Question 1

Arbitrage profit can be made by _________________.

Accepted Answer

A)  Selling assets in future markets and buying them in the spot markets 
B)  Buying assets in markets with high interest rates and selling them in a local market 
C)  Buying assets in a "cheap" market and selling them in another market where the price is higher 
D)  None of these 
A)  Selling assets in future markets and buying them in the spot markets 
B)  Buying assets in markets with high interest rates and selling them in a local market 
C)  Buying assets in a "cheap" market and selling them in another market where the price is higher 
D)  None of these

Question 2

Currency Exchange Compute the number of dollars that can be bought with 2 million of foreign currency units: $1 = 48.210 Philippine Peso

Accepted Answer

A)  $41,485.16905 
B)  $1,959,439.60 
C)  $414,851.6905 
D)  $4,148,516.905 
A)  $41,485.16905 
B)  $1,959,439.60 
C)  $414,851.6905 
D)  $4,148,516.905

Question 3

The Russian financial crisis of 1998 caused Russia's currency to be dramatically devalued. What is the percentage change in value of a $100 million investment in Russia when the exchange rate changes from $1 = 6 rubles to $1 = 25 rubles?

Accepted Answer

A)  -49% 
B)  -57% 
C)  -69% 
D)  -76% 
A)  -49% 
B)  -57% 
C)  -69% 
D)  -76%

Question 4

Purchasing power parity (PPP) may not hold exactly because of which of the following?

Accepted Answer

A)  shipping costs 
B)  insurance costs 
C)  trading costs 
D)  All of these are transaction costs that may not allow PPP to hold exactly. 
A)  shipping costs 
B)  insurance costs 
C)  trading costs 
D)  All of these are transaction costs that may not allow PPP to hold exactly.

Question 5

A financial manager has determined that the appropriate discount rate for a foreign project is 17 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 3 percent and 8 percent, respectively.

Accepted Answer

A)  17% 
B)  20% 
C)  22% 
D)  25% 
A)  17% 
B)  20% 
C)  22% 
D)  25%

Question 6

All of the following are examples of factors that affect trading activity between countries except __________________.

Accepted Answer

A)  Charging a 0.75% import tax on steel imported from China into the U.S. 
B)  Charging $3 tariff per barrel of crude oil imported in the U.S. 
C)  Restricting the importation of produce into the U.S from South America 
D)  All of these are factors that affect trading activity between countries 
A)  Charging a 0.75% import tax on steel imported from China into the U.S. 
B)  Charging $3 tariff per barrel of crude oil imported in the U.S. 
C)  Restricting the importation of produce into the U.S from South America 
D)  All of these are factors that affect trading activity between countries

Question 7

What is meant by hedging exchange rate risk and what are some ways it is done?

Accepted Answer

Exchange rate risk is the risk that the

Question 8

Which of the following is a theory that the difference in interest rates between two countries is equal to the difference between the forward currency exchange rate and the spot exchange rate?

Accepted Answer

A)  purchasing power parity 
B)  interest rate parity 
C)  law of one price 
D)  currency swap parity 
A)  purchasing power parity 
B)  interest rate parity 
C)  law of one price 
D)  currency swap parity

Question 9

Exchange Rate Risk A U.S. firm is expecting cash flows of 15 million Mexican pesos and 20 million Indian rupees. The current spot exchange rates are: $1 = 11.501 pesos and $1 = 45.525 rupees. If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.265 pesos and $1 = 45.005 rupees, then what is the difference in dollars received that was caused by the delay?

Accepted Answer

A)  $0.03 million more 
B)  $0.03 million less 
C)  $16.94 million more 
D)  $16.94 million less 
A)  $0.03 million more 
B)  $0.03 million less 
C)  $16.94 million more 
D)  $16.94 million less

Question 10

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 48.210 Philippine Peso

Accepted Answer

A)  $0.0207 
B)  $1.0207 
C)  $4.8210 
D)  $0.4821 
A)  $0.0207 
B)  $1.0207 
C)  $4.8210 
D)  $0.4821

Question 11

Triangular Arbitrage Assume the U.S. dollar spot exchange rate with the Canadian dollar is $1 = CA$1.125. The U.S. dollar and Swiss Franc exchange rate is $1 = 1.235. If the cross rate between the franc and Canadian dollar is 1 franc = CA$0.9820, then show that an arbitrage is possible. What positions should be taken to profit from the mispricing?

Accepted Answer

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

Question 12

Tools that multinationals can use to help them reduce the risks inherent in making investments in foreign countries include ___________.

Accepted Answer

A)  Options 
B)  Hedges 
C)  Swaps 
D)  All of these 
A)  Options 
B)  Hedges 
C)  Swaps 
D)  All of these

Question 13

Exchange Rate Risk In the late 1990s, many East Asian currencies suddenly and dramatically devalued. What is the percentage change in value of a $75 million investment in Indonesia when the exchange rate changes from $1 = 1,000 rupiah to $1 = 7,000 rupiah?

Accepted Answer

A)  14.29% 
B)  85.71% 
C)  12.5% 
D)  87.5% 
A)  14.29% 
B)  85.71% 
C)  12.5% 
D)  87.5%

Question 14

Law of One Price If the price of silver in England is £6.85 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5426?

Accepted Answer

A)  $7.3926 per ounce 
B)  $7.921 per ounce 
C)  $3.7168 per ounce 
D)  $12.6244 per ounce 
A)  $7.3926 per ounce 
B)  $7.921 per ounce 
C)  $3.7168 per ounce 
D)  $12.6244 per ounce

Question 15

Which of these is defined as the practice of simultaneously purchasing and selling an asset in different forms or markets to take advantage of an imbalance in price?

Accepted Answer

A)  arbitrage 
B)  spot transaction 
C)  indirect quote 
D)  cross quote 
A)  arbitrage 
B)  spot transaction 
C)  indirect quote 
D)  cross quote

Question 16

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote: 1 Thai Baht = $0.03057

Accepted Answer

A)  0.03057 Baht 
B)  1.03057 Baht 
C)  0.96943 Baht 
D)  32.7118 Baht 
A)  0.03057 Baht 
B)  1.03057 Baht 
C)  0.96943 Baht 
D)  32.7118 Baht

Question 17

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 5 percent and 7 percent, respectively.

Accepted Answer

A)  13% 
B)  17% 
C)  18% 
D)  20% 
A)  13% 
B)  17% 
C)  18% 
D)  20%

Question 18

Exchange Rate Risk What is the percentage change in value of a $50 million investment in Russia when the exchange rate changes from $1 = 7 rubles to $1 = 12 rubles?

Accepted Answer

A)  41.67% 
B)  58.33% 
C)  36.84% 
D)  63.16% 
A)  41.67% 
B)  58.33% 
C)  36.84% 
D)  63.16%

Question 19

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 0.5467 Latvian Lat

Accepted Answer

A)  $1.5467 
B)  $0.15467 
C)  $0.018292 
D)  $1.8292 
A)  $1.5467 
B)  $0.15467 
C)  $0.018292 
D)  $1.8292

Question 20

Exchange Rate Risk A U.S. firm is expecting to pay cash flows of 20 million Egyptian pounds and 25 million Qatar rials. The current spot exchange rates are: $1 = 5.829 pounds and $1 = 3.645 rials. If these cash flows are delayed one year and the expected spot rates at that time will be $1 = 5.895 pounds and $1 = 3.899 rials, then what is the difference in dollars paid that was caused by the delay?

Accepted Answer

A)  $0.485 million less 
B)  $0.485 million more 
C)  $7.67 million more 
D)  $7.67 million less 
A)  $0.485 million less 
B)  $0.485 million more 
C)  $7.67 million more 
D)  $7.67 million less

Arbitrage profit can be made by _________________.

Currency Exchange Compute the number of dollars that can be bought with 2 million of foreign currency units: $1 = 48.210 Philippine Peso

The Russian financial crisis of 1998 caused Russia's currency to be dramatically devalued. What is the percentage change in value of a $100 million investment in Russia when the exchange rate changes from $1 = 6 rubles to $1 = 25 rubles?

Purchasing power parity (PPP) may not hold exactly because of which of the following?

All of the following are examples of factors that affect trading activity between countries except __________________.

What is meant by hedging exchange rate risk and what are some ways it is done?

Which of the following is a theory that the difference in interest rates between two countries is equal to the difference between the forward currency exchange rate and the spot exchange rate?

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 48.210 Philippine Peso

Tools that multinationals can use to help them reduce the risks inherent in making investments in foreign countries include ___________.

Exchange Rate Risk In the late 1990s, many East Asian currencies suddenly and dramatically devalued. What is the percentage change in value of a $75 million investment in Indonesia when the exchange rate changes from $1 = 1,000 rupiah to $1 = 7,000 rupiah?

Law of One Price If the price of silver in England is £6.85 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5426?

Which of these is defined as the practice of simultaneously purchasing and selling an asset in different forms or markets to take advantage of an imbalance in price?

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote: 1 Thai Baht = $0.03057

Exchange Rate Risk What is the percentage change in value of a $50 million investment in Russia when the exchange rate changes from $1 = 7 rubles to $1 = 12 rubles?

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 0.5467 Latvian Lat

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

Arbitrage profit can be made by _________________.

Currency Exchange Compute the number of dollars that can be bought with 2 million of foreign currency units: $1 = 48.210 Philippine Peso

The Russian financial crisis of 1998 caused Russia's currency to be dramatically devalued. What is the percentage change in value of a $100 million investment in Russia when the exchange rate changes from $1 = 6 rubles to $1 = 25 rubles?

Purchasing power parity (PPP) may not hold exactly because of which of the following?

All of the following are examples of factors that affect trading activity between countries except __________________.

What is meant by hedging exchange rate risk and what are some ways it is done?

Which of the following is a theory that the difference in interest rates between two countries is equal to the difference between the forward currency exchange rate and the spot exchange rate?

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 48.210 Philippine Peso

Tools that multinationals can use to help them reduce the risks inherent in making investments in foreign countries include ___________.

Exchange Rate Risk In the late 1990s, many East Asian currencies suddenly and dramatically devalued. What is the percentage change in value of a $75 million investment in Indonesia when the exchange rate changes from $1 = 1,000 rupiah to $1 = 7,000 rupiah?

Law of One Price If the price of silver in England is £6.85 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5426?

Which of these is defined as the practice of simultaneously purchasing and selling an asset in different forms or markets to take advantage of an imbalance in price?

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote: 1 Thai Baht = $0.03057

Exchange Rate Risk What is the percentage change in value of a $50 million investment in Russia when the exchange rate changes from $1 = 7 rubles to $1 = 12 rubles?

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote: $1 = 0.5467 Latvian Lat

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