Question 1

When the Mexican peso is quoted as Ps13.93,this quote is a(n):

Accepted Answer

A) indirect rate. 
B) direct rate. 
C) cross rate. 
D) triangle rate. 
E) linear rate. 
A) indirect rate. 
B) direct rate. 
C) cross rate. 
D) triangle rate. 
E) linear rate.

Question 2

The condition stating that the expected percentage change in the exchange rate is equal to the difference in interest rates between the countries is called:

Accepted Answer

A) the unbiased forward rates condition. 
B) uncovered interest parity. 
C) the international Fisher effect. 
D) purchasing power parity. 
E) interest rate parity. 
A) the unbiased forward rates condition. 
B) uncovered interest parity. 
C) the international Fisher effect. 
D) purchasing power parity. 
E) interest rate parity.

Question 3

You want to import $56,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?

Accepted Answer

A) Rs3,015,030 
B) Rs2,666,667 
C) Rs3,486,924 
D) Rs3,008,001 
E) Rs2,847,319 
A) Rs3,015,030 
B) Rs2,666,667 
C) Rs3,486,924 
D) Rs3,008,001 
E) Rs2,847,319

Question 4

Financial Accounting Standards Board Statement No.52 requires that most assets and liabilities be translated at the current exchange rate.Translation gains and losses are recorded:

Accepted Answer

A) in the shareholder's equity section of the balance sheet. 
B) as a normal income item on the income statement. 
C) as an extraordinary item on the income statement. 
D) as a footnote to the financial statements. 
E) only on income tax returns. 
A) in the shareholder's equity section of the balance sheet. 
B) as a normal income item on the income statement. 
C) as an extraordinary item on the income statement. 
D) as a footnote to the financial statements. 
E) only on income tax returns.

Question 5

A project has an initial cost of £80,000 and is expected to return £10,000 the first year,£40,000 the second year,and £50,000 the third and final year.Assume the current spot rate is £.75.Also assume the nominal risk-free return is 3 percent in the U.K.and 5 percent in the U.S.The return relevant to the project is 7.8 percent in the U.K.and 8.1 percent in the U.S.Assume uncovered interest rate parity exists.What is the net present value of this project in U.S.dollars using the home currency approach?

Accepted Answer

A) $9,787 
B) $11,002 
C) $10,312 
D) $10,511 
E) $9,514 
A) $9,787 
B) $11,002 
C) $10,312 
D) $10,511 
E) $9,514

Question 6

Angie has been offered Can$1.75 for £1.How much profit can she earn on a triangle arbitrage if the official rate is $1 = Can$1.2834 and the USD equivalent of £1 is $1.3699? Assume she currently has $100 in cash.

Accepted Answer

A) $.46 
B) $.73 
C) $1.09 
D) $1.37 
E) $.57 
A) $.46 
B) $.73 
C) $1.09 
D) $1.37 
E) $.57

Question 7

The condition stating that the interest rate differential between two countries is approximately equal to the percentage forward premium or discount is called:

Accepted Answer

A) the unbiased forward rates condition. 
B) uncovered interest rate parity. 
C) the international Fisher effect. 
D) purchasing power parity. 
E) interest rate parity. 
A) the unbiased forward rates condition. 
B) uncovered interest rate parity. 
C) the international Fisher effect. 
D) purchasing power parity. 
E) interest rate parity.

Question 8

What is triangle arbitrage?

Accepted Answer

Triangle arbitrage is the ability to ear

Question 9

The price of one country's currency expressed in terms of another country's currency is called the:

Accepted Answer

A) absolute currency rate. 
B) cross inflation rate. 
C) depository rate. 
D) exchange rate. 
E) foreign interest rate. 
A) absolute currency rate. 
B) cross inflation rate. 
C) depository rate. 
D) exchange rate. 
E) foreign interest rate.

Question 10

Assume $1 will buy Can$1.2803 while $1.2195 will buy €1.What is the Can$/€ exchange rate?

Accepted Answer

A) Can$.9709 = €1 
B) Can$.9525 = €1 
C) Can$1.0499 = €1 
D) Can$1.3624 = €1 
E) Can$1.5613 = €1 
A) Can$.9709 = €1 
B) Can$.9525 = €1 
C) Can$1.0499 = €1 
D) Can$1.3624 = €1 
E) Can$1.5613 = €1

Question 11

Suppose the spot exchange rate is $1 = £.7304 and the 1-month forward rate is $1 = £.7303.Given this,you know the:

Accepted Answer

A) U.S.inflation rate is higher than the U.K.'s. 
B) U.S.nominal interest rate is higher than the U.K.'s. 
C) pound is selling at a discount. 
D) U.S.real risk-free interest rate is higher than the U.K.'s. 
E) pound is selling at a premium. 
A) U.S.inflation rate is higher than the U.K.'s. 
B) U.S.nominal interest rate is higher than the U.K.'s. 
C) pound is selling at a discount. 
D) U.S.real risk-free interest rate is higher than the U.K.'s. 
E) pound is selling at a premium.

Question 12

Absolute purchasing power parity is most apt to exist for:

Accepted Answer

A) a 4-door Ford vehicle. 
B) a loaf of white bread. 
C) a 2-bedroom home. 
D) a new watch. 
E) an ounce of silver. 
A) a 4-door Ford vehicle. 
B) a loaf of white bread. 
C) a 2-bedroom home. 
D) a new watch. 
E) an ounce of silver.

Question 13

How many euros can you get for $2,500 if the USD equivalent is 1.2195?

Accepted Answer

A) €2,147.08 
B) €2,050.02 
C) €2,309.11 
D) €3,048.75 
E) €2,921.00 
A) €2,147.08 
B) €2,050.02 
C) €2,309.11 
D) €3,048.75 
E) €2,921.00

Question 14

Describe the foreign currency and home currency approaches to capital budgeting.Which is better? Which approach would you recommend a U.S.firm use? Justify your answer.

Accepted Answer

In the home currency approach,you must f

Question 15

A project has an initial cost of £1.2 million and expected cash inflows of £400,000,£500,000,and £600,000 for Years 1 to 3,respectively.Assume the current spot rate is £.73 and the nominal risk-free returns are 4 percent in the U.K.and 3 percent in the U.S.If uncovered interest rate parity exists,what is the net present value of this project in U.S.dollars using the home currency approach? Assume the project's U.S.discount rate is 12 percent.

Accepted Answer

A) −$56,359 
B) −$104,040 
C) −$71,067 
D) $26,422 
E) $92,009 
A) −$56,359 
B) −$104,040 
C) −$71,067 
D) $26,422 
E) $92,009

Question 16

A major network for foreign transactions is operated by a Belgian non-profit cooperative known as:

Accepted Answer

A) EURX. 
B) BELX. 
C) SWIFT. 
D) LIBOR. 
E) GLOBEX. 
A) EURX. 
B) BELX. 
C) SWIFT. 
D) LIBOR. 
E) GLOBEX.

Question 17

Assume $1 = ¥106.83 = £.7309.If a TV in London costs £430,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Accepted Answer

A) ¥32,411.02 
B) ¥34,666.67 
C) ¥62,849.77 
D) ¥58,001.28 
E) ¥82,880.09 
A) ¥32,411.02 
B) ¥34,666.67 
C) ¥62,849.77 
D) ¥58,001.28 
E) ¥82,880.09

Question 18

You just returned from some extensive traveling.You started your trip with $10,000 in your pocket.You spent 1.32 million pesos in Chile where Ps1 = $.001642.You spent Ps36,000 in Uruguay where Ps1 = $.03526.Then on the way home,you spent Ps29,000 in Mexico where $1 = Ps18.8709.How many dollars did you have left by the time you returned to the U.S.?

Accepted Answer

A) $3,889.07 
B) $4,001.84 
C) $4,110.27 
D) $5,026.44 
E) $4,299.03 
A) $3,889.07 
B) $4,001.84 
C) $4,110.27 
D) $5,026.44 
E) $4,299.03

Question 19

A security issued in the United States that represents shares of a foreign stock and allows that stock to be traded in the United States is called a(n):

Accepted Answer

A) American Depository Receipt. 
B) Yankee bond. 
C) Yankee stock. 
D) Eurostock. 
E) foreign obligation trust certificate. 
A) American Depository Receipt. 
B) Yankee bond. 
C) Yankee stock. 
D) Eurostock. 
E) foreign obligation trust certificate.

Question 20

Which one of following statements is false?

Accepted Answer

A) Importers are participants in the foreign exchange market. 
B) The foreign exchange market is an over-the-counter market. 
C) There are no speculators in the foreign exchange market. 
D) Exporters are participants in the foreign exchange market. 
E) Portfolio managers are participants in the foreign exchange market. 
A) Importers are participants in the foreign exchange market. 
B) The foreign exchange market is an over-the-counter market. 
C) There are no speculators in the foreign exchange market. 
D) Exporters are participants in the foreign exchange market. 
E) Portfolio managers are participants in the foreign exchange market.

Exam 31: International Corporate Finance

When the Mexican peso is quoted as Ps13.93,this quote is a(n):

The condition stating that the expected percentage change in the exchange rate is equal to the difference in interest rates between the countries is called:

You want to import $56,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?

Financial Accounting Standards Board Statement No.52 requires that most assets and liabilities be translated at the current exchange rate.Translation gains and losses are recorded:

Angie has been offered Can$1.75 for £1.How much profit can she earn on a triangle arbitrage if the official rate is $1 = Can$1.2834 and the USD equivalent of £1 is $1.3699? Assume she currently has $100 in cash.

The condition stating that the interest rate differential between two countries is approximately equal to the percentage forward premium or discount is called:

What is triangle arbitrage?

The price of one country's currency expressed in terms of another country's currency is called the:

Assume $1 will buy Can$1.2803 while $1.2195 will buy €1.What is the Can$/€ exchange rate?

Suppose the spot exchange rate is $1 = £.7304 and the 1-month forward rate is $1 = £.7303.Given this,you know the:

Absolute purchasing power parity is most apt to exist for:

How many euros can you get for $2,500 if the USD equivalent is 1.2195?

Describe the foreign currency and home currency approaches to capital budgeting.Which is better? Which approach would you recommend a U.S.firm use? Justify your answer.

A major network for foreign transactions is operated by a Belgian non-profit cooperative known as:

Assume $1 = ¥106.83 = £.7309.If a TV in London costs £430,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

A security issued in the United States that represents shares of a foreign stock and allows that stock to be traded in the United States is called a(n):

Which one of following statements is false?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

Filters