Question 1

The rate that a subsidiary or parent of the MNC charges other divisions of the firm for its products is called

Accepted Answer

A)  a forward price. 
B)  an intrafirm transaction rate. 
C)  a transfer price. 
D)  an exchange rate. 
A)  a forward price. 
B)  an intrafirm transaction rate. 
C)  a transfer price. 
D)  an exchange rate.

Question 2

If a U.S.company enters into a purchase agreement with a European company and the contract is denominated in euros,then direct exchange rate risk exists for both companies.

Accepted Answer

A) True 
 B)False

Question 3

The Euro increased dramatically in value against the U.S.dollar between 2000 and 2009.The result has been that

Accepted Answer

A)  U.S. exports are more competitive in Europe. 
B)  U.S. goods cost more in Europe. 
C)  U.S. travelers are finding it less expensive to travel in Europe. 
D)  European exports to the United States are more competitive. 
A)  U.S. exports are more competitive in Europe. 
B)  U.S. goods cost more in Europe. 
C)  U.S. travelers are finding it less expensive to travel in Europe. 
D)  European exports to the United States are more competitive.

Question 4

An indirect quote indicates the number of units of foreign currency that can be bought for one unit of the home currency.

Accepted Answer

A) True 
 B)False

Question 5

With international investing,unlike domestic investing,exchange rate risk could cause a marginally-positive-NPV project to be rejected due to the additional risk.

Accepted Answer

A) True 
 B)False

Question 6

The objective of a prudent financial manager is to eliminate all foreign exchange risk.

Accepted Answer

A) True 
 B)False

Question 7

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.The percent-per-year discount on the 30-day pound is

Accepted Answer

A)  32.77%. 
B)  30.57%. 
C)  48.00%. 
D)  45.93%. 
A)  32.77%. 
B)  30.57%. 
C)  48.00%. 
D)  45.93%.

Question 8

A bottle of French wine costs $25 euros in Paris.According to the purchasing power parity theory,what would the bottle sell for in New York if it costs the New York company $2 per bottle to transport the wine to the United States? Assume the exchange rate is $1.50 per euro.

Accepted Answer

A)  $40.50 
B)  $28.50 
C)  $27.00 
D)  $39.50 
A)  $40.50 
B)  $28.50 
C)  $27.00 
D)  $39.50

Question 9

Exceptions to purchase power parity exist if arbitrage opportunities are limited by characteristics such as perishability or high transportation costs.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The existence of a forward-spot differential creates an arbitrage opportunity that will eliminate the differential almost immediately.

Accepted Answer

A) True 
 B)False

Question 12

Exchange rate risk is the risk that exchange rates will be lower in the future than they are today.

Accepted Answer

A) True 
 B)False

Question 13

Alpha 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)  Alpha will pay $100,000 and receive 113,540,000 yen 30 days from now. 
B)  Alpha 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)  Alpha will receive 113,540,000 yen today and pay $100,000 30 days from now. 
A)  Alpha will pay $100,000 and receive 113,540,000 yen 30 days from now. 
B)  Alpha 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)  Alpha will receive 113,540,000 yen today and pay $100,000 30 days from now.

Question 14

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 15

Which of the following is true regarding the correct price of the forward contract?

Accepted Answer

A)  If the quote is less than the computed price, the forward contract is undervalued. 
B)  If the quote is greater than the computed price, the forward contract is overvalued. 
C)  Both A and B. 
D)  Neither A nor B. 
A)  If the quote is less than the computed price, the forward contract is undervalued. 
B)  If the quote is greater than the computed price, the forward contract is overvalued. 
C)  Both A and B. 
D)  Neither A nor B.

Question 16

Exchange rate risk

Accepted Answer

A)  arises from the fact that the spot exchange rate on a future date is a random variable. 
B)  applies only to certain types of international businesses. 
C)  has been phased out due to recent international legislation. 
D)  has been reduced by the adoption of floating exchange rates. 
A)  arises from the fact that the spot exchange rate on a future date is a random variable. 
B)  applies only to certain types of international businesses. 
C)  has been phased out due to recent international legislation. 
D)  has been reduced by the adoption of floating exchange rates.

Question 17

Strategies to counter exchange rate risk include all of the following except:

Accepted Answer

A)  futures contracts. 
B)  spot-market hedges. 
C)  forward-market hedges. 
D)  money-market hedges. 
A)  futures contracts. 
B)  spot-market hedges. 
C)  forward-market hedges. 
D)  money-market hedges.

Question 18

The Eurodollar market is larger than any financial market in the United States.

Accepted Answer

A) True 
 B)False

Question 19

Suppose the current spot rate in New York is .0107 dollars per yen.Inflation for the coming year in the United States is expected to be 5%,while inflation for the coming year is Japan is expected to be only 2%.Using the purchasing power parity theory,what is the expected spot rate at the end of the year should be

Accepted Answer

A)  .0110147 dollars per yen. 
B)  .0108159 dollars per yen. 
C)  .0138373 dollars per yen. 
D)  .0107988 dollars per yen. 
A)  .0110147 dollars per yen. 
B)  .0108159 dollars per yen. 
C)  .0138373 dollars per yen. 
D)  .0107988 dollars per yen.

Question 20

Suppose the 360-day forward exchange rate is 1.936 dollars per British Pound,and the current spot rate is 1.900 dollars per British Pound.If the 360-day interest rate in the United States is 5% and the 360-day interest rate in Great Britain is 3%,is the market in equilibrium according to the interest rate parity theory?

Accepted Answer

A)  Yes, because the forward premium on the pound (2%) is exactly offset by the lower interest rate in Great Britain. 
B)  No, because the higher interest rate in the United States (2%) implies that the forward exchange rate should be 2% lower than the current spot rate. 
C)  No, because the forward premium on the pound is 2% while the interest rate in the U.S is 67% higher than the interest rate in Great Britain. 
D)  Cannot be determined without knowing the amount of money being exchanged. 
A)  Yes, because the forward premium on the pound (2%) is exactly offset by the lower interest rate in Great Britain. 
B)  No, because the higher interest rate in the United States (2%) implies that the forward exchange rate should be 2% lower than the current spot rate. 
C)  No, because the forward premium on the pound is 2% while the interest rate in the U.S is 67% higher than the interest rate in Great Britain. 
D)  Cannot be determined without knowing the amount of money being exchanged.

The rate that a subsidiary or parent of the MNC charges other divisions of the firm for its products is called

If a U.S.company enters into a purchase agreement with a European company and the contract is denominated in euros,then direct exchange rate risk exists for both companies.

The Euro increased dramatically in value against the U.S.dollar between 2000 and 2009.The result has been that

An indirect quote indicates the number of units of foreign currency that can be bought for one unit of the home currency.

With international investing,unlike domestic investing,exchange rate risk could cause a marginally-positive-NPV project to be rejected due to the additional risk.

The objective of a prudent financial manager is to eliminate all foreign exchange risk.

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.The percent-per-year discount on the 30-day pound is

A bottle of French wine costs $25 euros in Paris.According to the purchasing power parity theory,what would the bottle sell for in New York if it costs the New York company $2 per bottle to transport the wine to the United States? Assume the exchange rate is $1.50 per euro.

Exceptions to purchase power parity exist if arbitrage opportunities are limited by characteristics such as perishability or high transportation costs.

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

The existence of a forward-spot differential creates an arbitrage opportunity that will eliminate the differential almost immediately.

Exchange rate risk is the risk that exchange rates will be lower in the future than they are today.

Alpha 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?

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?

Which of the following is true regarding the correct price of the forward contract?

Exchange rate risk

Strategies to counter exchange rate risk include all of the following except:

The Eurodollar market is larger than any financial market in the United States.

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

Current Asset Management

Filters

Exam 17: International Business Finance

The rate that a subsidiary or parent of the MNC charges other divisions of the firm for its products is called

If a U.S.company enters into a purchase agreement with a European company and the contract is denominated in euros,then direct exchange rate risk exists for both companies.

The Euro increased dramatically in value against the U.S.dollar between 2000 and 2009.The result has been that

An indirect quote indicates the number of units of foreign currency that can be bought for one unit of the home currency.

With international investing,unlike domestic investing,exchange rate risk could cause a marginally-positive-NPV project to be rejected due to the additional risk.

The objective of a prudent financial manager is to eliminate all foreign exchange risk.

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.The percent-per-year discount on the 30-day pound is

A bottle of French wine costs $25 euros in Paris.According to the purchasing power parity theory,what would the bottle sell for in New York if it costs the New York company $2 per bottle to transport the wine to the United States? Assume the exchange rate is $1.50 per euro.

Exceptions to purchase power parity exist if arbitrage opportunities are limited by characteristics such as perishability or high transportation costs.

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

The existence of a forward-spot differential creates an arbitrage opportunity that will eliminate the differential almost immediately.

Exchange rate risk is the risk that exchange rates will be lower in the future than they are today.

Alpha 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?

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?

Which of the following is true regarding the correct price of the forward contract?

Exchange rate risk

Strategies to counter exchange rate risk include all of the following except:

The Eurodollar market is larger than any financial market in the United States.

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

Current Asset Management

Filters