Question 1

The theory that,when measured in a common currency,the price of a product should be the same in two countries is referred to as the law of:

Accepted Answer

A)  exchange rates. 
B)  large numbers. 
C)  spot rates. 
D)  one price. 
A)  exchange rates. 
B)  large numbers. 
C)  spot rates. 
D)  one price.

Question 2

The direct exchange rate quotes the number of U.S.dollars that can be exchanged for one unit of a foreign currency.

Accepted Answer

A) True 
 B)False

Question 3

Expected inflation in the United States is 6%.What do you expect to happen to prices in Japan,if the nominal interest rate is 10% in the United States and 6% in Japan?

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 4

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

Accepted Answer

A)  The expected spot rate of €/$ will decrease. 
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 decrease. 
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 5

Assume the current spot price is USD1.62 = GBP1 and the 3-month forward rate is USD1.64 = GBP1.Which one of these statements is correct given these rates?

Accepted Answer

A)  The pound is selling at a forward premium relative to the dollar. 
B)  The real interest rate in the U.S. is higher than the real rate in the U.K. 
C)  The dollar is expected to appreciate. 
D)  The dollar is selling at a forward premium relative to the pound. 
A)  The pound is selling at a forward premium relative to the dollar. 
B)  The real interest rate in the U.S. is higher than the real rate in the U.K. 
C)  The dollar is expected to appreciate. 
D)  The dollar is selling at a forward premium relative to the pound.

Question 6

If the exchange rate of euros/U.S.dollars is USD1.351 = EUR1,then:

Accepted Answer

A)  it takes 1.35 euros to buy one US dollar. 
B)  the euro is worth less than one U.S. dollar. 
C)  one dollar is worth approximately €.74. 
D)  one dollar is worth approximately €1. 
A)  it takes 1.35 euros to buy one US dollar. 
B)  the euro is worth less than one U.S. dollar. 
C)  one dollar is worth approximately €.74. 
D)  one dollar is worth approximately €1.

Question 7

Which one of these is probably the best means of reducing or offsetting political risk?

Accepted Answer

A)  Refusing any foreign government assistance in building the infrastructure required for your foreign operations 
B)  Borrowing money in the country in which you have foreign operations to fund those activities 
C)  Manufacturing a complete product in a foreign country using only resources from that country 
D)  Paying for all foreign operations with cash originating in the home country 
A)  Refusing any foreign government assistance in building the infrastructure required for your foreign operations 
B)  Borrowing money in the country in which you have foreign operations to fund those activities 
C)  Manufacturing a complete product in a foreign country using only resources from that country 
D)  Paying for all foreign operations with cash originating in the home country

Question 8

An indirect quote is the rate of one unit of foreign currency expressed in U.S.dollars.

Accepted Answer

A) True 
 B)False

Question 9

You can value overseas investments using the NPV of the cash flows.Which of the following adjustment is necessary to calculate the NPV?

Accepted Answer

A)  Adjust the cost of capital by the forward exchange rate and then discount the foreign cash flows 
B)  Convert the foreign cash flows into domestic currency and use the domestic opportunity cost of capital for discounting 
C)  Use the domestic discount rate to discount the foreign cash flows 
D)  Convert the foreign cash flow into domestic currency and use the foreign cost of capital for discounting 
A)  Adjust the cost of capital by the forward exchange rate and then discount the foreign cash flows 
B)  Convert the foreign cash flows into domestic currency and use the domestic opportunity cost of capital for discounting 
C)  Use the domestic discount rate to discount the foreign cash flows 
D)  Convert the foreign cash flow into domestic currency and use the foreign cost of capital for discounting

Question 10

The spot rate is $1 = C$1.02.The 3-month forward rate is $1 = C$1.03.The Canadian dollar is selling at a forward premium.

Accepted Answer

A) True 
 B)False

Question 11

How many dollars will it take for a U.S.citizen to purchase a Japanese product priced at 60,000 yen if the indirect exchange rate is JPY104 = USD1?

Accepted Answer

A)  $577 
B)  $700 
C)  $5,769 
D)  $62,400 
A)  $577 
B)  $700 
C)  $5,769 
D)  $62,400

Question 12

If inflation is expected to be higher in the U.S.than in Mexico,then the peso is forecasted to depreciate against the dollar.

Accepted Answer

A) True 
 B)False

Question 13

If interest rates are higher in Italy than in the United States,US investors can earn a higher expected return by investing in Italian bonds unless the euro is expected to:

Accepted Answer

A)  appreciate against the dollar. 
B)  depreciate against the dollar. 
C)  offer a higher real rate of return than the dollar. 
D)  offer a lower real rate of return than the dollar. 
A)  appreciate against the dollar. 
B)  depreciate against the dollar. 
C)  offer a higher real rate of return than the dollar. 
D)  offer a lower real rate of return than the dollar.

Question 14

What is the expected spot rate for Japanese yen one year from now if the current spot rate is JPY106 = USD1 and the yen is selling 1-year forward at JPY114 = USD1?

Accepted Answer

A)  JPY78.9 = USD1 
B)  JPY98.0 = USD1 
C)  JPY106.0 = USD1 
D)  JPY114.0 = USD1 
A)  JPY78.9 = USD1 
B)  JPY98.0 = USD1 
C)  JPY106.0 = USD1 
D)  JPY114.0 = USD1

Question 15

Assume the spot exchange rate for the Swiss franc is CHF0.90 = USD1 and the 1-year forward rate is CHF0.871 = USD1.If the 1-year interest rate in the U.S.is 5%,what is the 1-year interest rate in Switzerland?

Accepted Answer

A)  2.00% 
B)  1.62% 
C)  1.50% 
D)  1.33% 
A)  2.00% 
B)  1.62% 
C)  1.50% 
D)  1.33%

Question 16

Which one of the following is correct if you have contracted to purchase 1,000 Swiss francs 3 months forward at a rate of CHF1.6 = USD1?

Accepted Answer

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

Question 17

Buying currency in the forward market is a common method of hedging currency risk.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

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

Question 19

The spot exchange rate for the British pound is USD1.60 = GBP1.The annual inflation rate in the U.S.is 4% compared with 8% in the U.K.What is the anticipated exchange rate at the end of the year if purchasing power parity is valid?

Accepted Answer

A)  USD1.54 = GBP1 
B)  USD1.65 = GBP1 
C)  USD1.60 = GBP1 
D)  USD1.63 = GBP1 
A)  USD1.54 = GBP1 
B)  USD1.65 = GBP1 
C)  USD1.60 = GBP1 
D)  USD1.63 = GBP1

Question 20

Which one of these is an example of operational hedging?

Accepted Answer

A)  Producing goods in a foreign country for sale in the U.S 
B)  Manufacturing goods in the country where they will be sold 
C)  Producing products in one location and distributing them internationally 
D)  Offsetting every spot trade with an opposing forward trade 
A)  Producing goods in a foreign country for sale in the U.S 
B)  Manufacturing goods in the country where they will be sold 
C)  Producing products in one location and distributing them internationally 
D)  Offsetting every spot trade with an opposing forward trade

Exam 22: International Financial Management

The theory that,when measured in a common currency,the price of a product should be the same in two countries is referred to as the law of:

The direct exchange rate quotes the number of U.S.dollars that can be exchanged for one unit of a foreign currency.

Expected inflation in the United States is 6%.What do you expect to happen to prices in Japan,if the nominal interest rate is 10% in the United States and 6% in Japan?

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

Assume the current spot price is USD1.62 = GBP1 and the 3-month forward rate is USD1.64 = GBP1.Which one of these statements is correct given these rates?

If the exchange rate of euros/U.S.dollars is USD1.351 = EUR1,then:

Which one of these is probably the best means of reducing or offsetting political risk?

An indirect quote is the rate of one unit of foreign currency expressed in U.S.dollars.

You can value overseas investments using the NPV of the cash flows.Which of the following adjustment is necessary to calculate the NPV?

The spot rate is $1 = C$1.02.The 3-month forward rate is $1 = C$1.03.The Canadian dollar is selling at a forward premium.

How many dollars will it take for a U.S.citizen to purchase a Japanese product priced at 60,000 yen if the indirect exchange rate is JPY104 = USD1?

If inflation is expected to be higher in the U.S.than in Mexico,then the peso is forecasted to depreciate against the dollar.

If interest rates are higher in Italy than in the United States,US investors can earn a higher expected return by investing in Italian bonds unless the euro is expected to:

What is the expected spot rate for Japanese yen one year from now if the current spot rate is JPY106 = USD1 and the yen is selling 1-year forward at JPY114 = USD1?

Assume the spot exchange rate for the Swiss franc is CHF0.90 = USD1 and the 1-year forward rate is CHF0.871 = USD1.If the 1-year interest rate in the U.S.is 5%,what is the 1-year interest rate in Switzerland?

Which one of the following is correct if you have contracted to purchase 1,000 Swiss francs 3 months forward at a rate of CHF1.6 = USD1?

Buying currency in the forward market is a common method of hedging currency risk.

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

The spot exchange rate for the British pound is USD1.60 = GBP1.The annual inflation rate in the U.S.is 4% compared with 8% in the U.K.What is the anticipated exchange rate at the end of the year if purchasing power parity is valid?

Which one of these is an example of operational hedging?

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

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