Question 1

For accounting purposes,the translation gains and losses that affect a firm's balance sheet are

Accepted Answer

A) recorded as an intangible asset. 
B) treated as either current income or a current expense as they are incurred. 
C) treated as an unsecured debt of the firm. 
D) recorded as stockholders' equity. 
E) recorded as a deferred liability. 
A) recorded as an intangible asset. 
B) treated as either current income or a current expense as they are incurred. 
C) treated as an unsecured debt of the firm. 
D) recorded as stockholders' equity. 
E) recorded as a deferred liability.

Question 2

Assume the current spot rate for the Norwegian krone is $1 = NKr7.0305.The expected inflation rate in Norway is 2.6 percent,and in the United States its 1.3 percent.A risk-free asset in the U.S.is yielding 2.2 percent.What risk-free rate of return should you expect on a Norwegian security?

Accepted Answer

A) 2.8% 
B) 3.3% 
C) 3.5% 
D) 1.7% 
E) 1.9% 
A) 2.8% 
B) 3.3% 
C) 3.5% 
D) 1.7% 
E) 1.9%

Question 3

A fancy new coat costs SKr989.90.Assume you can exchange SKr1 for $.1402 and €1 for $1.1806.How much will the identical coat cost in euros if absolute purchasing power parity exists?

Accepted Answer

A) €117.55 
B) €144.88 
C) €163.85 
D) €211.99 
E) €133.33 
A) €117.55 
B) €144.88 
C) €163.85 
D) €211.99 
E) €133.33

Question 4

Assume the direct quote for the Australian dollar is 0.8643 while it is 0.7627 for New Zealand dollar.What is the cross-rate between the Australian dollar and the New Zealand dollar?

Accepted Answer

A) A$.8709 = NZ$1 
B) A$.8824 = NZ$1 
C) A$1.0362 = NZ$1 
D) A$1.1254 = NZ$1 
E) A$1.1332 = NZ$1 
A) A$.8709 = NZ$1 
B) A$.8824 = NZ$1 
C) A$1.0362 = NZ$1 
D) A$1.1254 = NZ$1 
E) A$1.1332 = NZ$1

Question 5

You are expecting a payment of €630,000 three years from now.The risk-free rate of return is 3.4 percent in the United States and 2.9 percent in Euroland.The inflation rate is 2.5 percent in the United States and 2.1 percent in Euroland.Assume you can currently buy €82 for $100.How much will the payment 3 years from now be worth in U.S.dollars?

Accepted Answer

A) $808,288 
B) $779,933 
C) $819,949 
D) $671,321 
E) $684,169 
A) $808,288 
B) $779,933 
C) $819,949 
D) $671,321 
E) $684,169

Question 6

Assume the expected inflation rate in the United States its 2.8 percent while a risk-free asset in the United States is yielding 3.5 percent.A similar asset in Norway earns a rate of 4.8 percent.What is the inflation rate in Norway if the international Fisher effect applies?

Accepted Answer

A) 3.2% 
B) 3.4% 
C) 4.3% 
D) 4.6% 
E) 4.1% 
A) 3.2% 
B) 3.4% 
C) 4.3% 
D) 4.6% 
E) 4.1%

Question 7

Which one of these presents the idea that forward rates are equal to expected future spot rates?

Accepted Answer

A) International Fisher effect 
B) Interest rate parity 
C) Uncovered interest rate parity 
D) Triangle arbitrage 
E) Unbiased forward rate condition 
A) International Fisher effect 
B) Interest rate parity 
C) Uncovered interest rate parity 
D) Triangle arbitrage 
E) Unbiased forward rate condition

Question 8

You want to invest in a project in Canada.The project has an initial cost of Can$318,000 and is expected to produce cash inflows of C$126,000 a year for 3 years.The project will be worthless after 3 years.The expected inflation rate in Canada is 3.2 percent.The applicable interest rate in Canada is 12.7 percent.Assume the current spot rate is Can$1 = $1.12.What is the net present value of this project in U.S.dollars using the foreign currency approach?

Accepted Answer

A) $8,407 
B) $11,714 
C) −$21,249 
D) −$23,708 
E) $703 
A) $8,407 
B) $11,714 
C) −$21,249 
D) −$23,708 
E) $703

Question 9

The foreign currency approach to capital budgeting analysis

Accepted Answer

A) is computationally harder to use than the home currency approach. 
B) produces different results than the home currency approach. 
C) computes the NPV of a project in both the foreign and the domestic currency. 
D) relies on the international Fisher effect for the exchange rate. 
E) relies on the uncovered interest rate parity to project multiple exchange rates. 
A) is computationally harder to use than the home currency approach. 
B) produces different results than the home currency approach. 
C) computes the NPV of a project in both the foreign and the domestic currency. 
D) relies on the international Fisher effect for the exchange rate. 
E) relies on the uncovered interest rate parity to project multiple exchange rates.

Question 10

Interest rate parity

Accepted Answer

A) eliminates exchange rate fluctuations. 
B) exists when spot rates are equal for multiple countries. 
C) exists when the spot rate is equal to the forward rate. 
D) means that the nominal risk-free rate of return must be the same across countries. 
E) eliminates covered interest arbitrage opportunities. 
A) eliminates exchange rate fluctuations. 
B) exists when spot rates are equal for multiple countries. 
C) exists when the spot rate is equal to the forward rate. 
D) means that the nominal risk-free rate of return must be the same across countries. 
E) eliminates covered interest arbitrage opportunities.

Question 11

The home currency approach

Accepted Answer

A) requires an applicable exchange rate for every time period for which there is a cash flow. 
B) stresses the use of the real rate of return to compute the net present value (NPV)of a project. 
C) uses the current risk-free nominal rate to discount all of the cash flows related to a project. 
D) generally produces more reliable results than those found using the foreign currency approach. 
E) provides a net project value in both the home and the foreign currency. 
A) requires an applicable exchange rate for every time period for which there is a cash flow. 
B) stresses the use of the real rate of return to compute the net present value (NPV)of a project. 
C) uses the current risk-free nominal rate to discount all of the cash flows related to a project. 
D) generally produces more reliable results than those found using the foreign currency approach. 
E) provides a net project value in both the home and the foreign currency.

Question 12

Assume you borrow $5,000 today,exchange the $5,000 into yen,and then invest the yen for 30 days,at which time you need to pay an invoice to a Japanese supplier.In essence,you have

Accepted Answer

A) eliminated your long-term exposure to exchange rate risk. 
B) achieved an equilibrium known as the international Fisher effect. 
C) offset any potential translation exposure to exchange rate risk. 
D) entered into a forward contract. 
E) generated a profit from triangle arbitrage. 
A) eliminated your long-term exposure to exchange rate risk. 
B) achieved an equilibrium known as the international Fisher effect. 
C) offset any potential translation exposure to exchange rate risk. 
D) entered into a forward contract. 
E) generated a profit from triangle arbitrage.

Question 13

A sweater you desire costs Can$68.What will the same sweater cost in the United States if the indirect quote is 1.1417 and purchasing power parity exists?

Accepted Answer

A) $59.56 
B) $64.09 
C) $68.78 
D) $77.63 
E) $76.27 
A) $59.56 
B) $64.09 
C) $68.78 
D) $77.63 
E) $76.27

Question 14

The home currency approach

Accepted Answer

A) discounts all of a project's foreign cash flows using the current spot rate. 
B) employs uncovered interest parity to project future exchange rates. 
C) computes the net present value (NPV)of a project in the foreign currency and then converts that NPV into U.S.dollars. 
D) utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency. 
E) utilizes the international Fisher effect to compute the relevant exchange rates determine the NPV of foreign cash flows in U.S.dollars. 
A) discounts all of a project's foreign cash flows using the current spot rate. 
B) employs uncovered interest parity to project future exchange rates. 
C) computes the net present value (NPV)of a project in the foreign currency and then converts that NPV into U.S.dollars. 
D) utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency. 
E) utilizes the international Fisher effect to compute the relevant exchange rates determine the NPV of foreign cash flows in U.S.dollars.

Question 15

A bond issued in multiple countries but generally denominated in the single home currency of the issuer is called a

Accepted Answer

A) Treasury bond. 
B) Eurobond. 
C) Bulldog bond. 
D) Samurai bond. 
E) Yankee bond. 
A) Treasury bond. 
B) Eurobond. 
C) Bulldog bond. 
D) Samurai bond. 
E) Yankee bond.

Question 16

Assume the spot rate for the British pound is currently £.1.5604 while the 1-year forward rate is £1.5587.A risk-free asset in the United States is currently earning 2.6 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free British security?

Accepted Answer

A) 2.28% 
B) 2.23% 
C) 2.46% 
D) 2.49% 
E) 2.37% 
A) 2.28% 
B) 2.23% 
C) 2.46% 
D) 2.49% 
E) 2.37%

Question 17

Which one of these statements related to the foreign exchange market is correct?

Accepted Answer

A) Currency trading floors are operated by the central bank of each country. 
B) The primary currency trading floor is located in London. 
C) The foreign exchange market is second in size as a financial market only to the New York Stock Exchange. 
D) Currency trading floors are located in all the major financial centers of the world and operated by commercial banks. 
E) SWIFT is a means of handling foreign currency transactions that is sponsored by a Belgian cooperative. 
A) Currency trading floors are operated by the central bank of each country. 
B) The primary currency trading floor is located in London. 
C) The foreign exchange market is second in size as a financial market only to the New York Stock Exchange. 
D) Currency trading floors are located in all the major financial centers of the world and operated by commercial banks. 
E) SWIFT is a means of handling foreign currency transactions that is sponsored by a Belgian cooperative.

Question 18

Assume a risk-free asset in the United States is currently yielding 2.14 percent while a Canadian risk-free asset is yielding 2.57 percent.The current spot rate is Can$.9894.What is the approximate 3-year forward rate if interest rate parity holds?

Accepted Answer

A) Can$1.0034 
B) Can$1.0027 
C) Can$1.0022 
D) Can$.9973 
E) Can$.9978 
A) Can$1.0034 
B) Can$1.0027 
C) Can$1.0022 
D) Can$.9973 
E) Can$.9978

Question 19

Triangle arbitrage:

Accepted Answer

A) no longer exists as all currencies have obtained equilibrium on an ongoing basis. 
B) prevents exchange markets from obtaining equilibrium. 
C) opportunities can exist in either the spot or the forward market. 
D) requires three currencies that are correctly priced plus one incorrectly priced currency. 
E) is rarely profitable. 
A) no longer exists as all currencies have obtained equilibrium on an ongoing basis. 
B) prevents exchange markets from obtaining equilibrium. 
C) opportunities can exist in either the spot or the forward market. 
D) requires three currencies that are correctly priced plus one incorrectly priced currency. 
E) is rarely profitable.

For accounting purposes,the translation gains and losses that affect a firm's balance sheet are

Assume the current spot rate for the Norwegian krone is $1 = NKr7.0305.The expected inflation rate in Norway is 2.6 percent,and in the United States its 1.3 percent.A risk-free asset in the U.S.is yielding 2.2 percent.What risk-free rate of return should you expect on a Norwegian security?

A fancy new coat costs SKr989.90.Assume you can exchange SKr1 for $.1402 and €1 for $1.1806.How much will the identical coat cost in euros if absolute purchasing power parity exists?

Assume the direct quote for the Australian dollar is 0.8643 while it is 0.7627 for New Zealand dollar.What is the cross-rate between the Australian dollar and the New Zealand dollar?

Assume the expected inflation rate in the United States its 2.8 percent while a risk-free asset in the United States is yielding 3.5 percent.A similar asset in Norway earns a rate of 4.8 percent.What is the inflation rate in Norway if the international Fisher effect applies?

Which one of these presents the idea that forward rates are equal to expected future spot rates?

The foreign currency approach to capital budgeting analysis

Interest rate parity

The home currency approach

Assume you borrow $5,000 today,exchange the $5,000 into yen,and then invest the yen for 30 days,at which time you need to pay an invoice to a Japanese supplier.In essence,you have

A sweater you desire costs Can$68.What will the same sweater cost in the United States if the indirect quote is 1.1417 and purchasing power parity exists?

The home currency approach

A bond issued in multiple countries but generally denominated in the single home currency of the issuer is called a

Assume the spot rate for the British pound is currently £.1.5604 while the 1-year forward rate is £1.5587.A risk-free asset in the United States is currently earning 2.6 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free British security?

Which one of these statements related to the foreign exchange market is correct?

Assume a risk-free asset in the United States is currently yielding 2.14 percent while a Canadian risk-free asset is yielding 2.57 percent.The current spot rate is Can$.9894.What is the approximate 3-year forward rate if interest rate parity holds?

Triangle arbitrage:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

Mergers and Acquisitions Web Only

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Exam 20: International Corporate Finance

For accounting purposes,the translation gains and losses that affect a firm's balance sheet are

Assume the current spot rate for the Norwegian krone is $1 = NKr7.0305.The expected inflation rate in Norway is 2.6 percent,and in the United States its 1.3 percent.A risk-free asset in the U.S.is yielding 2.2 percent.What risk-free rate of return should you expect on a Norwegian security?

A fancy new coat costs SKr989.90.Assume you can exchange SKr1 for $.1402 and €1 for $1.1806.How much will the identical coat cost in euros if absolute purchasing power parity exists?

Assume the direct quote for the Australian dollar is 0.8643 while it is 0.7627 for New Zealand dollar.What is the cross-rate between the Australian dollar and the New Zealand dollar?

Assume the expected inflation rate in the United States its 2.8 percent while a risk-free asset in the United States is yielding 3.5 percent.A similar asset in Norway earns a rate of 4.8 percent.What is the inflation rate in Norway if the international Fisher effect applies?

Which one of these presents the idea that forward rates are equal to expected future spot rates?

The foreign currency approach to capital budgeting analysis

Interest rate parity

The home currency approach

Assume you borrow $5,000 today,exchange the $5,000 into yen,and then invest the yen for 30 days,at which time you need to pay an invoice to a Japanese supplier.In essence,you have

A sweater you desire costs Can$68.What will the same sweater cost in the United States if the indirect quote is 1.1417 and purchasing power parity exists?

The home currency approach

A bond issued in multiple countries but generally denominated in the single home currency of the issuer is called a

Assume the spot rate for the British pound is currently £.1.5604 while the 1-year forward rate is £1.5587.A risk-free asset in the United States is currently earning 2.6 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free British security?

Which one of these statements related to the foreign exchange market is correct?

Assume a risk-free asset in the United States is currently yielding 2.14 percent while a Canadian risk-free asset is yielding 2.57 percent.The current spot rate is Can$.9894.What is the approximate 3-year forward rate if interest rate parity holds?

Triangle arbitrage:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

Mergers and Acquisitions Web Only

Filters