Question 1

Hedging with currency options involves a commitment by a firm to buy currency at a fixed rate.

Accepted Answer

A) True 
 B)False

Question 2

________ is a term used to describe the transfer of profits from a foreign subsidiary to the home country.

Accepted Answer

A) Repatriation 
B) Depreciation 
C) Privatization 
D) Reversion 
A) Repatriation 
B) Depreciation 
C) Privatization 
D) Reversion

Question 3

A U.S.-based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 200,000 euros after one year. If the one-year forward exchange rate is $1.40/euro and the dollar cost of capital is 9%, what is the present value (PV)of the project cash flows?

Accepted Answer

A) $232,981 
B) $245,198 
C) $256,881 
D) $268,880 
A) $232,981 
B) $245,198 
C) $256,881 
D) $268,880

Question 4

Which of the following statements is FALSE?

Accepted Answer

A) If the U.S. tax rate exceeds the combined tax rate on all foreign income, it is valid to assume that the firm pays the same tax rate on all income no matter where it is earned. 
B) Firms can lower their taxes by pooling multiple foreign projects and accelerating the repatriation of earnings. 
C) Under U.S. tax law, multinational corporations may use any excess tax credits generated in high-tax foreign countries to offset their net U.S. tax liabilities on earnings in low-tax foreign countries. 
D) If the foreign tax rate exceeds the U.S. tax rate, because the U.S. tax credit exceeds the amount of U.S. taxes owed, no tax is owed in the United States. 
A) If the U.S. tax rate exceeds the combined tax rate on all foreign income, it is valid to assume that the firm pays the same tax rate on all income no matter where it is earned. 
B) Firms can lower their taxes by pooling multiple foreign projects and accelerating the repatriation of earnings. 
C) Under U.S. tax law, multinational corporations may use any excess tax credits generated in high-tax foreign countries to offset their net U.S. tax liabilities on earnings in low-tax foreign countries. 
D) If the foreign tax rate exceeds the U.S. tax rate, because the U.S. tax credit exceeds the amount of U.S. taxes owed, no tax is owed in the United States.

Question 5

Which of the following statements regarding international projects is FALSE?

Accepted Answer

A) Interest rates and costs of capital will likely be different in the foreign country as a result of the macroeconomic environment. 
B) The project will most likely generate foreign currency cash flows, although the managers and shareholders care about the foreign currency value of the project. 
C) Under internationally integrated capital markets, the value of an investment does not depend on the currency we use in the analysis. 
D) The firm will probably face a different tax rate in the foreign country and will be subject to both foreign and domestic tax codes. 
A) Interest rates and costs of capital will likely be different in the foreign country as a result of the macroeconomic environment. 
B) The project will most likely generate foreign currency cash flows, although the managers and shareholders care about the foreign currency value of the project. 
C) Under internationally integrated capital markets, the value of an investment does not depend on the currency we use in the analysis. 
D) The firm will probably face a different tax rate in the foreign country and will be subject to both foreign and domestic tax codes.

Question 6

The ________ market is where currencies are traded twenty-four hours a day and with a large turnover.

Accepted Answer

A) foreign exchange 
B) bond 
C) stock 
D) none of the above 
A) foreign exchange 
B) bond 
C) stock 
D) none of the above

Question 7

Use the information for the question(s)below.
You are a U.S. investor who is trying to calculate the present value (PV)of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.8839/£ and the forward rate is FS1U1B11S1U1B0 = $1.8862/£. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%.
-The present value (PV)of the £5 million cash inflow computed by first discounting the £s and then converting into dollars is closest to ________.

Accepted Answer

A) $8,961,420 
B) $8,950,495 
C) $8,954,615 
D) $8,943,695 
A) $8,961,420 
B) $8,950,495 
C) $8,954,615 
D) $8,943,695

Question 8

Consider the following equation:   =   (1 +   )- 1 The term r¥ in this equation refers to ________.

Accepted Answer

A) the cost of capital for the firm in terms of yen 
B) the risk-free rate of interest on the dollar 
C) the cost of capital in terms of dollars 
D) the risk-free rate of interest on the yen 
A) the cost of capital for the firm in terms of yen 
B) the risk-free rate of interest on the dollar 
C) the cost of capital in terms of dollars 
D) the risk-free rate of interest on the yen

Question 9

________ give a firm a right, but not an obligation, to exchange currency at a given rate.

Accepted Answer

A) Currency forwards 
B) Currency options 
C) Currency futures 
D) Currency exchanges 
A) Currency forwards 
B) Currency options 
C) Currency futures 
D) Currency exchanges

Question 10

Use the information for the question(s)below.
The current spot exchange rate, S, is $1.8862/£. Suppose that the yield curve in both countries is flat. The risk-free rate on dollars, rS1U1B1$S1U1B0, is 5.35% and the risk-free interest rate on pounds, rS1U1B1£S1U1B0, is 4.80%.
-Using the covered interest parity condition, the calculated one-year forward rate F1 is closest to ________.

Accepted Answer

A) $1.8568/£ 
B) $1.8764/£ 
C) $1.9161/£ 
D) $1.8961/£ 
A) $1.8568/£ 
B) $1.8764/£ 
C) $1.9161/£ 
D) $1.8961/£

Question 11

How are exchange rates quoted in the Wall Street Journal?

Accepted Answer

Exchange rates in the Wall Street Journa

Question 12

You have just landed in Paris with $750 in your wallet. At the foreign exchange booth, you see that euros are being quoted at $1.34/€. How many euros can you exchange for your $750?

Accepted Answer

A) 1,005 euros 
B) 559.70 euros 
C) 750.00 euros 
D) 179.56 euros 
A) 1,005 euros 
B) 559.70 euros 
C) 750.00 euros 
D) 179.56 euros

Question 13

What is foreign exchange market?

Accepted Answer

The foreign exchange market, a

Question 14

A(n)________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

Accepted Answer

A) financial 
B) limit order 
C) internationally integrated capital 
D) over-the-counter 
A) financial 
B) limit order 
C) internationally integrated capital 
D) over-the-counter

Question 15

All investors in the developed and developing world have access to the financial securities in all markets.

Accepted Answer

A) True 
 B)False

Question 16

The spot exchange rate is the current rate at which one currency can be converted into another today.

Accepted Answer

A) True 
 B)False

Question 17

________ are players in the foreign exchange market.

Accepted Answer

A) Global investment banks 
B) Large multinational firms 
C) Central banks 
D) all of the above 
A) Global investment banks 
B) Large multinational firms 
C) Central banks 
D) all of the above

Question 18

Pooling of all foreign tax liabilities on earnings allows corporations to ________.

Accepted Answer

A) reduce income 
B) repatriate income 
C) reduce their overall taxes 
D) none of the above 
A) reduce income 
B) repatriate income 
C) reduce their overall taxes 
D) none of the above

Question 19

A U.S. firm acquires a British firm that will generate cash flows of 20,000 pounds next year and these cash flows will grow at 4% a year. If the British WACC is 9% and the spot exchange rate is $1.8/pound, what is the present value (PV)of the cash flows from this acquisition to domestic shareholders?

Accepted Answer

A) $633,333 
B) $654,876 
C) $691,543 
D) $720,000 
A) $633,333 
B) $654,876 
C) $691,543 
D) $720,000

Question 20

The amount of taxes paid by a foreign subsidiary does not depend on the amount repatriated back to the home country.

Accepted Answer

A) True 
 B)False

Exam 23: International Corporate Finance

Hedging with currency options involves a commitment by a firm to buy currency at a fixed rate.

________ is a term used to describe the transfer of profits from a foreign subsidiary to the home country.

Which of the following statements is FALSE?

Which of the following statements regarding international projects is FALSE?

The ________ market is where currencies are traded twenty-four hours a day and with a large turnover.

Consider the following equation: = (1 + )- 1 The term r¥ in this equation refers to ________.

________ give a firm a right, but not an obligation, to exchange currency at a given rate.

How are exchange rates quoted in the Wall Street Journal?

You have just landed in Paris with $750 in your wallet. At the foreign exchange booth, you see that euros are being quoted at $1.34/€. How many euros can you exchange for your $750?

What is foreign exchange market?

A(n)________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

All investors in the developed and developing world have access to the financial securities in all markets.

The spot exchange rate is the current rate at which one currency can be converted into another today.

________ are players in the foreign exchange market.

Pooling of all foreign tax liabilities on earnings allows corporations to ________.

The amount of taxes paid by a foreign subsidiary does not depend on the amount repatriated back to the home country.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Consider the following equation: = (1 + )- 1 The term r_¥ in this equation refers to ________.