Exam 23: International Corporate Finance

Consider the following equation: S × [(Foreign Cash Flow)/ (1 + r_FC] = (Forward Rate × Foreign Cash Flow)/ (1 + r_$) The term r_FC in this equation is ________.

The one-year forward exchange rate is Rupees 45/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

Assume IBM enters into a forward contract to purchase 200,000 euros at a rate of $1.50/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

Use the information for the question(s)below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT's U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -The amount of the taxes paid in dollars for the Irish operations is closest to ________.

A ________ exchange rate means that the rate changes constantly depending on the quantity supplied and demanded for the currency.

You firm needs to pay its British supplier £1,000,000. If the exchange rate is $1.61/ £, how many dollars will you need to pay the British supplier?

Firms that have a considerable amount of earnings abroad do not face any risk from changes in exchange rates.

If a foreign project is owned by a domestic corporation, managers and shareholders need to determine the home currency value of the foreign currency cash flows.

A ________ is written between a firm and a bank and it fixes the currency exchange rate for a transaction that will occur at a future date.

The Law of One Price asserts that we will obtain the same valuation of a project whether (a)we use the domestic cost of capital of the domestic currency equivalent cash flows at the forward exchange rates or (b)we use the corresponding foreign cost of capital and then convert the present value (PV)of the foreign currency value of the cash flows at the spot rate.

A(n)________ capital market is one where all investors do not have access to all the financial securities in the various markets.

Use the information for the question(s)below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT's U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -After the Irish taxes are paid, the amount of the earnings before interest and after taxes in dollars from the Ireland operations is closest to ________.

________ asserts that because a forward contract and a cash-and-carry strategy accomplish the same conversion, they must result in the same exchange rate.

The one-year forward exchange rate for the British Pound is $1.90/Pound. If the one-year U.S. interest rate is 4% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

The spot exchange rate for Indian Rupees is Rs 44/$. The one-year forward exchange rate is Rs 46/$ and the one-year U.S. interest rate is 5%. What is the implied one-year interest rate in India?

Even though a project may generate foreign currency cash flows, the firm cares about the home currency value of the project.

The one-year forward exchange rate is Rupees 50/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

What is covered interest parity?

The spot exchange rate for the British pound is 0.5 pounds/dollar. The one-year interest rate in the United States is 4% and the one-year interest rate in Britain is 5%. Based on these rates, what one-year forward exchange rate is consistent with the absence of arbitrage?

A ________ exchange rate is the rate that a firm can tie in for a future transaction date.