Question 1

A quote of .7645 euros per dollar in New York is an example of a direct quote.

Accepted Answer

A) True 
 B)False

Question 2

Prior to 1973 the exchange rates between the major currencies of the world were

Accepted Answer

A) on a floating exchange rate system. 
B) on an arbitrage exchange rate system. 
C) on a fixed exchange rate system. 
D) on a spot exchange rate system. 
A) on a floating exchange rate system. 
B) on an arbitrage exchange rate system. 
C) on a fixed exchange rate system. 
D) on a spot exchange rate system.

Question 3

International expansion often occurs because it is generally easier for firms to expand the market for their products rather than to develop new products.

Accepted Answer

A) True 
 B)False

Question 4

Arbitrage is the process of buying in one market and selling in another market in order to make a riskless profit.

Accepted Answer

A) True 
 B)False

Question 5

A wide bid/ask spread could indicate which of the following?

Accepted Answer

A) the presence of arbitrageurs 
B) large volume transactions are taking place 
C) frequent trading of a currency 
D) an inefficient market 
A) the presence of arbitrageurs 
B) large volume transactions are taking place 
C) frequent trading of a currency 
D) an inefficient market

Question 6

The asked rate is also known as the selling rate or the offer rate.

Accepted Answer

A) True 
 B)False

Question 7

The bid rate is the rate at which the bank buys the foreign currency from the customer by paying in home currency.

Accepted Answer

A) True 
 B)False

Question 8

A direct quote of $1.9887 dollars to buy one U.K.pound corresponds to an indirect quote of .9887 pounds per one dollar.

Accepted Answer

A) True 
 B)False

Question 9

The current direct quote in New York is .01075 dollars per yen.Suppose the current direct quote in Tokyo is 91 yen per dollar.What is the appropriate indirect quote in New York? What will arbitrageurs do to eliminate the differential rates in these markets?

Accepted Answer

Indirect Quote in New York = 1/.01075 =

Question 10

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

Accepted Answer

A) the forward rate theory. 
B) the interest rate parity theory. 
C) the exchange rate theory. 
D) the covered interest arbitrage theory. 
A) the forward rate theory. 
B) the interest rate parity theory. 
C) the exchange rate theory. 
D) the covered interest arbitrage theory.

Question 11

A Spot transaction occurs when

Accepted Answer

A) one currency is deposited in a foreign bank. 
B) one currency is immediately exchanged for another currency. 
C) one currency is exchanged for another currency at a specified price. 
D) one currency is exchanged for another currency in 30,60,or 90 days. 
A) one currency is deposited in a foreign bank. 
B) one currency is immediately exchanged for another currency. 
C) one currency is exchanged for another currency at a specified price. 
D) one currency is exchanged for another currency in 30,60,or 90 days.

Question 12

An American manufacturer with its corporate headquarters in New York City is purchasing goods from a French supplier.Which of the following statements is true regarding the exchange rate risk for this contract?

Accepted Answer

A) The American company will bear all of the exchange rate risk if the contract is denominated in dollars. 
B) The French company will bear all of the exchange rate risk if the contract is denominated in dollars. 
C) Both companies could bear exchange rate risk if the contract is denominated in British Pounds. 
D) Both B and C are correct. 
A) The American company will bear all of the exchange rate risk if the contract is denominated in dollars. 
B) The French company will bear all of the exchange rate risk if the contract is denominated in dollars. 
C) Both companies could bear exchange rate risk if the contract is denominated in British Pounds. 
D) Both B and C are correct.

Question 13

IMXP Corp.enters into a 30-day forward exchange contract to buy 113,540,000 yen for $100,000.Which of the following statements is true concerning this transaction?

Accepted Answer

A) IMXP will pay $100,000 and receive 113,540,000 yen 30 days from now. 
B) IMXP will pay $100,000 today and receive 113,540,000 yen 30 days from now. 
C) The spot exchange rate in 30 days will be 113.54 yen per dollar. 
D) IMXP will receive 113,540,000 yen today and pay $100,000 30 days from now. 
A) IMXP will pay $100,000 and receive 113,540,000 yen 30 days from now. 
B) IMXP will pay $100,000 today and receive 113,540,000 yen 30 days from now. 
C) The spot exchange rate in 30 days will be 113.54 yen per dollar. 
D) IMXP will receive 113,540,000 yen today and pay $100,000 30 days from now.

Question 14

An important (additional)consideration for a direct foreign investment is

Accepted Answer

A) political risk. 
B) maximizing the firm's profits. 
C) attaining a high international P/E ratio. 
D) maintaining the domestic cost of capital. 
A) political risk. 
B) maximizing the firm's profits. 
C) attaining a high international P/E ratio. 
D) maintaining the domestic cost of capital.

Question 15

Suppose the current exchange rates are 1.3215 dollars per euro,and 84.19 yen per dollar.What is the current exchange rate between yen and euros?

Accepted Answer

A) 86.356 yen per euro 
B) 147.571 yen per euro 
C) 151.696 yen per euro 
D) 111.257 yen per euro 
A) 86.356 yen per euro 
B) 147.571 yen per euro 
C) 151.696 yen per euro 
D) 111.257 yen per euro

Question 16

What is direct foreign investment? What are the additional risks that a multinational corporation must consider before undertaking direct investment in a foreign country?

Accepted Answer

Direct foreign investment is the purchas

Question 17

Except for the effects of small transaction costs,the forward premium or discount should be equal and opposite in size to the difference in the national interest rates for securities of the same maturity.What is the name of this theory?

Accepted Answer

A) the purchasing power parity theory 
B) the Bobby Fisher effect 
C) interest rate parity theory 
D) the law of one price 
A) the purchasing power parity theory 
B) the Bobby Fisher effect 
C) interest rate parity theory 
D) the law of one price

Question 18

Argentina experienced a period of extremely high inflation relative to its trading partners and Argentina's currency decreased in value.This is an example of purchasing power parity theory.

Accepted Answer

A) True 
 B)False

Question 19

Exchange rate risk is highest for companies with

Accepted Answer

A) international trade contracts denominated in the foreign currency. 
B) investment portfolios that contain foreign securities. 
C) direct foreign investments in foreign subsidiaries. 
D) international trade contracts denominated in the domestic currency. 
A) international trade contracts denominated in the foreign currency. 
B) investment portfolios that contain foreign securities. 
C) direct foreign investments in foreign subsidiaries. 
D) international trade contracts denominated in the domestic currency.

Question 20

The cost of debt used in the international investment decision is the lesser of the parent's or the subsidiary's cost of debt.

Accepted Answer

A) True 
 B)False

A quote of .7645 euros per dollar in New York is an example of a direct quote.

Prior to 1973 the exchange rates between the major currencies of the world were

International expansion often occurs because it is generally easier for firms to expand the market for their products rather than to develop new products.

Arbitrage is the process of buying in one market and selling in another market in order to make a riskless profit.

A wide bid/ask spread could indicate which of the following?

The asked rate is also known as the selling rate or the offer rate.

The bid rate is the rate at which the bank buys the foreign currency from the customer by paying in home currency.

A direct quote of $1.9887 dollars to buy one U.K.pound corresponds to an indirect quote of .9887 pounds per one dollar.

The current direct quote in New York is .01075 dollars per yen.Suppose the current direct quote in Tokyo is 91 yen per dollar.What is the appropriate indirect quote in New York? What will arbitrageurs do to eliminate the differential rates in these markets?

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

A Spot transaction occurs when

An American manufacturer with its corporate headquarters in New York City is purchasing goods from a French supplier.Which of the following statements is true regarding the exchange rate risk for this contract?

IMXP Corp.enters into a 30-day forward exchange contract to buy 113,540,000 yen for $100,000.Which of the following statements is true concerning this transaction?

An important (additional)consideration for a direct foreign investment is

Suppose the current exchange rates are 1.3215 dollars per euro,and 84.19 yen per dollar.What is the current exchange rate between yen and euros?

What is direct foreign investment? What are the additional risks that a multinational corporation must consider before undertaking direct investment in a foreign country?

Except for the effects of small transaction costs,the forward premium or discount should be equal and opposite in size to the difference in the national interest rates for securities of the same maturity.What is the name of this theory?

Argentina experienced a period of extremely high inflation relative to its trading partners and Argentina's currency decreased in value.This is an example of purchasing power parity theory.

Exchange rate risk is highest for companies with

The cost of debt used in the international investment decision is the lesser of the parent's or the subsidiary's cost of debt.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Cash,receivables,and Inventory Management

Filters

Exam 16: International Business Finance

A quote of .7645 euros per dollar in New York is an example of a direct quote.

Prior to 1973 the exchange rates between the major currencies of the world were

International expansion often occurs because it is generally easier for firms to expand the market for their products rather than to develop new products.

Arbitrage is the process of buying in one market and selling in another market in order to make a riskless profit.

A wide bid/ask spread could indicate which of the following?

The asked rate is also known as the selling rate or the offer rate.

The bid rate is the rate at which the bank buys the foreign currency from the customer by paying in home currency.

A direct quote of $1.9887 dollars to buy one U.K.pound corresponds to an indirect quote of .9887 pounds per one dollar.

The current direct quote in New York is .01075 dollars per yen.Suppose the current direct quote in Tokyo is 91 yen per dollar.What is the appropriate indirect quote in New York? What will arbitrageurs do to eliminate the differential rates in these markets?

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.This theory is known as

A Spot transaction occurs when

An American manufacturer with its corporate headquarters in New York City is purchasing goods from a French supplier.Which of the following statements is true regarding the exchange rate risk for this contract?

IMXP Corp.enters into a 30-day forward exchange contract to buy 113,540,000 yen for $100,000.Which of the following statements is true concerning this transaction?

An important (additional)consideration for a direct foreign investment is

Suppose the current exchange rates are 1.3215 dollars per euro,and 84.19 yen per dollar.What is the current exchange rate between yen and euros?

What is direct foreign investment? What are the additional risks that a multinational corporation must consider before undertaking direct investment in a foreign country?

Except for the effects of small transaction costs,the forward premium or discount should be equal and opposite in size to the difference in the national interest rates for securities of the same maturity.What is the name of this theory?

Argentina experienced a period of extremely high inflation relative to its trading partners and Argentina's currency decreased in value.This is an example of purchasing power parity theory.

Exchange rate risk is highest for companies with

The cost of debt used in the international investment decision is the lesser of the parent's or the subsidiary's cost of debt.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Cash,receivables,and Inventory Management

Filters