Question 1

If the exposed position in a foreign currency is offset by borrowing or lending,it is referred to as a

Accepted Answer

A)  forward-market hedge. 
B)  spot hedge. 
C)  money-market hedge. 
D)  interest-rate hedge. 
A)  forward-market hedge. 
B)  spot hedge. 
C)  money-market hedge. 
D)  interest-rate hedge.

Question 2

Translation exposure is typically dealt with in the following manner

Accepted Answer

A)  money-market hedge. 
B)  forward-market hedge. 
C)  currency-futures contract. 
D)  no hedging is done since any losses are paper losses only. 
A)  money-market hedge. 
B)  forward-market hedge. 
C)  currency-futures contract. 
D)  no hedging is done since any losses are paper losses only.

Question 3

If a foreign currency is expected to depreciate with respect to the home currency,the holder of a net liability in foreign currency will profit.

Accepted Answer

A) True 
 B)False

Question 4

A multinational corporation is involved in a country whose currency is likely to decline in value.The corporation should

Accepted Answer

A)  lead if the corporation has a net liability (short) position. 
B)  lag if the corporation has a net asset (long) position. 
C)  lead regardless of whether the corporation has a net asset or net liability position. 
D)  lag if the corporation has a net liability (short) position. 
A)  lead if the corporation has a net liability (short) position. 
B)  lag if the corporation has a net asset (long) position. 
C)  lead regardless of whether the corporation has a net asset or net liability position. 
D)  lag if the corporation has a net liability (short) position.

Question 5

Exchange rate risk

Accepted Answer

A)  exists when the contract is written in terms of the foreign currency. 
B)  exists also in direct foreign investments and foreign portfolio investments. 
C)  does not exist if the international trade contract is written in terms of the domestic currency. 
D)  all of the above. 
A)  exists when the contract is written in terms of the foreign currency. 
B)  exists also in direct foreign investments and foreign portfolio investments. 
C)  does not exist if the international trade contract is written in terms of the domestic currency. 
D)  all of the above.

Question 6

If the exchange rate quotes in two different countries were out of line with each other,an enterprising trader could make a profit by buying in the market where the currency was cheaper and simultaneously selling it in the market where the currency was more expensive.Such a person would be known as a:

Accepted Answer

A)  spot trader. 
B)  arbitrageur. 
C)  cross trader. 
D)  capitalist. 
A)  spot trader. 
B)  arbitrageur. 
C)  cross trader. 
D)  capitalist.

Question 7

Most major countries in the world have agreed on fixed exchange rates in order to facilitate international trade.

Accepted Answer

A) True 
 B)False

Question 8

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 9

What is arbitrage?
 Assume that the dollar is quoted $1 = £0.625 in New York and the pound sterling is quoted as £1 = $1.63 in London.Is there an arbitrage opportunity?
 If so,what would an astute trader do?
 What will happen to the quotes as trades are made at current prices?

Accepted Answer

Arbitrage is the simultaneous purchase a

Question 10

A major source of long-term capital overseas is in the Eurocurrency market.

Accepted Answer

A) True 
 B)False

Question 11

A U.S.Company has a 40,000 euro loan in Germany that must be paid in 30 days.Assume the 30-day money market rates in the U.S.and Germany are both 2% for lending and 3.5% for borrowing.The current exchange rate is 1.55 dollars per euro.If the company wants to complete a money-market hedge,how many dollars will be needed to purchase euros in the spot market?

Accepted Answer

A)  $36,213.60 
B)  $40,000.00 
C)  $59,903.38 
D)  $60,784.32 
A)  $36,213.60 
B)  $40,000.00 
C)  $59,903.38 
D)  $60,784.32

Question 12

A corporate investment manager needs to invest $1,000,000 for the next 6 months.The current nominal rate of interest in the United States is 5%,while the nominal rate of interest in Brazil is 8%.Which of the following statements is most correct?

Accepted Answer

A)  The manager should invest the funds in Brazil and make an extra $30,000 for the year. 
B)  The manager may decide to invest the funds in the United States due to the international Fisher effect, which suggests inflation in Brazil may make the extra interest income worth less in one year. 
C)  The manager is indifferent between investing the funds in the United States or Brazil because real returns will always be the same in the end. 
D)  The manager cannot invest in Brazil because his company is investing dollars. 
A)  The manager should invest the funds in Brazil and make an extra $30,000 for the year. 
B)  The manager may decide to invest the funds in the United States due to the international Fisher effect, which suggests inflation in Brazil may make the extra interest income worth less in one year. 
C)  The manager is indifferent between investing the funds in the United States or Brazil because real returns will always be the same in the end. 
D)  The manager cannot invest in Brazil because his company is investing dollars.

Question 13

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 14

A direct quote of $1.6255 dollars to buy one U.K.pound corresponds to an indirect quote of .6152 pounds per one dollar.

Accepted Answer

A) True 
 B)False

Question 15

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.The importer creates a forward-market hedge.The 90-day forward rate is .6100 euros per dollar.The amount the U.S.importer will pay in 90 days is

Accepted Answer

A)  $56,153. 
B)  $57,377. 
C)  $55,683. 
D)  $56,667. 
A)  $56,153. 
B)  $57,377. 
C)  $55,683. 
D)  $56,667.

Question 16

In addition to those risks faced by domestic corporations,multinational corporations face

Accepted Answer

A)  political risk. 
B)  exchange risk. 
C)  both A and B are correct. 
D)  All domestic and multinational corporations face similar risk profiles. 
A)  political risk. 
B)  exchange risk. 
C)  both A and B are correct. 
D)  All domestic and multinational corporations face similar risk profiles.

Question 17

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.Therefore,pounds in the forward market are selling at a ________ to the current spot rate.

Accepted Answer

A)  .958 discount 
B)  .958 premium 
C)  .04 discount 
D)  .04 premium 
A)  .958 discount 
B)  .958 premium 
C)  .04 discount 
D)  .04 premium

Question 18

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 19

If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms,which of the below is the correct term for the exchange rate that you will use?

Accepted Answer

A)  indirect rate 
B)  spot rate 
C)  direct rate 
D)  forward rate 
A)  indirect rate 
B)  spot rate 
C)  direct rate 
D)  forward rate

Question 20

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

If the exposed position in a foreign currency is offset by borrowing or lending,it is referred to as a

Translation exposure is typically dealt with in the following manner

If a foreign currency is expected to depreciate with respect to the home currency,the holder of a net liability in foreign currency will profit.

A multinational corporation is involved in a country whose currency is likely to decline in value.The corporation should

Exchange rate risk

Most major countries in the world have agreed on fixed exchange rates in order to facilitate international trade.

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

What is arbitrage? Assume that the dollar is quoted $1 = £0.625 in New York and the pound sterling is quoted as £1 = $1.63 in London.Is there an arbitrage opportunity? If so,what would an astute trader do? What will happen to the quotes as trades are made at current prices?

A major source of long-term capital overseas is in the Eurocurrency market.

A corporate investment manager needs to invest $1,000,000 for the next 6 months.The current nominal rate of interest in the United States is 5%,while the nominal rate of interest in Brazil is 8%.Which of the following statements is most correct?

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

A direct quote of $1.6255 dollars to buy one U.K.pound corresponds to an indirect quote of .6152 pounds per one dollar.

In addition to those risks faced by domestic corporations,multinational corporations face

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.Therefore,pounds in the forward market are selling at a ________ to the current spot rate.

A Spot transaction occurs when

If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms,which of the below is the correct term for the exchange rate that you will use?

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.

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

If the exposed position in a foreign currency is offset by borrowing or lending,it is referred to as a

Translation exposure is typically dealt with in the following manner

If a foreign currency is expected to depreciate with respect to the home currency,the holder of a net liability in foreign currency will profit.

A multinational corporation is involved in a country whose currency is likely to decline in value.The corporation should

Exchange rate risk

Most major countries in the world have agreed on fixed exchange rates in order to facilitate international trade.

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

What is arbitrage? Assume that the dollar is quoted $1 = £0.625 in New York and the pound sterling is quoted as £1 = $1.63 in London.Is there an arbitrage opportunity? If so,what would an astute trader do? What will happen to the quotes as trades are made at current prices?

A major source of long-term capital overseas is in the Eurocurrency market.

A corporate investment manager needs to invest $1,000,000 for the next 6 months.The current nominal rate of interest in the United States is 5%,while the nominal rate of interest in Brazil is 8%.Which of the following statements is most correct?

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

A direct quote of $1.6255 dollars to buy one U.K.pound corresponds to an indirect quote of .6152 pounds per one dollar.

In addition to those risks faced by domestic corporations,multinational corporations face

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.Therefore,pounds in the forward market are selling at a ________ to the current spot rate.

A Spot transaction occurs when

If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms,which of the below is the correct term for the exchange rate that you will use?

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.

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