Question 1

Explain the international Fisher Effect.

Accepted Answer

The international Fisher effect suggests

Question 2

The spot exchange rate of British Pound (£)is $2.56(Canadian)/£.The annual inflation rate in Canadian $is 4% and 8% in Britain.What will be the anticipated exchange rate at the end of the year if PPP is valid?

Accepted Answer

A)  $2.4652/£ 
B)  $2.1503/£ 
C)  $3.0804/£ 
D)  $2.5600/£ 
A)  $2.4652/£ 
B)  $2.1503/£ 
C)  $3.0804/£ 
D)  $2.5600/£

Question 3

If the spot indirect exchange rate of Mexican Pesos for U.S.Dollars is 9.8/1 and the peso is trading at a forward premium of 3%,then a U.S.trader will receive:

Accepted Answer

A)  more than 9.8 Pesos per Dollar in the future. 
B)  less than 9.8 Pesos per Dollar in the future. 
C)  9.83 Pesos per Dollar in the future. 
D)  10.09 Pesos per Dollar in the future. 
A)  more than 9.8 Pesos per Dollar in the future. 
B)  less than 9.8 Pesos per Dollar in the future. 
C)  9.83 Pesos per Dollar in the future. 
D)  10.09 Pesos per Dollar in the future.

Question 4

If you buy Yen forward when the Yen is selling at a forward premium,you will get:

Accepted Answer

A)  more Yen than if you buy on spot market. 
B)  fewer Yen than if you buy on spot market. 
C)  the same number of Yen as on the spot market, but with a lower commission. 
D)  the expectation of more Yen, but the difference is not locked in. 
A)  more Yen than if you buy on spot market. 
B)  fewer Yen than if you buy on spot market. 
C)  the same number of Yen as on the spot market, but with a lower commission. 
D)  the expectation of more Yen, but the difference is not locked in.

Question 5

High inflation rates are usually associated with:

Accepted Answer

A)  low nominal interest rates. 
B)  high nominal interest rates. 
C)  high real interest rates. 
D)  low real interest rates. 
A)  low nominal interest rates. 
B)  high nominal interest rates. 
C)  high real interest rates. 
D)  low real interest rates.

Question 6

The nominal interest rate is the difference between real interest rate and inflation.

Accepted Answer

A) True 
 B)False

Question 7

The Japanese Yen exchange rate is ¥115 = $1,while the British Pound exchange rate is £1 = $2.05.Given this information,calculate the cross-rate in terms of Yen per pound.

Accepted Answer

A)  ¥235.75 per £1 
B)  ¥275.35 per £1 
C)  ¥56.10 per £1 
D)  ¥51.60 per £1 
A)  ¥235.75 per £1 
B)  ¥275.35 per £1 
C)  ¥56.10 per £1 
D)  ¥51.60 per £1

Question 8

What is the law of one price? When would you expect it to hold and when would you not expect it to hold?

Accepted Answer

The law of one price holds that prices o

Question 9

If Purchasing Power Parity is holding,what will happen to the currency of a country with high inflation?

Accepted Answer

A)  Currency will appreciate. 
B)  Currency will depreciate. 
C)  No significant change in exchange rate. 
D)  Currency will sell at a forward premium. 
A)  Currency will appreciate. 
B)  Currency will depreciate. 
C)  No significant change in exchange rate. 
D)  Currency will sell at a forward premium.

Question 10

Which of the following would you expect to improve the Dollar-NPV of a foreign capital budgeting proposal?

Accepted Answer

A)  The Dollar is expected to appreciate against the foreign currency 
B)  Lower inflation is expected in the foreign country than in the United States 
C)  The foreign country has a less stable political environment 
D)  The risk-free rate in the foreign country is higher than in the United States 
A)  The Dollar is expected to appreciate against the foreign currency 
B)  Lower inflation is expected in the foreign country than in the United States 
C)  The foreign country has a less stable political environment 
D)  The risk-free rate in the foreign country is higher than in the United States

Question 11

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

Accepted Answer

Expectation theory states that hedging e

Question 12

The theory that goods in a foreign country should be priced approximately equal after currency translation to goods in a host country is referred to as the law of:

Accepted Answer

A)  exchange rates. 
B)  large numbers. 
C)  spot rates. 
D)  one price. 
A)  exchange rates. 
B)  large numbers. 
C)  spot rates. 
D)  one price.

Question 13

How can companies use swaps to change the risk of securities that they have issued?

Accepted Answer

Swaps allow firms to exchange one series

Question 14

According to the expectations theory of exchange rates,what change is expected in the future spot exchange rate if the current spot rate is 8% lower than the forward exchange rate?

Accepted Answer

A)  Future spot rate is expected to increase by 8% 
B)  Future spot rate is expected to decrease by 8% 
C)  Future spot rate is expected to decrease by 4% 
D)  No change is expected in the future spot rate 
A)  Future spot rate is expected to increase by 8% 
B)  Future spot rate is expected to decrease by 8% 
C)  Future spot rate is expected to decrease by 4% 
D)  No change is expected in the future spot rate

Question 15

The international Fisher effect is valid in the long run,because:

Accepted Answer

A)  inflation rates are equal in different countries. 
B)  investors will move their money into countries with high real interest rates. 
C)  investors will move their money into countries with high nominal interest rates. 
D)  investors will move their money into countries with low inflation. 
A)  inflation rates are equal in different countries. 
B)  investors will move their money into countries with high real interest rates. 
C)  investors will move their money into countries with high nominal interest rates. 
D)  investors will move their money into countries with low inflation.

Question 16

Forward rates are always equal to the actual future exchange rates.

Accepted Answer

A) True 
 B)False

Exam 24: International Financial Management

Explain the international Fisher Effect.

The spot exchange rate of British Pound (£)is $2.56(Canadian)/£.The annual inflation rate in Canadian $is 4% and 8% in Britain.What will be the anticipated exchange rate at the end of the year if PPP is valid?

If the spot indirect exchange rate of Mexican Pesos for U.S.Dollars is 9.8/1 and the peso is trading at a forward premium of 3%,then a U.S.trader will receive:

If you buy Yen forward when the Yen is selling at a forward premium,you will get:

High inflation rates are usually associated with:

The nominal interest rate is the difference between real interest rate and inflation.

The Japanese Yen exchange rate is ¥115 = $1,while the British Pound exchange rate is £1 = $2.05.Given this information,calculate the cross-rate in terms of Yen per pound.

What is the law of one price? When would you expect it to hold and when would you not expect it to hold?

If Purchasing Power Parity is holding,what will happen to the currency of a country with high inflation?

Which of the following would you expect to improve the Dollar-NPV of a foreign capital budgeting proposal?

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

The theory that goods in a foreign country should be priced approximately equal after currency translation to goods in a host country is referred to as the law of:

How can companies use swaps to change the risk of securities that they have issued?

According to the expectations theory of exchange rates,what change is expected in the future spot exchange rate if the current spot rate is 8% lower than the forward exchange rate?

The international Fisher effect is valid in the long run,because:

Forward rates are always equal to the actual future 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