Question 1

Swaps are agreements:

Accepted Answer

A) in which two counterparties undertake to exchange risks. 
B) which are medium to long-term international securities. 
C) which include securities such as euronotes. 
D) in which two counterparties undertake to exchange a series of future cash flows. 
A) in which two counterparties undertake to exchange risks. 
B) which are medium to long-term international securities. 
C) which include securities such as euronotes. 
D) in which two counterparties undertake to exchange a series of future cash flows.

Question 2

A negotiable,unsecured,short-term promissory note that is issued in Euromarkets and in several domestic markets is known as:

Accepted Answer

A) a eurobond. 
B) a Eurocurrency term loan. 
C) commercial paper. 
D) a bearer security. 
A) a eurobond. 
B) a Eurocurrency term loan. 
C) commercial paper. 
D) a bearer security.

Question 3

________________ risk is the variability of an entity's value that is due to possible appreciation or depreciation of the currency.

Accepted Answer

The answer of ________________ risk is the variability of an...

Question 4

Covered interest arbitrage is expected to continue:

Accepted Answer

A) until interest rates between two investments and/or exchange rates between two different countries' rates do not adjust to eliminate further arbitrage. 
B) in an efficient market. 
C) unless markets become deregulated. 
D) until interest rates between two investments and/or exchange rates between two different countries' rates adjust to eliminate further arbitrage. 
A) until interest rates between two investments and/or exchange rates between two different countries' rates do not adjust to eliminate further arbitrage. 
B) in an efficient market. 
C) unless markets become deregulated. 
D) until interest rates between two investments and/or exchange rates between two different countries' rates adjust to eliminate further arbitrage.

Question 5

Transactions in which dealers in foreign exchange markets enter simultaneously into spot and forward transactions are referred to as:

Accepted Answer

A) arbitrage profits. 
B) swaps. 
C) foreign currency swaps. 
D) exchange rate risk taking. 
A) arbitrage profits. 
B) swaps. 
C) foreign currency swaps. 
D) exchange rate risk taking.

Question 6

The Fisher equation holds that:

Accepted Answer

A) relative interest rates determine the relativity between the forward exchange rate and the spot exchange rate. 
B) for any given interest rate,one currency will be set by the market such that it covers expected inflation and provides a real return. 
C) the expected change in the exchange rate is due to differences in expected inflation rates in respective countries. 
D) for any given currency,the nominal interest rate will be set by the market such that it covers expected inflation and provides a real return. 
A) relative interest rates determine the relativity between the forward exchange rate and the spot exchange rate. 
B) for any given interest rate,one currency will be set by the market such that it covers expected inflation and provides a real return. 
C) the expected change in the exchange rate is due to differences in expected inflation rates in respective countries. 
D) for any given currency,the nominal interest rate will be set by the market such that it covers expected inflation and provides a real return.

Question 7

The difference between spot and forward rates is known as:

Accepted Answer

A) spot margin. 
B) margin. 
C) future margin. 
D) forward margin. 
A) spot margin. 
B) margin. 
C) future margin. 
D) forward margin.

Question 8

A bond issued by a non-Japanese entity in a currency other than yen but sold in the Japanese retail market is known as:

Accepted Answer

A) Dashi bond. 
B) Sumo bond. 
C) Uridashi bond. 
D) None of the given options. 
A) Dashi bond. 
B) Sumo bond. 
C) Uridashi bond. 
D) None of the given options.

Question 9

Covered interest arbitrage describes:

Accepted Answer

A) the movement of funds between two currencies to profit from interest rate differences. 
B) the movement of funds between two currencies to profit from interest rate differences while using forward contracts to eliminate exchange risk. 
C) the difference in interest rates on two different government securities. 
D) none of the given options. 
A) the movement of funds between two currencies to profit from interest rate differences. 
B) the movement of funds between two currencies to profit from interest rate differences while using forward contracts to eliminate exchange risk. 
C) the difference in interest rates on two different government securities. 
D) none of the given options.

Question 10

Bonds denominated in UK pounds and issued in the UK by non-UK companies are known as:

Accepted Answer

A) British bonds. 
B) Brit bonds. 
C) Bulldog bonds. 
D) Kangaroo bonds. 
A) British bonds. 
B) Brit bonds. 
C) Bulldog bonds. 
D) Kangaroo bonds.

Question 11

Which theory states that the forward rate is an unbiased predictor of the future spot rate?

Accepted Answer

A) Interest rate parity 
B) Unbiased forward rates 
C) International fisher effect 
D) Uncovered interest parity 
A) Interest rate parity 
B) Unbiased forward rates 
C) International fisher effect 
D) Uncovered interest parity

Question 12

What is the expected one-year forward exchange rate between $A (AUD)and UK pounds (GBP)that maintains interest parity if interest rates on government securities in Australia yield 5.2% p.a.and 4.6% p.a.in the UK,and the spot exchange rate is AUD 1 = GBP 0.45?

Accepted Answer

A) AUD 1 = GBP 0.4474 
B) AUD 1 = GBP 0.3113 
C) AUD 1 = GBP 0.4532 
D) AUD 1 = GBP 0.4500 
A) AUD 1 = GBP 0.4474 
B) AUD 1 = GBP 0.3113 
C) AUD 1 = GBP 0.4532 
D) AUD 1 = GBP 0.4500

Question 13

What is the real interest rate if the nominal interest rate is 10 per cent and the expected inflation rate is 3 per cent?

Accepted Answer

A) 7% 
B) 6.36% 
C) 6.8% 
D) 7.2% 
A) 7% 
B) 6.36% 
C) 6.8% 
D) 7.2%

Question 14

The law of one price states that:

Accepted Answer

A) the dollar price of any given commodity should be the same everywhere in the world. 
B) the expected change in the exchange rate is due to differences in expected inflation rates in the respective countries. 
C) arbitrage can be undertaken in situations where the market value departs from the true value. 
D) the difference in price of gold around the world can only be due to different exchange rates. 
A) the dollar price of any given commodity should be the same everywhere in the world. 
B) the expected change in the exchange rate is due to differences in expected inflation rates in the respective countries. 
C) arbitrage can be undertaken in situations where the market value departs from the true value. 
D) the difference in price of gold around the world can only be due to different exchange rates.

Question 15

Which theory states that the difference in interest rates between two countries is an unbiased predictor of the future change in the spot exchange rate?

Accepted Answer

A) Interest rate parity. 
B) Unbiased forward rates. 
C) International Fisher effect. 
D) Purchasing power parity. 
A) Interest rate parity. 
B) Unbiased forward rates. 
C) International Fisher effect. 
D) Purchasing power parity.

Question 16

Calculate the expected exchange rate in one year's time if the present exchange rate is AUD 1 = JPY 80 and if the expected inflation rates in Australia and Japan are 2 per cent and 8 per cent,respectively.

Accepted Answer

A) AUD 1 = JPY 82.50 
B) JPY 1 = AUD 0.0132 
C) AUD 1 = JPY 78.20 
D) JPY 1 = AUD 0.0118 
A) AUD 1 = JPY 82.50 
B) JPY 1 = AUD 0.0132 
C) AUD 1 = JPY 78.20 
D) JPY 1 = AUD 0.0118

Question 17

What is the rate of return to an Australian investor who purchases US dollars with A$100 000 when the exchange rate is AUD 1 = USD 0.74 then invests in a US bank at 7% p.a.interest for 12 months and converts the investment back to Australian dollars when the exchange rate is AUD 1 = USD 0.76?

Accepted Answer

A) A$4184.21 
B) 1.418% 
C) 40.8% 
D) 4.18% 
A) A$4184.21 
B) 1.418% 
C) 40.8% 
D) 4.18%

Question 18

The foreign exchange market has a physical marketplace based in New York.

Accepted Answer

A) True 
 B)False

Question 19

What is the equivalent Australian dollar interest rate for a company that borrows US$10 million for one year at an interest rate of 10% p.a.if the exchange rate was AUD 1 = USD 0.8000 at the time and it was AUD 1 = USD 0.7800 at the repayment date?

Accepted Answer

A) 10% 
B) 12.8% 
C) 10.25% 
D) 14.3% 
A) 10% 
B) 12.8% 
C) 10.25% 
D) 14.3%

Question 20

If an Australian exporter receives US$23 120 in payment for goods and the exchange rate is A$1 = US$0.5150 how many Australian dollars will it buy?

Accepted Answer

A) $11 906.80 
B) $44 893.20 
C) $4489.32 
D) $1190.68 
A) $11 906.80 
B) $44 893.20 
C) $4489.32 
D) $1190.68

Exam 20: International Financial Management

Swaps are agreements:

A negotiable,unsecured,short-term promissory note that is issued in Euromarkets and in several domestic markets is known as:

________________ risk is the variability of an entity's value that is due to possible appreciation or depreciation of the currency.

Covered interest arbitrage is expected to continue:

Transactions in which dealers in foreign exchange markets enter simultaneously into spot and forward transactions are referred to as:

The Fisher equation holds that:

The difference between spot and forward rates is known as:

A bond issued by a non-Japanese entity in a currency other than yen but sold in the Japanese retail market is known as:

Covered interest arbitrage describes:

Bonds denominated in UK pounds and issued in the UK by non-UK companies are known as:

Which theory states that the forward rate is an unbiased predictor of the future spot rate?

What is the expected one-year forward exchange rate between $A (AUD)and UK pounds (GBP)that maintains interest parity if interest rates on government securities in Australia yield 5.2% p.a.and 4.6% p.a.in the UK,and the spot exchange rate is AUD 1 = GBP 0.45?

What is the real interest rate if the nominal interest rate is 10 per cent and the expected inflation rate is 3 per cent?

The law of one price states that:

Which theory states that the difference in interest rates between two countries is an unbiased predictor of the future change in the spot exchange rate?

Calculate the expected exchange rate in one year's time if the present exchange rate is AUD 1 = JPY 80 and if the expected inflation rates in Australia and Japan are 2 per cent and 8 per cent,respectively.

What is the rate of return to an Australian investor who purchases US dollars with A$100 000 when the exchange rate is AUD 1 = USD 0.74 then invests in a US bank at 7% p.a.interest for 12 months and converts the investment back to Australian dollars when the exchange rate is AUD 1 = USD 0.76?

The foreign exchange market has a physical marketplace based in New York.

What is the equivalent Australian dollar interest rate for a company that borrows US$10 million for one year at an interest rate of 10% p.a.if the exchange rate was AUD 1 = USD 0.8000 at the time and it was AUD 1 = USD 0.7800 at the repayment date?

If an Australian exporter receives US$23 120 in payment for goods and the exchange rate is A$1 = US$0.5150 how many Australian dollars will it buy?

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters