Question 1

Which of the following would you expect to be nearly equal across countries?

Accepted Answer

A)  Nominal interest rates 
B)  Real interest rates 
C)  Inflation rates 
D)  Forward premium 
A)  Nominal interest rates 
B)  Real interest rates 
C)  Inflation rates 
D)  Forward premium

Question 2

Even if a firm neither owes nor is owed foreign currency,it still may be affected by currency fluctuations.

Accepted Answer

A) True 
 B)False

Question 3

An American investor buys 100 shares of London Enterprises at a price of £50 when the exchange rate is $1.60/£.A year later the shares are selling at £52.No dividends have been paid.
a.What is the rate of return to the American investor if the exchange rate is still $1.60/£?
b.What if the exchange rate is $1.70/£?
c.What if the exchange rate is $1.50/£?

Accepted Answer

Let s £ represent the spot rate ($/£)in

Question 4

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 of the following do you suspect about this 1-year investment?

Accepted Answer

A)  Expected inflation is higher in the United States. 
B)  The 1-year forward exchange rate is A$1.8679/$. 
C)  Real interest rates are higher in the United States. 
D)  The Australian dollar is selling forward at an 8.48% premium relative to the dollar. 
A)  Expected inflation is higher in the United States. 
B)  The 1-year forward exchange rate is A$1.8679/$. 
C)  Real interest rates are higher in the United States. 
D)  The Australian dollar is selling forward at an 8.48% premium relative to the dollar.

Question 5

According to interest rate parity,the interest rate differential must be equal to the differential between forward and spot exchange rates.

Accepted Answer

A) True 
 B)False

Question 6

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%?

Accepted Answer

A)  Expected Japanese inflation is 1.79%. 
B)  Expected Japanese inflation is 2.15%. 
C)  Expected Japanese inflation is 6.22%. 
D)  Expected Japanese inflation is 10.00%. 
A)  Expected Japanese inflation is 1.79%. 
B)  Expected Japanese inflation is 2.15%. 
C)  Expected Japanese inflation is 6.22%. 
D)  Expected Japanese inflation is 10.00%.

Question 7

The French franc is currently worth $0.15 and it's selling in the 1-year forward market at a 10% premium relative to the dollar.Approximately what rate would you expect to pay for a 1-year loan in France if the rate would be 10% in the United States?

Accepted Answer

A)  10.00% 
B)  11.62% 
C)  14.55% 
D)  20.88% 
A)  10.00% 
B)  11.62% 
C)  14.55% 
D)  20.88%

Question 8

Suppose that:   What is the annualized percentage discount or premium of the Canadian dollar on the U.S.dollar?

Accepted Answer

A)  1.10% premium 
B)  1.10% discount 
C)  2.20% premium 
D)  2.20% discount 
A)  1.10% premium 
B)  1.10% discount 
C)  2.20% premium 
D)  2.20% discount

Question 9

Which of the following is correct if you have contracted to purchase 1,000 Swiss francs 3 months forward at a rate of SFr1.6/$?

Accepted Answer

A)  You pay approximately $625 today for the francs. 
B)  You pay $1,600 today for the francs. 
C)  You pay approximately $625 3 months from now for the francs. 
D)  You pay $1,600 3 months from now for the francs. 
A)  You pay approximately $625 today for the francs. 
B)  You pay $1,600 today for the francs. 
C)  You pay approximately $625 3 months from now for the francs. 
D)  You pay $1,600 3 months from now for the francs.

Question 10

If the spot exchange rate between euros and dollars is €1.5/$ before the dollar depreciates by 10%,how many dollars will it now (after the depreciation has occurred)take to pay an invoice of €500?

Accepted Answer

A)  $366.67 
B)  $370.37 
C)  $750.00 
D)  $825.00 
A)  $366.67 
B)  $370.37 
C)  $750.00 
D)  $825.00

Question 11

What are the basic relationships between spot exchange rates,forward exchange rates,interest rates,and inflation rates?

Accepted Answer

To produce order out of chaos,the intern

Question 12

You are importing TV sets worth ¥10,000,000 from a Japanese manufacturer,and this amount is payable after 6 months.You can hedge your exchange risk by:

Accepted Answer

A)  buying Japanese yen in the forward market. 
B)  selling Japanese yen in the forward market. 
C)  borrowing Japanese yen. 
D)  doing nothing. 
A)  buying Japanese yen in the forward market. 
B)  selling Japanese yen in the forward market. 
C)  borrowing Japanese yen. 
D)  doing nothing.

Question 13

What would you expect to be the relationship between real rates of interest in Japan and the United States if inflation is expected to be 3% in Japan and 6% in the United States?

Accepted Answer

A)  Japan's real interest rate should be 3% higher than in the United States. 
B)  Japan's real interest rate should be 3% lower than in the United States. 
C)  Japan's real interest rate should be half as high as in the United States. 
D)  Real interest rates should be equal in both countries. 
A)  Japan's real interest rate should be 3% higher than in the United States. 
B)  Japan's real interest rate should be 3% lower than in the United States. 
C)  Japan's real interest rate should be half as high as in the United States. 
D)  Real interest rates should be equal in both countries.

Question 14

What is the international Fisher effect and how would you test it,knowing that 6% inflation is expected in the United States but only 3% is expected in Spain.The nominal U.S.interest rate is 9%.

Accepted Answer

The international Fisher effect theorize

Question 15

The following information is provided to you:   What is the 1-year interest rate for the Swiss franc?

Accepted Answer

A)  2.00% 
B)  1.67% 
C)  1.50% 
D)  1.33% 
A)  2.00% 
B)  1.67% 
C)  1.50% 
D)  1.33%

Question 16

Suppose that:   If no other information is available,what will your guess about the spot rate in 1 year be?

Accepted Answer

A)  1.5331 
B)  1.5372 
C)  1.5502 
D)  2.0000 
A)  1.5331 
B)  1.5372 
C)  1.5502 
D)  2.0000

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Suppose that:   What arbitrage gains can be achieved if the bank quotes a rate of 75 yen per Swiss francs?

Accepted Answer

A)  8% 
B)  9% 
C)  10% 
D)  11% 
A)  8% 
B)  9% 
C)  10% 
D)  11%

Question 19

Futures contracts represent a low-cost method of buying foreign currency forward.

Accepted Answer

A) True 
 B)False

Question 20

If you are a currency speculator,you will always make money by:

Accepted Answer

A)  buying currency with high interest rate. 
B)  buying currency with low interest rate. 
C)  accurately predicting whether exchange rate will change more or less than the interest rate differential. 
D)  buying the currency with the highest interest rate differential. 
A)  buying currency with high interest rate. 
B)  buying currency with low interest rate. 
C)  accurately predicting whether exchange rate will change more or less than the interest rate differential. 
D)  buying the currency with the highest interest rate differential.

Exam 22: International Financial Management

Which of the following would you expect to be nearly equal across countries?

Even if a firm neither owes nor is owed foreign currency,it still may be affected by currency fluctuations.

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 of the following do you suspect about this 1-year investment?

According to interest rate parity,the interest rate differential must be equal to the differential between forward and spot exchange rates.

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%?

The French franc is currently worth $0.15 and it's selling in the 1-year forward market at a 10% premium relative to the dollar.Approximately what rate would you expect to pay for a 1-year loan in France if the rate would be 10% in the United States?

Suppose that: What is the annualized percentage discount or premium of the Canadian dollar on the U.S.dollar?

Which of the following is correct if you have contracted to purchase 1,000 Swiss francs 3 months forward at a rate of SFr1.6/$?

If the spot exchange rate between euros and dollars is €1.5/$ before the dollar depreciates by 10%,how many dollars will it now (after the depreciation has occurred)take to pay an invoice of €500?

What are the basic relationships between spot exchange rates,forward exchange rates,interest rates,and inflation rates?

You are importing TV sets worth ¥10,000,000 from a Japanese manufacturer,and this amount is payable after 6 months.You can hedge your exchange risk by:

What would you expect to be the relationship between real rates of interest in Japan and the United States if inflation is expected to be 3% in Japan and 6% in the United States?

What is the international Fisher effect and how would you test it,knowing that 6% inflation is expected in the United States but only 3% is expected in Spain.The nominal U.S.interest rate is 9%.

The following information is provided to you: What is the 1-year interest rate for the Swiss franc?

Suppose that: If no other information is available,what will your guess about the spot rate in 1 year be?

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

Suppose that: What arbitrage gains can be achieved if the bank quotes a rate of 75 yen per Swiss francs?

Futures contracts represent a low-cost method of buying foreign currency forward.

If you are a currency speculator,you will always make money by:

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