Exam 31: International Corporate Finance

What is triangle arbitrage? Using the U.S. dollar,the Canadian dollar,and the euro,construct an example in which triangle arbitrage exists,and then show how to exploit it.

Suppose that the one-year forward rate on pounds is $1.75£. Given no arbitrage opportunities,this implies that traders expect:

The current spot rate for the Norwegian krone is $1 = NKr6.83. The expected inflation rate in Norway is 2 percent and in the U.S. 4 percent. A risk-free asset in the U.S. is yielding 5 percent. What risk-free rate of return should you expect on a Norwegian security?

Triangular arbitrage would take place if the _____ rate between two currencies was not _____ to the ratio of the two direct rates.

What kind of trade involves agreeing today on an exchange rate for settlement in 90 days?

International bonds issued in multiple countries but denominated in a single currency are called:

The exchange rate on a spot trade is called the _____ exchange rate.

You are analyzing a project with an initial cost of £80,000. The project is expected to return £10,000 the first year,£40,000 the second year and £50,000 the third and final year. The current spot rate is £.56. The nominal risk-free return is 5 percent in the U.K. and 7 percent in the U.S. The return relevant to the project is 8 percent in the U.K. and 9.25 percent in the U.S. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?

You are expecting a payment of 500,000PLN 3 years from now. The risk-free rate of return is 4 percent in the U.S. and 2 percent in Poland. The inflation rate is 4 percent in the U.S. and 1 percent in Poland. Currently,you can buy 380PLN for 100USD. How much will the payment 3 years from now be worth in U.S. dollars?

You are considering a project in Poland which has an initial cost of 250,000PLN. The project is expected to return a one-time payment of 400,000PLN 5 years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Poland. The inflation rate is 2 percent in the U.S. and 5 percent in Poland. Currently,you can buy 375PLN for 100USD. How much will the payment 5 years from now be worth in U.S. dollars?

Spot trades must be settled:

The law of one price is also known as:

The forward rate market is dependent upon:

A new sweater costs 1,449.95 Russian rubles. How much will the identical sweater cost in Euros if absolute purchasing power parity exists and the following exchange rates apply?

The theory that real interest rates are equal across countries is called:

The unbiased forward rate is a:

Today,you can exchange $1 for £.5428. Last week,£1 was worth $1.88. If you had converted £100 into dollars last week you would now have a:

Money deposited in a financial center outside the country whose currency is involved is called:

The home currency approach:

The spot rate for the Japanese yen currently is ¥106 per $1. The one-year forward rate is ¥105 per $1. A risk-free asset in Japan is currently earning 5 percent. If interest rate parity holds,approximately what rate can you earn on a one-year risk-free U.S. security?