Exam 22: International Corporate Finance

Suppose the WACC for a Canadian company is 6.1%,and the Canadian risk-free interest rate is 3%.If the U.S.risk-free interest rate is 1.4%,what is the company's U.S.WACC?

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

IBM enters into a forward contract to purchase 200,000 euros at a rate of 1.90 USD/EUR one year from today.If the spot exchange rate is 2 USD/EUR one year later,what is the dollar amount that IBM must pay to receive the euros?

What is covered interest parity?

A ________ strategy replicates the forward contract by borrowing in one currency,converting to the other currency,and investing in the new currency.

One British pound can be purchased for $1.65.What is the exchange rate in terms of pounds per dollar?

A Canadian importer needs 1 million U.S.dollars in September,and decides to buy a call option on the USD for September delivery.Suppose a call option on the USD with a September expiration and a strike price of 1.25 USD/CAD trades for 0.0215 CAD per call on 1 USD.If,by the September expiration date,the USD has appreciated to 1.20 USD/CAD,how much did the firm gain (in CAD)from hedging with the option,compared to remaining unhedged?

Why do firms prefer forward contracts rather than the cash-can-carry strategy?

Consider the following equation: S × = The term in this equation is:

Use the information for the question(s)below. You are a Canadian 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 CAD/GBP and the forward rate is F₁ = 1.8862 CAD/GBP.The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate GBP discount rate is 5.24%. -The present value (PV)of the £5 million cash inflow computed by first discounting the pounds and then converting into dollars is closest to:

Which two currencies account for more than half of all the trading volume in the foreign exchange market?

What is the amount of Canadian taxes paid,in dollars,on KT's Japanese operations?

A currency forward contract passes exchange rate risk from a firm to the bank that has written the forward contract.Why is the bank willing to bear this risk?

A Canadian.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 CAD/GBP,what is the present value (PV)of the cash flows from this acquisition to domestic shareholders?

Your firm will be importing a large order of its inputs from the United States in three months and is concerned that the Canadian dollar might fall against the U.S.dollar over that time.To hedge your risk,you decide to enter into a currency forward contract to purchase 750,000 USD at a rate of 1.0114 CAD/USD.If the spot exchange rate in 3 months' time ends up being 1.0346 CAD/USD,what is your gain or loss from hedging compared to remaining unhedged?

A Canadian firm is planning to make an investment in Japan.The firm estimates that the project will generate a single cash flow of 10 million JPY after one year.If the one year forward exchange rate is 105 JPY/CAD,and the Canadian cost of capital is 7.5%,what is the PV of the project cash flow?

A Canadian exporter will receive $1 million USD in September,and decides to buy a put option on the USD for September delivery.Suppose a put option on the USD with a September expiration and a strike price of 1.225 USD/CADtrades for 0.0225 CAD per put on 1 USD.If,by the September expiration date,the USD has depreciated to 1.275 USD/CAD,how much did the firm gain (in CAD)from hedging with the option,compared to remaining unhedged?

Why do purely domestic businesses,with no international operations and no imports or exports,still need to be aware of FX markets?

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

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.