Exam 21: International Corporate Finance

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

In the spot market,$1 is currently equal to A$1.4910.Assume the expected inflation rate in Australia is 3.5 percent and in the U.S.4.0 percent.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.7119.The expected inflation rate in Norway is 4 percent and in the U.S.3 percent.A risk-free asset in the U.S.is yielding 4.5 percent.What approximate real rate of return should you expect on a risk-free Norwegian security?

Where does most of the trading in Eurobonds occur?

The market value of the Blackwell Corporation just declined by 5 percent.Analysts believe this decrease in value was caused by recent legislation passed by Congress.Which type of risk does this illustrate?

Relative purchasing power parity:

The home currency approach:

The home currency approach:

Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _____ relative to the Canadian dollar and the U.S.dollar is expected to _____ relative to the Canadian dollar.

A large U.S.company has £500,000 in excess cash from its foreign operations.The company would like to exchange these funds for U.S.dollars.In which of the following markets can this exchange be arranged?

The international Fisher effect states that _____ rates are equal across countries.

International bonds issued in a single country and denominated in that country's currency are called:

Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1925.The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S.Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

Which one of the following names matches the country where the bond is issued?

The expected inflation rate in Finland is 2.8 percent while it is 3.2 percent in the U.S.A risk-free asset in the U.S.is yielding 4.9 percent.What approximate real rate of return should you expect on a risk-free Finnish security?

Which one of the following securities is used as a means of investing in a foreign stock that otherwise could not be traded in the United States?

The camera you want to buy costs $230 in the U.S.How much will the identical camera cost in Canada if the exchange rate is C$1 = $0.8262? Assume absolute purchasing power parity exists.

Assume the current spot rate is C$1.1875 and the one-year forward rate is C$1.1724.The nominal risk-free rate in Canada is 4 percent while it is 3 percent in the U.S.Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

Assume that $1 can buy you either ¥95.42 or £0.6211.If a TV in London costs £990,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

You want to invest in a project in Canada.The project has an initial cost of C$2.2 million and is expected to produce cash inflows of C$900,000 a year for 3 years.The project will be worthless after the first 3 years.The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S.The applicable interest rate for the project in Canada is 13 percent.The current spot rate is C$1 = $0.8158.What is the net present value of this project in Canadian dollars?