Question 1

If the direct exchange rate between U.S.dollars and pounds sterling is USD1.50 = GBP1,how much should you be willing to pay to receive £350?

Accepted Answer

A)  $175.00 
B)  $233.33 
C)  $367.50 
D)  $525.00 
A)  $175.00 
B)  $233.33 
C)  $367.50 
D)  $525.00 D

Question 2

If managers are worried about the political risks involved in an overseas investment,they should probably adjust:

Accepted Answer

A)  the discount rate. 
B)  the projected cash flows. 
C)  both the discount rate and the cash flows. 
D)  the exchange rate. 
A)  the discount rate. 
B)  the projected cash flows. 
C)  both the discount rate and the cash flows. 
D)  the exchange rate. B

Question 3

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. D

Question 4

The forward exchange rate is the rate for immediate exchange of two currencies.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Suppose the 1-year interest rate in Canada is 4% while it is 3% in the U.S.The indirect spot rate is CAD1.02 = USD1.What is the indirect 1-year forward rate?

Accepted Answer

A)  CAD1.0299 = USD1 
B)  CAD1.0608 = USD1 
C)  CAD1.0200 = USD1 
D)  CAD1.0302 = USD1 
A)  CAD1.0299 = USD1 
B)  CAD1.0608 = USD1 
C)  CAD1.0200 = USD1 
D)  CAD1.0302 = USD1

Question 7

Futures contracts offer an alternative way to buy foreign currency forward.

Accepted Answer

A) True 
 B)False

Question 8

The spot exchange rate for the Canadian dollar is CAD1.02 = USD1.The 6-month interest rate in the United States is 2.5% and 3.0% in Canada.What is the 6-month forward rate for the Canadian dollar?

Accepted Answer

A)  CAD1.005= USD1 
B)  CAD1.025 = USD1 
C)  CAD0.985= USD1 
D)  CAD1.02= USD1 
A)  CAD1.005= USD1 
B)  CAD1.025 = USD1 
C)  CAD0.985= USD1 
D)  CAD1.02= USD1

Question 9

A firm must make a large future payment in a foreign currency and wants to hedge the associated exchange rate risk.Which one 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 10

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 yen today on the spot market. 
B)  fewer yen than if you buy yen today 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 yen today on the spot market. 
B)  fewer yen than if you buy yen today 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 11

Which of the following is correct when contracting ahead in the forward exchange market?

Accepted Answer

A)  At contract close you pay either the forward rate that was contracted or the then-current rate. 
B)  Contracting ahead is always cheaper than waiting to pay spot rates. 
C)  Your cost is locked in from the beginning of the contract, regardless of market changes. 
D)  Paying the spot price is safer than contracting forward. 
A)  At contract close you pay either the forward rate that was contracted or the then-current rate. 
B)  Contracting ahead is always cheaper than waiting to pay spot rates. 
C)  Your cost is locked in from the beginning of the contract, regardless of market changes. 
D)  Paying the spot price is safer than contracting forward.

Question 12

If purchasing power parity holds,what is the expected German inflation rate,if the US expected inflation rate is 3%,the spot exchange rate is USD0.667= EUR1 and the expected spot rate is USD0.625 = EUR1?

Accepted Answer

A)  2.8% 
B)  7.1% 
C)  9.9% 
D)  11.4% 
A)  2.8% 
B)  7.1% 
C)  9.9% 
D)  11.4%

Question 13

Assume you can exchange $1 for either C$1.03 or €0.74.How many Canadian dollars can be acquired with one euro?

Accepted Answer

A)  C$0.7622 
B)  C$1.2900 
C)  C$1.3919 
D)  C$0.7184 
A)  C$0.7622 
B)  C$1.2900 
C)  C$1.3919 
D)  C$0.7184

Question 14

Suppose the spot rate for the Canadian dollar is CAD1.034 = USD1,the 3-month forward rate is CAD1.036 = USD1,and the 1-year forward rate is CADS1.039.= USD1.If no other information is available,what will be your guess about the spot rate in 1 year?

Accepted Answer

A)  1.034 
B)  1.036 
C)  1.039 
D)  1.037 
A)  1.034 
B)  1.036 
C)  1.039 
D)  1.037

Question 15

Suppose that inflation next year is 8% in Japan and 4% in the United States.If the current spot rate is JPY107 = USD1,what is the expected spot rate at the end of the year?

Accepted Answer

A)  JPY102.72 = USD1 
B)  JPY103.04 = USD1 
C)  JPY111.12 = USD1 
D)  JPY111.82 = USD1 
A)  JPY102.72 = USD1 
B)  JPY103.04 = USD1 
C)  JPY111.12 = USD1 
D)  JPY111.82 = USD1

Question 16

You are importing TV sets worth ¥10 million 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 - it is impossible to hedge. 
A)  buying Japanese yen in the forward market. 
B)  selling Japanese yen in the forward market. 
C)  borrowing Japanese yen. 
D)  doing nothing - it is impossible to hedge.

Question 17

Buckingham plc,a British corporation,owes $1 million due in 2 months.How can Buckingham hedge the exchange risk?

Accepted Answer

A)  Sell pounds in the spot market 
B)  Buy pounds in the forward market 
C)  Sell dollars in the spot market 
D)  Buy dollars in the forward market 
A)  Sell pounds in the spot market 
B)  Buy pounds in the forward market 
C)  Sell dollars in the spot market 
D)  Buy dollars in the forward market

Question 18

Suppose that a bank quotes the following rates: JPY 58.00 = CHF1
CHF1.52 = USD1
JPY123.38 = USD1
Which of the following transactions would produce an arbitrage profit for a US investor?

Accepted Answer

A)  Buy 123.38 yen, exchange them for Swiss francs and sell the Swiss francs that you receive. 
B)  Buy 1.52 Swiss francs, exchange them for Japanese yen and sell the yen that you receive. 
C)  Buy both Japanese yen and Swiss francs. 
D)  There are no transactions that would not involve at least some risk. 
A)  Buy 123.38 yen, exchange them for Swiss francs and sell the Swiss francs that you receive. 
B)  Buy 1.52 Swiss francs, exchange them for Japanese yen and sell the yen that you receive. 
C)  Buy both Japanese yen and Swiss francs. 
D)  There are no transactions that would not involve at least some risk.

Question 19

Country A has a higher inflation rate than Country B. In this case Country A will have the:

Accepted Answer

A)  a depreciating currency. 
B)  higher nominal interest rate. 
C)  an appreciating currency. 
D)  higher real interest rate. 
A)  a depreciating currency. 
B)  higher nominal interest rate. 
C)  an appreciating currency. 
D)  higher real interest rate.

Question 20

If the international Fisher effect holds,what will be the effect of an increase of a country's nominal interest rates on the country's currency?

Accepted Answer

A)  The currency will appreciate. 
B)  The currency will depreciate. 
C)  There will be no significant change in the currency's value. 
D)  The currency will sell at a forward premium. 
A)  The currency will appreciate. 
B)  The currency will depreciate. 
C)  There will be no significant change in the currency's value. 
D)  The currency will sell at a forward premium.

Exam 22: International Financial Management

If the direct exchange rate between U.S.dollars and pounds sterling is USD1.50 = GBP1,how much should you be willing to pay to receive £350?

If managers are worried about the political risks involved in an overseas investment,they should probably adjust:

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?

The forward exchange rate is the rate for immediate exchange of two currencies.

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

Suppose the 1-year interest rate in Canada is 4% while it is 3% in the U.S.The indirect spot rate is CAD1.02 = USD1.What is the indirect 1-year forward rate?

Futures contracts offer an alternative way to buy foreign currency forward.

The spot exchange rate for the Canadian dollar is CAD1.02 = USD1.The 6-month interest rate in the United States is 2.5% and 3.0% in Canada.What is the 6-month forward rate for the Canadian dollar?

A firm must make a large future payment in a foreign currency and wants to hedge the associated exchange rate risk.Which one of the following identifies the cost of such a hedge?

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

Which of the following is correct when contracting ahead in the forward exchange market?

If purchasing power parity holds,what is the expected German inflation rate,if the US expected inflation rate is 3%,the spot exchange rate is USD0.667= EUR1 and the expected spot rate is USD0.625 = EUR1?

Assume you can exchange $1 for either C$1.03 or €0.74.How many Canadian dollars can be acquired with one euro?

Suppose the spot rate for the Canadian dollar is CAD1.034 = USD1,the 3-month forward rate is CAD1.036 = USD1,and the 1-year forward rate is CADS1.039.= USD1.If no other information is available,what will be your guess about the spot rate in 1 year?

Suppose that inflation next year is 8% in Japan and 4% in the United States.If the current spot rate is JPY107 = USD1,what is the expected spot rate at the end of the year?

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

Buckingham plc,a British corporation,owes $1 million due in 2 months.How can Buckingham hedge the exchange risk?

Suppose that a bank quotes the following rates: JPY 58.00 = CHF1 CHF1.52 = USD1 JPY123.38 = USD1 Which of the following transactions would produce an arbitrage profit for a US investor?

Country A has a higher inflation rate than Country B. In this case Country A will have the:

If the international Fisher effect holds,what will be the effect of an increase of a country's nominal interest rates on the country's currency?

Goals and Governance of the Firm

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 and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

Options

Risk Management

Filters