Exam 19: Multinational Financial Management

Suppose one year ago,Hein Company had inventory in Britain valued at 240,000 pounds.The exchange rate for dollars to pounds was 1£ = 2 U.S.dollars.This year the exchange rate is 1£ = 1.82 U.S.dollars.The inventory in Britain is still valued at 240,000 pounds.What is the U.S.dollar gain or loss in inventory value as a result of the change in exchange rates?

Suppose hockey skates sell in Canada for 105 Canadian dollars,and 1 Canadian dollar equals 0.71 U.S.dollar.If purchasing power parity (PPP)holds,what is the price of hockey skates in the United States?

Which of the following statements is NOT CORRECT?

Today in the spot market $1 = 1.82 Swiss francs and $1 = 130 Japanese yen.In the 90-day forward market,$1 = 1.84 Swiss francs and $1 = 127 Japanese yen.Assume that interest rate parity holds worldwide.Which of the following statements is most CORRECT?

Blenman Corporation,based in the United States,arranged a 2-year,$1,000,000 loan to fund a project in Mexico.The loan is denominated in Mexican pesos,carries a 10.0% nominal rate,and requires equal semiannual payments.The exchange rate at the time of the loan was 5.75 pesos per dollar,but it dropped to 5.10 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus,Blenman must convert U.S.funds to Mexican pesos to make its payments.If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period,what effective annual interest rate will Blenman end up paying on the loan?

A currency trader observes the following quotes in the spot market: Given this information,how many yen can be purchased for 1 Swiss franc?

Which of the following are reasons why companies move into international operations?

A foreign currency will,on average,depreciate against the U.S.dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day)return.In the U.S.,90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day)return.In the 90-day forward market,1 British pound equals $1.65.If interest rate parity holds,what is the spot exchange rate ($/£)?

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar,what would the car be selling for today in U.S.dollars?

A Eurodollar is a U.S.dollar deposited in a bank outside the United States.

Suppose DeGraw Corporation,a U.S.exporter,sold a solar heating station to a Japanese customer at a price of 143.5 million yen,when the exchange rate was 140 yen per dollar.In order to close the sale,DeGraw agreed to make the bill payable in yen,thus agreeing to take some exchange rate risk for the transaction.The terms were net 6 months.If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid,what dollar amount would DeGraw actually receive after it exchanged yen for U.S.dollars?

If the inflation rate in the United States is greater than the inflation rate in Britain,other things held constant,the British pound will

If one British pound can purchase $1.98 U.S.dollars,how many British pounds can one U.S.dollar buy?

If one Swiss franc can purchase $0.76 U.S.dollars,how many Swiss francs can one U.S.dollar buy?

A box of candy costs 28.80 Swiss francs in Switzerland and $20 in the United States.Assuming that purchasing power parity (PPP)holds,how many Swiss francs are required to purchase one U.S.dollar?

A currency trader observes the following quotes in the spot market: Given this information,how many Mexican pesos can be purchased for 1 Danish krone?

The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.

Suppose 144 yen could be purchased in the foreign exchange market for one U.S.dollar today.If the yen depreciates by 8.0% tomorrow,how many yen could one U.S.dollar buy tomorrow?