Question 1

Arbitrageurs are said to look for riskless profits by:

Accepted Answer

A)  contracting in the forward exchange markets. 
B)  buying at the spot rate and selling at the forward rate. 
C)  buying in one market and selling in another to take advantage of different prices for the same good. 
D)  buying short-term bonds and converting them to long-term bonds. 
A)  contracting in the forward exchange markets. 
B)  buying at the spot rate and selling at the forward rate. 
C)  buying in one market and selling in another to take advantage of different prices for the same good. 
D)  buying short-term bonds and converting them to long-term bonds.

Question 2

How much would you expect to receive for a nominal interest rate in Holland 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 Holland?

Accepted Answer

A)  5.19% 
B)  7.93% 
C)  9.08% 
D)  11.11% 
A)  5.19% 
B)  7.93% 
C)  9.08% 
D)  11.11%

Question 3

A firm can invest €10 million in its German subsidiary and receive a return of €4.3 million annually for 3 years.The spot rate is €1.6/$,the U.S.rate of inflation is expected to be 4% annually,and the German rate is expected to be 3% annually.If the appropriate risk-adjusted cost of capital in dollars is 14%,does the project appear to have a positive NPV?

Accepted Answer

The euro should appreciate against the d

Question 4

You're hoarse from explaining to your supervisor that the cost,if any,of hedging exchange rate risk can be thought of as an insurance premium to avoid surprises.What is the cost of hedging a 2 million euro commitment if the spot rate is €1.6/$,the forward rate is €1.55/$,and the expected spot rate at the end of the hedge is €1.6/$?

Accepted Answer

A)  $0 
B)  $25,000 
C)  $40,323 
D)  $68,966 
A)  $0 
B)  $25,000 
C)  $40,323 
D)  $68,966

Question 5

The New York Stock Exchange is one of few markets to have a higher daily volume than the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

If this were not the case,then investors

Question 7

The law of one price implies that the same commodity should be sold at the same price in all countries.

Accepted Answer

A) True 
 B)False

Question 8

If the correlation of returns between foreign projects and domestic projects is less than 1.0,then:

Accepted Answer

A)  foreign projects should be discounted with a higher rate. 
B)  the domestic firm would be better off without the foreign projects. 
C)  the foreign project may not add much risk to the existing domestic operation. 
D)  the foreign projects will experience a higher degree of inflation. 
A)  foreign projects should be discounted with a higher rate. 
B)  the domestic firm would be better off without the foreign projects. 
C)  the foreign project may not add much risk to the existing domestic operation. 
D)  the foreign projects will experience a higher degree of inflation.

Question 9

Forward contracts are standardized contracts sold in organized exchanges.

Accepted Answer

A) True 
 B)False

Question 10

Your firm,which operates in the United States,has a contractual payment of £1 million due in 3 months.Which of the following methods would be considered speculative regarding your exchange rate risk?

Accepted Answer

A)  Buy 1 million pounds now at the current spot rate. 
B)  Buy 1 million pounds in 3 months at the current spot rate. 
C)  Contract forward to buy 1 million pounds in 3 months. 
D)  Borrow dollars, convert to pounds at spot, and invest for 3 months. 
A)  Buy 1 million pounds now at the current spot rate. 
B)  Buy 1 million pounds in 3 months at the current spot rate. 
C)  Contract forward to buy 1 million pounds in 3 months. 
D)  Borrow dollars, convert to pounds at spot, and invest for 3 months.

Question 11

The current 1-year nominal interest in the United States is 7%.If the anticipated inflation for the coming year in the United States is 2.5%,what is the real interest rate in the U.S.?

Accepted Answer

A)  4.21% 
B)  4.39% 
C)  4.50% 
D)  7.18% 
A)  4.21% 
B)  4.39% 
C)  4.50% 
D)  7.18%

Question 12

If the spot indirect exchange rate of Mexican pesos for U.S.dollars is 9.8/1 and the peso is trading at a forward premium of 3%,then you will receive:

Accepted Answer

A)  more than 9.8 pesos per dollar in the future. 
B)  less than 9.8 pesos per dollar in the future. 
C)  9.83 pesos per dollar in the future. 
D)  10.09 pesos per dollar in the future. 
A)  more than 9.8 pesos per dollar in the future. 
B)  less than 9.8 pesos per dollar in the future. 
C)  9.83 pesos per dollar in the future. 
D)  10.09 pesos per dollar in the future.

Question 13

Which of the following is correct when foreign currency is contracted in the forward market?

Accepted Answer

A)  A fixed amount is paid when initiating the contract. 
B)  A fixed amount is paid at the end of the contract. 
C)  The amount to be paid is determined and paid at the end of the contract. 
D)  The amount to be paid is determined periodically and paid in installments during the contract. 
A)  A fixed amount is paid when initiating the contract. 
B)  A fixed amount is paid at the end of the contract. 
C)  The amount to be paid is determined and paid at the end of the contract. 
D)  The amount to be paid is determined periodically and paid in installments during the contract.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Buying currency in the forward market is a costly way of hedging the currency risk.

Accepted Answer

A) True 
 B)False

Question 16

Assuming that the international Fisher effect is holding,what will be the effect of an increase in nominal interest rate on the currency?

Accepted Answer

A)  Currency will appreciate. 
B)  Currency will depreciate. 
C)  There will be no significant change in exchange rate. 
D)  Currency will sell at a forward premium. 
A)  Currency will appreciate. 
B)  Currency will depreciate. 
C)  There will be no significant change in exchange rate. 
D)  Currency will sell at a forward premium.

Question 17

Suppose that:   What rate do you think a Japanese bank would quote for buying or selling Swiss francs?

Accepted Answer

A)  81.01 yen 
B)  83.01 yen 
C)  85.01 yen 
D)  87.01 yen 
A)  81.01 yen 
B)  83.01 yen 
C)  85.01 yen 
D)  87.01 yen

Arbitrageurs are said to look for riskless profits by:

How much would you expect to receive for a nominal interest rate in Holland 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 Holland?

The New York Stock Exchange is one of few markets to have a higher daily volume than the foreign exchange market.

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

The law of one price implies that the same commodity should be sold at the same price in all countries.

If the correlation of returns between foreign projects and domestic projects is less than 1.0,then:

Forward contracts are standardized contracts sold in organized exchanges.

Your firm,which operates in the United States,has a contractual payment of £1 million due in 3 months.Which of the following methods would be considered speculative regarding your exchange rate risk?

The current 1-year nominal interest in the United States is 7%.If the anticipated inflation for the coming year in the United States is 2.5%,what is the real interest rate in the U.S.?

If the spot indirect exchange rate of Mexican pesos for U.S.dollars is 9.8/1 and the peso is trading at a forward premium of 3%,then you will receive:

Which of the following is correct when foreign currency is contracted in the forward market?

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

Buying currency in the forward market is a costly way of hedging the currency risk.

Assuming that the international Fisher effect is holding,what will be the effect of an increase in nominal interest rate on the currency?

Suppose that: What rate do you think a Japanese bank would quote for buying or selling Swiss francs?

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

Exam 22: International Financial Management

Arbitrageurs are said to look for riskless profits by:

How much would you expect to receive for a nominal interest rate in Holland 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 Holland?

The New York Stock Exchange is one of few markets to have a higher daily volume than the foreign exchange market.

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

The law of one price implies that the same commodity should be sold at the same price in all countries.

If the correlation of returns between foreign projects and domestic projects is less than 1.0,then:

Forward contracts are standardized contracts sold in organized exchanges.

Your firm,which operates in the United States,has a contractual payment of £1 million due in 3 months.Which of the following methods would be considered speculative regarding your exchange rate risk?

The current 1-year nominal interest in the United States is 7%.If the anticipated inflation for the coming year in the United States is 2.5%,what is the real interest rate in the U.S.?

If the spot indirect exchange rate of Mexican pesos for U.S.dollars is 9.8/1 and the peso is trading at a forward premium of 3%,then you will receive:

Which of the following is correct when foreign currency is contracted in the forward market?

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

Buying currency in the forward market is a costly way of hedging the currency risk.

Assuming that the international Fisher effect is holding,what will be the effect of an increase in nominal interest rate on the currency?

Suppose that: What rate do you think a Japanese bank would quote for buying or selling Swiss francs?

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