Question 1

If managers intend to adjust the projections of foreign investments,it is probably better to make the adjustments in:

Accepted Answer

A)  the discount rate used. 
B)  the cash flows projected. 
C)  both the discount rate and cash flows. 
D)  the exchange rate, but never in the discount rate. 
A)  the discount rate used. 
B)  the cash flows projected. 
C)  both the discount rate and cash flows. 
D)  the exchange rate, but never in the discount rate.

Question 2

A firm has a legal obligation to pay FFr5 million 1 year from now and is wondering how it can hedge the exchange risk.The spot exchange rate is FFr5.5/$ and the forward rate is FFr5.6/$.The 1-year U.S.interest rate is 5% and the French rate is 5.5%.What do you suggest?

Accepted Answer

The options for hedging this exchange ri

Question 3

What can be said about the spot exchange rate of dollars for pounds if nominal interest rates are higher in the United States than in the United Kingdom?

Accepted Answer

A)  It should exceed the forward rate of dollars for pounds. 
B)  It should be less than the forward rate of dollars for pounds. 
C)  It is expected to increase. 
D)  It is expected to remain constant. 
A)  It should exceed the forward rate of dollars for pounds. 
B)  It should be less than the forward rate of dollars for pounds. 
C)  It is expected to increase. 
D)  It is expected to remain constant.

Question 4

Predict the expected spot exchange rate between the Japanese yen and U.S.dollar,given that inflation in Japan,at 8%,is 4% higher than in the United States and that the current spot rate is ¥107/$.

Accepted Answer

A)  ¥102.72/$ 
B)  ¥103.04/$ 
C)  ¥111.12/$ 
D)  ¥111.28/$ 
A)  ¥102.72/$ 
B)  ¥103.04/$ 
C)  ¥111.12/$ 
D)  ¥111.28/$

Question 5

What would you expect to occur if the rate of expected inflation in the United States is considerably lower than expected inflation in Germany?

Accepted Answer

A)  The expected spot rate of €/$ will increase. 
B)  The current spot rate of €/$ will increase. 
C)  The dollar should appreciate against the euro. 
D)  The dollar should depreciate against the euro. 
A)  The expected spot rate of €/$ will increase. 
B)  The current spot rate of €/$ will increase. 
C)  The dollar should appreciate against the euro. 
D)  The dollar should depreciate against the euro.

Question 6

If you buy yen forward when the yen is selling at a forward premium,you will get:

Accepted Answer

A)  more yen than if you buy on spot market. 
B)  fewer yen than if you buy on spot market. 
C)  the same number of yen as on the spot market, but with a lower commission. 
D)  the expectation of more yen, but the difference is not locked in. 
A)  more yen than if you buy on spot market. 
B)  fewer yen than if you buy on spot market. 
C)  the same number of yen as on the spot market, but with a lower commission. 
D)  the expectation of more yen, but the difference is not locked in.

Question 7

The forward exchange rate for foreign currency is the rate for immediate exchanges.

Accepted Answer

A) True 
 B)False

Question 8

A firm intends to hedge against exchange loss,a large future payment that must be made in a foreign currency.Which of the following identifies the cost of such a hedge?

Accepted Answer

A)  Difference between expected and current spot rates 
B)  Difference between expected and current forward rates 
C)  Difference between the forward premium and the forward discount 
D)  Difference between the forward rate and the expected future spot rate 
A)  Difference between expected and current spot rates 
B)  Difference between expected and current forward rates 
C)  Difference between the forward premium and the forward discount 
D)  Difference between the forward rate and the expected future spot rate

Question 9

What is the difference between spot and forward exchange rates?

Accepted Answer

The exchange rate is the amount of one c

Question 10

History has shown a positive relationship between higher interest rates and higher subsequent rates of inflation.

Accepted Answer

A) True 
 B)False

Question 11

If the international Fisher effect is valid,then real interest rates in all countries should be equal.

Accepted Answer

A) True 
 B)False

Question 12

The exchange rate in 2007 was R6.8344/$.If the cost of living was the same in the United States and South Africa,forecasting that inflation in 2008 would be about 8.5% in South Africa and 3.5% in the United States.Calculate the expected exchange rate at the end of 2008.

Accepted Answer

At the end of the year,based on these in

Question 13

The International Fisher effect stated that "if expected real interest rates are the same everywhere,then differences in the nominal interest rate must reflect differences in expected inflation rates."

Accepted Answer

A) True 
 B)False

Question 14

The spot exchange rate of British pound(£)is $1.6000/£.The annual inflation rate in US$ is 4% and 8% in the United Kingdom.What will be the anticipated exchange rate at the end of the year if PPP is valid?

Accepted Answer

A)  $1.5407/£ 
B)  $1.6466/£ 
C)  $1.6000/£ 
D)  $1.6480/£ 
A)  $1.5407/£ 
B)  $1.6466/£ 
C)  $1.6000/£ 
D)  $1.6480/£

Question 15

Yesterday the spot exchange rate of yen-to-dollar was 105.What is today's spot exchange rate if the yen has appreciated 10% against the dollar today?

Accepted Answer

A)  ¥94.5/$ 
B)  ¥94.5/$1.10 
C)  ¥115.5/$ 
D)  ¥115.5/$1.10 
A)  ¥94.5/$ 
B)  ¥94.5/$1.10 
C)  ¥115.5/$ 
D)  ¥115.5/$1.10

Question 16

Which of the following appears to be a safe assumption when there is no difference between the forward and spot exchange rates between two currencies?

Accepted Answer

A)  The countries have equal nominal interest rates. 
B)  The spot rate is expected to change. 
C)  Expected inflation is less than the nominal rate. 
D)  Both currencies are selling at a premium relative to the other. 
A)  The countries have equal nominal interest rates. 
B)  The spot rate is expected to change. 
C)  Expected inflation is less than the nominal rate. 
D)  Both currencies are selling at a premium relative to the other.

Question 17

Risk-free strategies that take advantage of misalignments in two prices (e.g.,the spot and forward exchange rates)are called arbitrage strategies.

Accepted Answer

A) True 
 B)False

Question 18

If the interest rate of one country increases,then the value of that country's currency increases in the forward market.

Accepted Answer

A) True 
 B)False

Question 19

If interest rates are higher in Italy than in the United States,the market expects that the Euro will:

Accepted Answer

A)  appreciate against the dollar. 
B)  depreciate against the dollar. 
C)  offer a higher real rate of return than the dollar. 
D)  be selling at a forward discount. 
A)  appreciate against the dollar. 
B)  depreciate against the dollar. 
C)  offer a higher real rate of return than the dollar. 
D)  be selling at a forward discount.

Question 20

The main purpose in contracting to purchase foreign currency in the forward market is to:

Accepted Answer

A)  earn a premium (interest) on the exchange. 
B)  lock into a price now. 
C)  take advantage of future price reductions. 
D)  avoid the more expensive spot rates. 
A)  earn a premium (interest) on the exchange. 
B)  lock into a price now. 
C)  take advantage of future price reductions. 
D)  avoid the more expensive spot rates.

Exam 22: International Financial Management

If managers intend to adjust the projections of foreign investments,it is probably better to make the adjustments in:

A firm has a legal obligation to pay FFr5 million 1 year from now and is wondering how it can hedge the exchange risk.The spot exchange rate is FFr5.5/$ and the forward rate is FFr5.6/$.The 1-year U.S.interest rate is 5% and the French rate is 5.5%.What do you suggest?

What can be said about the spot exchange rate of dollars for pounds if nominal interest rates are higher in the United States than in the United Kingdom?

Predict the expected spot exchange rate between the Japanese yen and U.S.dollar,given that inflation in Japan,at 8%,is 4% higher than in the United States and that the current spot rate is ¥107/$.

What would you expect to occur if the rate of expected inflation in the United States is considerably lower than expected inflation in Germany?

If you buy yen forward when the yen is selling at a forward premium,you will get:

The forward exchange rate for foreign currency is the rate for immediate exchanges.

A firm intends to hedge against exchange loss,a large future payment that must be made in a foreign currency.Which of the following identifies the cost of such a hedge?

What is the difference between spot and forward exchange rates?

History has shown a positive relationship between higher interest rates and higher subsequent rates of inflation.

If the international Fisher effect is valid,then real interest rates in all countries should be equal.

The exchange rate in 2007 was R6.8344/$.If the cost of living was the same in the United States and South Africa,forecasting that inflation in 2008 would be about 8.5% in South Africa and 3.5% in the United States.Calculate the expected exchange rate at the end of 2008.

The International Fisher effect stated that "if expected real interest rates are the same everywhere,then differences in the nominal interest rate must reflect differences in expected inflation rates."

The spot exchange rate of British pound(£)is $1.6000/£.The annual inflation rate in US$ is 4% and 8% in the United Kingdom.What will be the anticipated exchange rate at the end of the year if PPP is valid?

Yesterday the spot exchange rate of yen-to-dollar was 105.What is today's spot exchange rate if the yen has appreciated 10% against the dollar today?

Which of the following appears to be a safe assumption when there is no difference between the forward and spot exchange rates between two currencies?

Risk-free strategies that take advantage of misalignments in two prices (e.g.,the spot and forward exchange rates)are called arbitrage strategies.

If the interest rate of one country increases,then the value of that country's currency increases in the forward market.

If interest rates are higher in Italy than in the United States,the market expects that the Euro will:

The main purpose in contracting to purchase foreign currency in the forward market is to:

Goals and Governance of the Corporation

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk,Return,and the Opportunity Cost of Capital

Risk,Return,and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

Options

Risk Management

Filters