D)  ¥111.28/$ 
A)  ¥102.72/$ 
B)  ¥103.04/$ 
C)  ¥111.12/$ 
D)  ¥111.28/$

Question 13

The Treasurer has noticed that the interest rate in Japan is below most other countries.It was suggested that the company issue bonds in Japanese Yen.What considerations should be taken to account?

Accepted Answer

If international capital markets are com

Question 14

You have decided to hedge your exchange-rate risk in your U.S.-based firm by contracting forward to buy 500,000 Swiss Francs for delivery in one year.The current exchange rate is Sf1.6/$.The forward rate is Sf1.7/$(U.S.).How much better (worse)off are you if you don't buy the forward contract and instead pay the spot rate in one year if it turns out to be Sf1.65/$?

Accepted Answer

A)  ($14,245) 
B)  ($8,912) 
C)  $8,912 
D)  $27,472 
A)  ($14,245) 
B)  ($8,912) 
C)  $8,912 
D)  $27,472

Question 15

Which of the following is correct when contracting ahead in the forward exchange market?

Accepted Answer

A)  At contract close you pay either the forward rate that was contracted or the then-current rate 
B)  Contracting ahead is always cheaper than waiting to pay spot rates 
C)  Your cost is locked-in from the beginning of the contract, regardless of market changes 
D)  Paying spot price is safer than contracting forward 
A)  At contract close you pay either the forward rate that was contracted or the then-current rate 
B)  Contracting ahead is always cheaper than waiting to pay spot rates 
C)  Your cost is locked-in from the beginning of the contract, regardless of market changes 
D)  Paying spot price is safer than contracting forward

Question 16

What would you expect to be the relationship between real rates of interest in Japan and Canada if inflation is expected to be 3% in Japan and 6% in Canada?

Accepted Answer

A)  Japan's real interest rate should be 3% higher than in Canada. 
B)  Japan's real interest rate should be 3% lower than in Canada. 
C)  Japan's real interest rate should be half as high as in Canada. 
D)  Real interest rates should be equal in both countries. 
A)  Japan's real interest rate should be 3% higher than in Canada. 
B)  Japan's real interest rate should be 3% lower than in Canada. 
C)  Japan's real interest rate should be half as high as in Canada. 
D)  Real interest rates should be equal in both countries.

Question 17

Forward contracts are standardized contracts sold in organized exchanges.

Accepted Answer

A) True 
 B)False

Question 18

What is the international Fisher effect and how would you test it,knowing that 6% inflation is expected in Canada but only 3% is expected in Spain.The nominal Canadian interest rate is 9%.

Accepted Answer

The international Fisher effect theorize

Question 19

If real interest rates are different across countries,investors will shift their money into countries with high real interest rates.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is correct if the spot exchange rate on the pound sterling is $2.56 (Canadian)/£ and the one-year forward exchange rate is $2.48 (Canadian)/£? The pound is trading:

Accepted Answer

A)  at a 3.13% forward discount relative to the Dollar. 
B)  at a 3.13% forward premium relative to the Dollar. 
C)  at a 3.22% forward discount relative to the Dollar. 
D)  at a 3.22% forward premium relative to the Dollar. 
A)  at a 3.13% forward discount relative to the Dollar. 
B)  at a 3.13% forward premium relative to the Dollar. 
C)  at a 3.22% forward discount relative to the Dollar. 
D)  at a 3.22% forward premium relative to the Dollar.

Exam 24: International Financial Management

Transaction risk arises when a firm is committed either to pay or receive a known amount of foreign currency.

You have the opportunity to invest in the United States at 6% or invest in an equally risky Australian investment that offers 20%.This is too good to be true! The current exchange rate is A$1.65/$.Which of the following do you suspect about this one-year investment?

What is the expected spot rate of ¥/$(Canadian)one year from now if the current spot rate is ¥66/$and the Yen is selling one-year forward at ¥70/$?

That Italian antique was priced at 3 million lire that,fortunately,does not have to be paid for three months.The Euro has a spot exchange rate of L2,000/$(U.S.)but is trading three months forward at a 5% discount.If you contract ahead now,how many U.S.Dollars will the antique cost?

Arbitrageurs are said to look for riskless profits by:

If the spot exchange rate between Euro and Dollars is E26/$(Canadian)and the forward exchange rate is €25.5/$,what would you predict to be the expected future spot rate? Is the lira appreciating or depreciating against the Dollar?

The forward exchange rate for foreign currency is the rate for immediate exchanges.

According to the theory of purchasing power parity,exchange rates will adjust so that differences in:

How many Dollars will it take for a U.S.citizen to purchase a Japanese product priced at 60,000 Yen if the indirect exchange rate is yen104/$1?

What is the difference between forward and spot exchange rate rates?

Predict the expected spot exchange rate between the Japanese Yen and U.S.Dollar,given that inflation in Japan,at 8%,is 4% higher than in the U.S.and that the current spot rate is ¥107/$.

The Treasurer has noticed that the interest rate in Japan is below most other countries.It was suggested that the company issue bonds in Japanese Yen.What considerations should be taken to account?

Which of the following is correct when contracting ahead in the forward exchange market?

What would you expect to be the relationship between real rates of interest in Japan and Canada if inflation is expected to be 3% in Japan and 6% in Canada?

Forward contracts are standardized contracts sold in organized exchanges.

What is the international Fisher effect and how would you test it,knowing that 6% inflation is expected in Canada but only 3% is expected in Spain.The nominal Canadian interest rate is 9%.

If real interest rates are different across countries,investors will shift their money into countries with high real interest rates.

Which of the following is correct if the spot exchange rate on the pound sterling is $2.56 (Canadian)/£ and the one-year forward exchange rate is $2.48 (Canadian)/£? The pound is trading:

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