Question 1

When Starbucks opens a location in Mexico City, this is an example of ___________.

Accepted Answer

A)  Foreign direct investment 
B)  Arbitrage opportunity 
C)  Management of capital budgeting issues 
D)  None of these 
A)  Foreign direct investment 
B)  Arbitrage opportunity 
C)  Management of capital budgeting issues 
D)  None of these A

Question 2

Which of these is defined as an exchange rate regime where the currency is completely determined by the foreign-exchange market through supply and demand?

Accepted Answer

A)  foreign market regime 
B)  freely floating regime 
C)  currency market regime 
D)  managed-floating regime 
A)  foreign market regime 
B)  freely floating regime 
C)  currency market regime 
D)  managed-floating regime B

Question 3

What are the advantages of borrowing money in the country you plan to invest in?

Accepted Answer

One advantage is that it reduces exchange rate risk. The money generated from the business operations within the firm can be used to pay the interest and principal on the loan. No currency exchange is needed. This also reduces the political risk of the government seizing the investment. If the investment is seized, the company can stop paying back the loan.

Question 4

Purchasing Power Parity If the current spot rate between the U.S. dollar and the Netherland Antilles Guilder was $1 = 1.54 Guilder, and if the inflation rate in the United States was 2 percent and in the Netherland Antilles it was 8 percent, then what would be the expected spot rate in one year?

Accepted Answer

A)  $0.6104 
B)  $0.6494 
C)  $1.4476 
D)  $0.6133 
A)  $0.6104 
B)  $0.6494 
C)  $1.4476 
D)  $0.6133

Question 5

Which of these is defined as a contractual agreement that states the exchange rate to be used at a future exchange date?

Accepted Answer

A)  fixed peg rate 
B)  forward exchange rate 
C)  managed exchange rate 
D)  future strategy rate 
A)  fixed peg rate 
B)  forward exchange rate 
C)  managed exchange rate 
D)  future strategy rate

Question 6

Which of these is defined as the price of one currency in terms of another?

Accepted Answer

A)  exchange rate 
B)  spot transaction 
C)  indirect exchange quote 
D)  direct exchange quote 
A)  exchange rate 
B)  spot transaction 
C)  indirect exchange quote 
D)  direct exchange quote

Question 7

Triangular Arbitrage The U.S. dollar spot exchange rate with the Australian dollar is $1 = AU$1.2219. The U.S. dollar and euro exchange rate is $1 = €0.7595. If the cross-rate between the euro and Australian dollar is €1 = AU$1.575 then show that an arbitrage is possible. What positions should be taken to profit from the mispricing?

Accepted Answer

A)  Starting with U.S. dollars, buy Australian dollars and convert them to euros and then back to U.S. dollars. 
B)  Starting with U.S. dollars, buy euros and convert them to Australian dollars and then back to U.S. dollars. 
C)  Starting with euros, buy U.S. dollars and convert them to Australian dollars and then back to euros. 
D)  Starting with Australian dollars, buy euros and convert them to U.S. dollars and then back to Australian dollars. 
A)  Starting with U.S. dollars, buy Australian dollars and convert them to euros and then back to U.S. dollars. 
B)  Starting with U.S. dollars, buy euros and convert them to Australian dollars and then back to U.S. dollars. 
C)  Starting with euros, buy U.S. dollars and convert them to Australian dollars and then back to euros. 
D)  Starting with Australian dollars, buy euros and convert them to U.S. dollars and then back to Australian dollars.

Question 8

Currency Exchange Compute the number of dollars that can be bought with 5 million of foreign currency units: $1 = 2,150.4 Venezuelan Bolivar

Accepted Answer

A)  $2,325.1488 
B)  $232,514.88 
C)  $7,325,000 
D)  $43,008,000.00 
A)  $2,325.1488 
B)  $232,514.88 
C)  $7,325,000 
D)  $43,008,000.00

Question 9

The spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.6607. If the interest rate in the United States is 6 percent and in New Zealand is 4 percent, then what should be the three-month forward exchange rate?

Accepted Answer

A)  $0.5368 per NZD 
B)  $0.6051 per NZD 
C)  $0.7614 per NZD 
D)  $0.8075 per NZD 
A)  $0.5368 per NZD 
B)  $0.6051 per NZD 
C)  $0.7614 per NZD 
D)  $0.8075 per NZD

Question 10

If the price of copper in Europe is €2.72 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.8623?

Accepted Answer

A)  $3.15 
B)  $3.84 
C)  $4.17 
D)  $2.98 
A)  $3.15 
B)  $3.84 
C)  $4.17 
D)  $2.98

Question 11

Which of the following is NOT an example of how a company could hedge to reduce currency risk?

Accepted Answer

A)  buying futures contracts 
B)  buying options 
C)  currency swaps 
D)  fixed peg arrangements 
A)  buying futures contracts 
B)  buying options 
C)  currency swaps 
D)  fixed peg arrangements

Question 12

Law of One Price If the price of silver in England is £7.10 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5275?

Accepted Answer

A)  $7.6275 per ounce 
B)  $7.429 per ounce 
C)  $3.74525 per ounce 
D)  $13.4597 per ounce 
A)  $7.6275 per ounce 
B)  $7.429 per ounce 
C)  $3.74525 per ounce 
D)  $13.4597 per ounce

Question 13

Discount Rates A financial manager has determined that the appropriate discount rate for a foreign project is 15 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 8 percent and 4 percent, respectively.

Accepted Answer

A)  11% 
B)  19% 
C)  21% 
D)  12% 
A)  11% 
B)  19% 
C)  21% 
D)  12%

Question 14

A large amount of foreign direct investment into a country will most likely result in ______.

Accepted Answer

A)  More jobs 
B)  Higher inflation 
C)  Higher tariffs 
D)  Lower taxes 
A)  More jobs 
B)  Higher inflation 
C)  Higher tariffs 
D)  Lower taxes

Question 15

Law of One Price If the price of copper in Europe is €2.22 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.7802?

Accepted Answer

A)  $3.0002 per ounce 
B)  $3.514 per ounce 
C)  $1.7320 per ounce 
D)  $2.8454 per ounce 
A)  $3.0002 per ounce 
B)  $3.514 per ounce 
C)  $1.7320 per ounce 
D)  $2.8454 per ounce

Question 16

Compute the amount of each foreign currency that can be purchased for $5,000: 
a. 1 Danish Krone = $0.18
b. 1 Indian Rupee = $0.15
c. 1 Israeli Shekel = $0.37
$5,000 equals:

Accepted Answer

A)  17,777.78 Krone; 33,333.33 Rupee; 18,513.51 Shekel 
B)  17,777.78 Krone; 33,333.33 Rupee; 13,513.51 Shekel 
C)  27,777.78 Krone; 38,333.33 Rupee; 13,513.51 Shekel 
D)  27,777.78 Krone; 33,333.33 Rupee; 13,513.51 Shekel 
A)  17,777.78 Krone; 33,333.33 Rupee; 18,513.51 Shekel 
B)  17,777.78 Krone; 33,333.33 Rupee; 13,513.51 Shekel 
C)  27,777.78 Krone; 38,333.33 Rupee; 13,513.51 Shekel 
D)  27,777.78 Krone; 33,333.33 Rupee; 13,513.51 Shekel

Question 17

The U.S. dollar spot exchange rate with the Canadian dollar is $1 = CA$1.12. The U.S. dollar and Swiss franc exchange rate is $1 = 1.275. If the cross-rate between the franc and Canadian dollar is 1 franc = CA$0.9750, which of the following statements is correct?

Accepted Answer

A)  Starting with U.S. dollars, buy francs and convert them to Canadian dollars and then back to U.S. dollars. 
B)  Starting with U.S. Dollars, buy Canadian dollars and convert them to Swiss francs and then back to U.S. dollars. 
C)  Starting with Swiss francs, buy Canadian dollars and convert them to Swiss francs and then back to U.S. dollars. 
D)  Starting with Canadian dollars, buy U.S dollars and convert them to Swiss francs and then back to U.S. dollars. 
A)  Starting with U.S. dollars, buy francs and convert them to Canadian dollars and then back to U.S. dollars. 
B)  Starting with U.S. Dollars, buy Canadian dollars and convert them to Swiss francs and then back to U.S. dollars. 
C)  Starting with Swiss francs, buy Canadian dollars and convert them to Swiss francs and then back to U.S. dollars. 
D)  Starting with Canadian dollars, buy U.S dollars and convert them to Swiss francs and then back to U.S. dollars.

Question 18

Which of these is the trade agreement between South American countries to create their own free trade zone?

Accepted Answer

A)  South American Union 
B)  South American Free Trade Agreement (SAFT
A)  
C)  South American Monetary Fund (SAMF) 
D)  Mercosur 
A)  South American Union 
B)  South American Free Trade Agreement (SAFT
A)  
C)  South American Monetary Fund (SAMF) 
D)  Mercosur

Question 19

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 2,150.4 Venezuelan Bolivar

Accepted Answer

A)  $0.00046503 
B)  $4.65 
C)  $1.465 
D)  $2.1504 
A)  $0.00046503 
B)  $4.65 
C)  $1.465 
D)  $2.1504

Question 20

Which of these is defined as an exchange rate regime where the country's central bank allows its currency price to float freely between an upper and lower bound and may buy and sell large amounts of it in order to provide price support or resistance?

Accepted Answer

A)  foreign market regime 
B)  freely floating regime 
C)  currency market regime 
D)  managed-floating regime 
A)  foreign market regime 
B)  freely floating regime 
C)  currency market regime 
D)  managed-floating regime

When Starbucks opens a location in Mexico City, this is an example of ___________.

Which of these is defined as an exchange rate regime where the currency is completely determined by the foreign-exchange market through supply and demand?

What are the advantages of borrowing money in the country you plan to invest in?

Purchasing Power Parity If the current spot rate between the U.S. dollar and the Netherland Antilles Guilder was $1 = 1.54 Guilder, and if the inflation rate in the United States was 2 percent and in the Netherland Antilles it was 8 percent, then what would be the expected spot rate in one year?

Which of these is defined as a contractual agreement that states the exchange rate to be used at a future exchange date?

Which of these is defined as the price of one currency in terms of another?

Currency Exchange Compute the number of dollars that can be bought with 5 million of foreign currency units: $1 = 2,150.4 Venezuelan Bolivar

The spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.6607. If the interest rate in the United States is 6 percent and in New Zealand is 4 percent, then what should be the three-month forward exchange rate?

If the price of copper in Europe is €2.72 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.8623?

Which of the following is NOT an example of how a company could hedge to reduce currency risk?

Law of One Price If the price of silver in England is £7.10 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5275?

A large amount of foreign direct investment into a country will most likely result in ______.

Law of One Price If the price of copper in Europe is €2.22 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.7802?

Compute the amount of each foreign currency that can be purchased for $5,000: a. 1 Danish Krone = $0.18 b. 1 Indian Rupee = $0.15 c. 1 Israeli Shekel = $0.37 $5,000 equals:

The U.S. dollar spot exchange rate with the Canadian dollar is $1 = CA$1.12. The U.S. dollar and Swiss franc exchange rate is $1 = 1.275. If the cross-rate between the franc and Canadian dollar is 1 franc = CA$0.9750, which of the following statements is correct?

Which of these is the trade agreement between South American countries to create their own free trade zone?

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 2,150.4 Venezuelan Bolivar

Which of these is defined as an exchange rate regime where the country's central bank allows its currency price to float freely between an upper and lower bound and may buy and sell large amounts of it in order to provide price support or resistance?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

Mergers and Acquisitions and Financial Distress

Filters

Exam 19: International Corporate Finance

When Starbucks opens a location in Mexico City, this is an example of ___________.

Which of these is defined as an exchange rate regime where the currency is completely determined by the foreign-exchange market through supply and demand?

What are the advantages of borrowing money in the country you plan to invest in?

Purchasing Power Parity If the current spot rate between the U.S. dollar and the Netherland Antilles Guilder was $1 = 1.54 Guilder, and if the inflation rate in the United States was 2 percent and in the Netherland Antilles it was 8 percent, then what would be the expected spot rate in one year?

Which of these is defined as a contractual agreement that states the exchange rate to be used at a future exchange date?

Which of these is defined as the price of one currency in terms of another?

Currency Exchange Compute the number of dollars that can be bought with 5 million of foreign currency units: $1 = 2,150.4 Venezuelan Bolivar

The spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.6607. If the interest rate in the United States is 6 percent and in New Zealand is 4 percent, then what should be the three-month forward exchange rate?

If the price of copper in Europe is €2.72 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.8623?

Which of the following is NOT an example of how a company could hedge to reduce currency risk?

Law of One Price If the price of silver in England is £7.10 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5275?

A large amount of foreign direct investment into a country will most likely result in ______.

Law of One Price If the price of copper in Europe is €2.22 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.7802?

Compute the amount of each foreign currency that can be purchased for $5,000: a. 1 Danish Krone = $0.18 b. 1 Indian Rupee = $0.15 c. 1 Israeli Shekel = $0.37 $5,000 equals:

The U.S. dollar spot exchange rate with the Canadian dollar is $1 = CA$1.12. The U.S. dollar and Swiss franc exchange rate is $1 = 1.275. If the cross-rate between the franc and Canadian dollar is 1 franc = CA$0.9750, which of the following statements is correct?

Which of these is the trade agreement between South American countries to create their own free trade zone?

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 2,150.4 Venezuelan Bolivar

Which of these is defined as an exchange rate regime where the country's central bank allows its currency price to float freely between an upper and lower bound and may buy and sell large amounts of it in order to provide price support or resistance?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

Mergers and Acquisitions and Financial Distress

Filters