Exam 21: International Corporate Finance

Describe the foreign currency and home currency approaches to capital budgeting for a foreign project.Which is better? Which approach would you recommend a U.S.firm use? Justify your answer.

The LIBOR is primarily used as the basis for the rate charged on:

The interest rate parity approximation formula is:

You want to invest in a riskless project in Sweden.The project has an initial cost of SKr3.8million and is expected to produce cash inflows of SKr1.75 million a year for three years.The project will be worthless after three years.The expected inflation rate in Sweden is 3.2 percent while it is 4.3 percent in the U.S.A risk-free security is paying 5.5 percent in the U.S.The current spot rate is $1 = SKr7.7274.What is the net present value of this project in Swedish kroner? Assume the international Fisher effect applies.

You have 100 British pounds.A friend of yours is willing to exchange 180 Canadian dollars for your 100 British pounds.What will be your profit or loss if you accept your friend's offer,given the following exchange rates?

Assume that ¥95.42 equal $1.Also assume that SKr7.7274 equal $1.How many Japanese yen can you acquire in exchange for 3,000 Swedish krone?

You observe that the inflation rate in the United States is 3.5 percent per year and that T-bills currently yield 3.8 percent annually.What do you estimate the inflation rate to be in Australia,if short-term Australian government securities yield 4.5 percent per year?

Absolute purchasing power parity is most apt to exist for which one of the following items?

International bonds issued in multiple countries but denominated solely in the issuer's currency are called:

What is the relationship between the value of the dollar and the value of the euro in relation to the rate of inflation in the United States?

Suppose the spot and six-month forward rates on the Norwegian krone are Kr6.36 and Kr6.56,respectively.The annual risk-free rate in the United States is 4.5 percent,and the annual risk-free rate in Norway is 7 percent.What would the six-month forward rate have to be on the Norwegian krone to prevent arbitrage?

Today,you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S.dollars.Last year,100 U.S.dollars was worth 115 Canadian dollars or 1,291 Mexican pesos.Which one of the following statements is correct given this information?

Based on the information below,what is the cross-rate for Australian dollars in terms of Swiss francs?

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.6869.The expected inflation rate in Norway is 6 percent and in the U.S.it is 3.1 percent.A risk-free asset in the U.S.is yielding 4 percent.What risk-free rate of return should you expect on a Norwegian security?

Using currencies A,B,and C construct an example in which triangle arbitrage exists and then show how to exploit it.

You want to import $147,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $0.0203?

The foreign currency approach to capital budgeting analysis: I.is computationally easier to use than the home currency approach. II.produces the same results as the home currency approach. III.requires an exchange rate for each time period for which there is a cash flow. IV.computes the NPV of a project in both the foreign and the domestic currency.

Which of the following conditions are required for absolute purchasing power parity to exist? I.goods must be identical II.goods must have equal economic value III.transaction costs must be zero IV.there can be no barriers to trade

Which one of the following is a suggested method of reducing a U.S.importer's short-run exposure to exchange rate risk?

Assume the spot rate on the Canadian dollar is C$1.1847.The risk-free nominal rate in the U.S.is 5 percent while it is only 4 percent in Canada.What one-year forward rate will create interest rate parity?