Exam 22: International Financial Management

What is the expected German inflation rate if 3% inflation is expected in the United States, the spot exchange rate is €1.5/$ and the expected spot rate is €1.6/$?

If the exchange rate of euros/U.S. dollars is 0.74/1, then:

A U.S. importer of a Japanese product should sell Japanese yen forward to avoid the risk of an appreciation of the yen.

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?

The number of euros that can be purchased with one U.S. dollar is referred to as an indirect quote.

Which one of these is an example of operational hedging?

The nominal interest rate is the difference between the real interest rate and inflation.

The spot rate is $1 = C$1.02. The 3-month forward rate is $1 = C$1.03. The Canadian dollar is selling at a forward premium.

Why should interest rate parity mean that the forward premium should equal the interest rate differential between countries?

This morning, you purchased 125,000 yen ahead 6 months at a price of 130 yen per dollar. The spot rate today is 128 yen per dollar. In six months, how many dollars must you pay to acquire the 125,000 yen?

Futures contracts are an easy method of buying foreign currency forward.

If exchange rates adjust to reflect inflation differentials across countries, then:

How much would you expect to receive for a nominal interest rate in Great Britain if funds can be invested in the United States at a rate of 7%, when inflation is expected to be 4% in the United States and 8% in Great Britain?

The international Fisher effect predicts that differences in nominal interest rates between countries reflect differences in:

If purchasing power parity is holding, what will happen to the currency of a country with high inflation?

What do you expect to happen to prices in Japan, given nominal interest rates of 10% in the United States and 6% in Japan, and expected U.S. inflation of 6%?

You have the opportunity to invest in the United States at 6% or invest in an equally risky Australian investment that offers 20%. This is too good to be true! The current exchange rate is A$1.65/$. Which one of the following do you suspect about this 1-year investment?

One of the drawbacks of using forward contracts to hedge foreign exchange risk from payables is that the:

Knowing the value of compounding, you consider the opportunity to invest for 10 years in a Japanese investment that will return 12% annually. The U.S. alternative for a 10-year investment appears to offer 7% annually. The spot exchange rate is ¥96/$. What other concern should you have?

The following table shows the price of a Starbuck's tall latte coffee in different locations expressed in local currencies and converted into dollars using the spot rate of exchange. For example, a tall latte in London costs £1.90; at an exchange rate of $1.989 per pound, this is equivalent to a price of £1.90 × $1.989/£ = $3.78. This is 24% higher than the cost of a similar coffee in New York; for the costs to be equal, the pound would need to depreciate against the dollar.