Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

The current one-year nominal interest in Canada is 7%.If the anticipated inflation for the coming year in Canada is 2.5%, what is the real interest rate?

Accepted Answer

A) 4.21% 
B) 4.39% 
C) 4.50% 
D) 7.18% real interest = 
A) 4.21% 
B) 4.39% 
C) 4.50% 
D) 7.18% real interest = B

Question 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

Yesterday the spot exchange rate of Yen-to-Canadian Dollar was 65.What is today's spot exchange rate if the Yen has appreciated ten% against the Dollar today?

Accepted Answer

A) (*58.50/$) 
B) (*60/$1.10) 
C) (*65/$) 
D) (*75/$1.10) 
A) (*58.50/$) 
B) (*60/$1.10) 
C) (*65/$) 
D) (*75/$1.10)

Question 6

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

Question 7

If the spot exchange rate between lire and Dollars is L2600/$(Canadian) and the forward exchange rate is L2550/$, 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 8

The following information is provided to you:   What is the one-year interest rate for Swiss franc?

Accepted Answer

A) 2.00% 
B) 1.67% 
C) 1.50% 
D) 1.33% forward rate = spot rate x 
A) 2.00% 
B) 1.67% 
C) 1.50% 
D) 1.33% forward rate = spot rate x

Question 9

History has shown a positive relationship between higher interest rates and higher subsequent rates of inflation.

Accepted Answer

A) True 
 B)False

Question 10

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 2.11% 
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 2.11% 
C) Expected Japanese inflation is 6.22% 
D) Expected Japanese inflation is 10.00%

Question 11

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 12

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 104/1?

Accepted Answer

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

Question 13

A U.S.firm can invest DM10 million in its German subsidiary and receive a return of DM4.3 million annually for 3 years.The spot rate is DM1.6/$(U.S.), the U.S.rate of inflation is expected to be 4% annually, and the German rate is expected to be 3% annually.If the appropriate risk-adjusted cost of capital in Dollars is 14%, does the project appear to have a positive NPV?

Accepted Answer

The mark should appreciate against the D

Question 14

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.

Accepted Answer

A) Buying Japanese Yen in the forward market 
B) Selling Japanese Yen in the forward market 
C) Borrowing Japanese Yen 
D) Do nothing 
A) Buying Japanese Yen in the forward market 
B) Selling Japanese Yen in the forward market 
C) Borrowing Japanese Yen 
D) Do nothing

Question 15

What is the expected German inflation rate if 3% inflation is expected in the United States, the spot exchange rate is DM1.5/$and the expected spot rate is DM1.6/$?

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%

Question 16

Futures contracts represent a low-cost method of buying foreign currency forward.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) The value of the Canadian Dollar will decline, relative to the U.S.Dollar 
B) The value of the U.S.Dollar will decline, relative to the Canadian Dollar 
C) Inflation will increase in Canada 
D) The price of gold will decline 
A) The value of the Canadian Dollar will decline, relative to the U.S.Dollar 
B) The value of the U.S.Dollar will decline, relative to the Canadian Dollar 
C) Inflation will increase in Canada 
D) The price of gold will decline

Question 18

If the correlation of returns between foreign projects and domestic projects is less than 1.0, then:

Accepted Answer

A) Foreign projects should be discounted with a higher rate 
B) The domestic firm would be better off without the foreign projects 
C) The foreign project may not add much risk to the existing domestic operation 
D) The foreign projects will experience a higher degree of inflation 
A) Foreign projects should be discounted with a higher rate 
B) The domestic firm would be better off without the foreign projects 
C) The foreign project may not add much risk to the existing domestic operation 
D) The foreign projects will experience a higher degree of inflation

Question 19

On average, empirical evidence suggests that those who cover foreign exchange commitments in the forward market pay a premium of approximately _____ to avoid exchange-rate risk.

Accepted Answer

A) 0.0% 
B) 3.1% 
C) 5.0% 
D) 7.3% 
A) 0.0% 
B) 3.1% 
C) 5.0% 
D) 7.3%

Question 20

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

Accepted Answer

A) Nominal interest rates 
B) Real interest rates 
C) Inflation rates 
D) Forward premium 
A) Nominal interest rates 
B) Real interest rates 
C) Inflation rates 
D) Forward premium

Exam 24: Risk Management

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

The current one-year nominal interest in Canada is 7%.If the anticipated inflation for the coming year in Canada is 2.5%, what is the real interest rate?

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

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

Yesterday the spot exchange rate of Yen-to-Canadian Dollar was 65.What is today's spot exchange rate if the Yen has appreciated ten% against the Dollar today?

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

If the spot exchange rate between lire and Dollars is L2600/$(Canadian) and the forward exchange rate is L2550/$, what would you predict to be the expected future spot rate? Is the lira appreciating or depreciating against the Dollar?

The following information is provided to you: What is the one-year interest rate for Swiss franc?

History has shown a positive relationship between higher interest rates and higher subsequent rates of inflation.

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%?

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 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 104/1?

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 is the expected German inflation rate if 3% inflation is expected in the United States, the spot exchange rate is DM1.5/$and the expected spot rate is DM1.6/$?

Futures contracts represent a low-cost method of buying foreign currency forward.

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

If the correlation of returns between foreign projects and domestic projects is less than 1.0, then:

On average, empirical evidence suggests that those who cover foreign exchange commitments in the forward market pay a premium of approximately _____ to avoid exchange-rate risk.

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

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 Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Conclusion

What We Do and Do Not Know About Finance

Filters

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