Exam 17: International Business Finance

A U.S.Company has a 20,000 euro loan in Germany that must be paid in 30 days.Assume the 30-day money market rates in the U.S.and France are both 3% for lending and 4% for borrowing.The current exchange rate is 1.55 dollars per euro.If the company wants to complete a money-market hedge,then the company will

Which of the following refers to the overall impact of exchange rate changes on the value of a firm?

Commercial centers for foreign exchange exist only in New York and London in order to make it possible for arbitrage to work.

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

Money-market hedges and forward market hedges rely on the

Compared with other developed countries,the U.S.is particularly reliant on foreign trade for self-subsistence.

Assume that the British pound is worth 1.6750 U.S.dollars.If a new Jaguar costs $120,000,what is the cost in British pounds?

Suppose the current exchange rates are 1.52 dollars per euro,and 99.8 yen per dollar.What is the current exchange rate between yen and euros?

Exchange rate risk exists in International Trade Contracts,Foreign Portfolio Investments,and in Direct Foreign Investments.

Suppose a U.S.importer purchases an Italian product today but will not pay for it for 90 days.The cost of the product today is 30,000 euros.The spot exchange rate today is .6233 euros per dollar.If the U.S.importer does not hedge the position,which of the following spot exchange rates in 90 days will yield the highest returns?

Suppose a U.S.importer purchases an Italian product today but will not pay for it for 90 days.The cost of the product today is 35,000 euros.The spot exchange rate today is .6233 euros per dollar.How much is the cost today in dollars?

Exchange-rate risk arises from the fact that the spot exchange rate on a future date is unknown today.

A multinational corporation can move funds from a subsidiary in one country to a subsidiary in another country so foreign exchange exposure and the tax liability of the multinational corporation as a whole are minimized.

Since 1973 the exchange rates between the major currencies of the world are

Forward contracts are usually quoted for periods greater than 1 year.

Interest Rate Parity theory states that interest rates must be the same in all countries using floating exchange rates or else international markets will not be in equilibrium.

The spot exchange rate in New York is 1.600 dollars per British pound.The 360-day forward exchange rate is 1.680 dollars per pound.The one-year interest rate in Great Britain is 2% while the one-year interest rate in the United States is 4%. a.If the interest rate in Great Britain remains at 2%,what should the interest rate be in the United States according to the interest rate parity theory? b.An American investor with $40,000 decides to take advantage of the differences in rates.Ignoring transaction costs,how can the American investor exploit the disequilibrium? Compare the amount of money the investor will have at the end of the year if he or she invests in one-year U.S.securities versus one-year British securities.

U.S.Wineries purchased 75,000 cases of French wine at a cost of 6,500,000 Euros.If the current exchange rate is 0.6712 Euros to the U.S.dollar,what is the purchase price of the wine in U.S.dollars?

Forward rates are all of the following except:

Spot exchange markets provide the potential for arbitrage opportunities.