Question 1

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) interbank 
E) derivatives 
A) foreign exchange 
B) bond 
C) stock 
D) interbank 
E) derivatives

Question 2

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

Accepted Answer

A) Covered interest parity 
B) Forward premium puzzle 
C) Forward discount puzzle 
D) Put-call parity 
E) Pecking order theory 
A) Covered interest parity 
B) Forward premium puzzle 
C) Forward discount puzzle 
D) Put-call parity 
E) Pecking order theory

Question 3

A Canadian exporter will receive $1.5 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 1.275 USD/CADtrades for 0.0115CAD per put on 1 USD.If,by the September expiration date,the USD has appreciated to 1.250 USD/CAD,how much did the firm lose (in CAD)from hedging with the option,compared to remaining unhedged?

Accepted Answer

A) $0 
B) $54,750 
C) $20,250 
D) $17,250 
E) $37,500 
A) $0 
B) $54,750 
C) $20,250 
D) $17,250 
E) $37,500

Question 4

The one-year forward exchange rate for the British pound is 1.90 CAD/GBP.If the one-year Canadian interest rate is 4% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

Accepted Answer

A) 1.89 
B) 1.90 
C) 1.92 
D) 1.94 
E) 1.97 
A) 1.89 
B) 1.90 
C) 1.92 
D) 1.94 
E) 1.97

Question 5

The spot exchange rate for Indian rupees is 41 INR/CAD.The one-year forward exchange rate is 42 INR/CAD and the one-year Canadian interest rate is 4%.What is the implied one-year interest rate in India?

Accepted Answer

A) 6.54% 
B) 6.24% 
C) 6.77% 
D) 6.29% 
E) 6.41% 
A) 6.54% 
B) 6.24% 
C) 6.77% 
D) 6.29% 
E) 6.41%

Question 6

The spot exchange rate for the Mexican peso is 0.114 CAD/MXN,and the one-year forward rate is 0.104 CAD/MXN.If the one-year Canadian interest rate is 3.5% and the one-year Mexican interest rate is 9.0%,what is the credit spread on Mexican one-year bonds?

Accepted Answer

A) 4.5% 
B) 5.5% 
C) 1% 
D) 3.5% 
E) 5% 
A) 4.5% 
B) 5.5% 
C) 1% 
D) 3.5% 
E) 5%

Question 7

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

Accepted Answer

A) integrated 
B) divested 
C) managed 
D) segmented 
E) developed 
A) integrated 
B) divested 
C) managed 
D) segmented 
E) developed

Question 8

The spot exchange rate for the Mexican peso is 0.093 CAD/MXN.If the one-year Canadian interest rate is 3.5% and the one-year Mexican interest rate is 9.0%,compute the implied one-year forward rate in CAD/MXN.

Accepted Answer

A) 0.101 CAD/MXN 
B) 0.083 CAD/MXN 
C) 0.096 CAD/MXN 
D) 0.098 CAD/MXN 
E) 0.088 CAD/MXN 
A) 0.101 CAD/MXN 
B) 0.083 CAD/MXN 
C) 0.096 CAD/MXN 
D) 0.098 CAD/MXN 
E) 0.088 CAD/MXN

Question 9

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 FS1U1B11S1U1B0 = 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 converting into dollars and then discounting is closest to:

Accepted Answer

A) $8,950,495 
B) $8,954,615 
C) $8,943,695 
D) $8,961,420 
E) $9,004,167 
A) $8,950,495 
B) $8,954,615 
C) $8,943,695 
D) $8,961,420 
E) $9,004,167

Question 10

Using the covered interest parity condition,the calculated one-year forward rate F1 is closest to:

Accepted Answer

A) 1.8568 CAD/GBP 
B) 1.8764 CAD/GBP 
C) 1.9161 CAD/GBP 
D) 1.8961 CAD/GBP 
E) 1.8842 CAD/GBP 
A) 1.8568 CAD/GBP 
B) 1.8764 CAD/GBP 
C) 1.9161 CAD/GBP 
D) 1.8961 CAD/GBP 
E) 1.8842 CAD/GBP

Question 11

Your firm will be importing a large order of its inputs from the United States in eight 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 1.5 million USD at a rate of 0.9957 CAD/USD.If the spot exchange rate in 8 months' time ends up being 0.9673 CAD/USD,what is your gain or loss from hedging compared to remaining unhedged?

Accepted Answer

A) $0 
B) $44,230 
C) -$42,600 
D) $42,600 
E) -$44,230 
A) $0 
B) $44,230 
C) -$42,600 
D) $42,600 
E) -$44,230

Question 12

A Canadian firm acquires a British firm that will generate cash flows of 30,000 pounds next year and these cash flows will grow at 3% a year.If the British WACC is 9% and the spot exchange rate is 1.7 CAD/GBP,what is the present value (PV)of the cash flows from this acquisition to domestic shareholders?

Accepted Answer

A) $820,000 
B) $850,000 
C) $870,000 
D) $890,000 
E) $910,000 
A) $820,000 
B) $850,000 
C) $870,000 
D) $890,000 
E) $910,000

Question 13

Use the table for the question(s)below.
  
-You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 30% and a WACC of 7.4%,what is the NPV of the investment?

Accepted Answer

A) $6.9 million CAD 
B) $10.5 million CAD 
C) $1.4 million CAD 
D) $16 million CAD 
E) -$1.4 million CAD 
A) $6.9 million CAD 
B) $10.5 million CAD 
C) $1.4 million CAD 
D) $16 million CAD 
E) -$1.4 million CAD

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The spot exchange rate for the British pound is 0.65 GBP/CAD.The one-year interest rate in Canada is 5% and the one-year interest rate in Britain is 7%.Based on these rates,what one-year forward exchange rate is consistent with the absence of arbitrage?

Accepted Answer

A) 0.646 
B) 0.652 
C) 0.662 
D) 0.674 
E) 0.631 
A) 0.646 
B) 0.652 
C) 0.662 
D) 0.674 
E) 0.631

Question 16

If the cash flows generated by a foreign investment are ________ with ________,we do not need to consider the impact of exchange rate risk.

Accepted Answer

A) uncorrelated,costs 
B) negatively correlated,revenues 
C) uncorrelated,cash flows 
D) correlated,cash flows 
E) correlated,costs 
A) uncorrelated,costs 
B) negatively correlated,revenues 
C) uncorrelated,cash flows 
D) correlated,cash flows 
E) correlated,costs

Question 17

A Brazilian firm owes you $2,000,000,payable in three months,however,they insist on paying in Brazilian Reals.The current spot exchange rate is 0.59305 CAD/BRL.The three-month forward exchange rate is 0.61255 CAD/BRL.How many Real should you demand in a forward contract to receive $2,000,000 in three months to hedge the exchange rate risk?

Accepted Answer

A) 1,186,100 Real 
B) 3,372,397 Real 
C) 3,265,040 Real 
D) 1,225,100 Real 
E) 2,450,721 Real 
A) 1,186,100 Real 
B) 3,372,397 Real 
C) 3,265,040 Real 
D) 1,225,100 Real 
E) 2,450,721 Real

Question 18

Use the table for the question(s)below.
  
-You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 35% and a WACC of 6.9%,what is the NPV of the investment?

Accepted Answer

A) $16 million CAD 
B) $10.5 million CAD 
C) $1.1 million CAD 
D) $7.5 million CAD 
E) -$1.1 million CAD 
A) $16 million CAD 
B) $10.5 million CAD 
C) $1.1 million CAD 
D) $7.5 million CAD 
E) -$1.1 million CAD

Question 19

The one-year forward exchange rate for the British pound is 1.70 CAD/GBP.If the one-year Canadian interest rate is 5% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

Accepted Answer

A) 1.69 
B) 1.72 
C) 1.75 
D) 1.78 
E) 1.81 
A) 1.69 
B) 1.72 
C) 1.75 
D) 1.78 
E) 1.81

Question 20

IBM enters into a forward contract to purchase 200,000 euros at a rate of 1.50 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?

Accepted Answer

A) $200,000 
B) $225,000 
C) $400,000 
D) $300,000 
E) $250,000 
A) $200,000 
B) $225,000 
C) $400,000 
D) $300,000 
E) $250,000

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

________ 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 CAD/GBP.If the one-year Canadian interest rate is 4% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

The spot exchange rate for Indian rupees is 41 INR/CAD.The one-year forward exchange rate is 42 INR/CAD and the one-year Canadian interest rate is 4%.What is the implied one-year interest rate in India?

The spot exchange rate for the Mexican peso is 0.114 CAD/MXN,and the one-year forward rate is 0.104 CAD/MXN.If the one-year Canadian interest rate is 3.5% and the one-year Mexican interest rate is 9.0%,what is the credit spread on Mexican one-year bonds?

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

The spot exchange rate for the Mexican peso is 0.093 CAD/MXN.If the one-year Canadian interest rate is 3.5% and the one-year Mexican interest rate is 9.0%,compute the implied one-year forward rate in CAD/MXN.

Using the covered interest parity condition,the calculated one-year forward rate F₁is closest to:

Use the table for the question(s)below. -You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 30% and a WACC of 7.4%,what is the NPV of the investment?

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

The spot exchange rate for the British pound is 0.65 GBP/CAD.The one-year interest rate in Canada is 5% and the one-year interest rate in Britain is 7%.Based on these rates,what one-year forward exchange rate is consistent with the absence of arbitrage?

If the cash flows generated by a foreign investment are with ,we do not need to consider the impact of exchange rate risk.

Use the table for the question(s)below. -You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 35% and a WACC of 6.9%,what is the NPV of the investment?

The one-year forward exchange rate for the British pound is 1.70 CAD/GBP.If the one-year Canadian interest rate is 5% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

IBM enters into a forward contract to purchase 200,000 euros at a rate of 1.50 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?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

Exam 22: International Corporate Finance

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

________ 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 CAD/GBP.If the one-year Canadian interest rate is 4% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

The spot exchange rate for Indian rupees is 41 INR/CAD.The one-year forward exchange rate is 42 INR/CAD and the one-year Canadian interest rate is 4%.What is the implied one-year interest rate in India?

The spot exchange rate for the Mexican peso is 0.114 CAD/MXN,and the one-year forward rate is 0.104 CAD/MXN.If the one-year Canadian interest rate is 3.5% and the one-year Mexican interest rate is 9.0%,what is the credit spread on Mexican one-year bonds?

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

The spot exchange rate for the Mexican peso is 0.093 CAD/MXN.If the one-year Canadian interest rate is 3.5% and the one-year Mexican interest rate is 9.0%,compute the implied one-year forward rate in CAD/MXN.

Using the covered interest parity condition,the calculated one-year forward rate F1 is closest to:

Use the table for the question(s)below. -You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 30% and a WACC of 7.4%,what is the NPV of the investment?

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

The spot exchange rate for the British pound is 0.65 GBP/CAD.The one-year interest rate in Canada is 5% and the one-year interest rate in Britain is 7%.Based on these rates,what one-year forward exchange rate is consistent with the absence of arbitrage?

If the cash flows generated by a foreign investment are ________ with ________,we do not need to consider the impact of exchange rate risk.

Use the table for the question(s)below. -You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 35% and a WACC of 6.9%,what is the NPV of the investment?

The one-year forward exchange rate for the British pound is 1.70 CAD/GBP.If the one-year Canadian interest rate is 5% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

IBM enters into a forward contract to purchase 200,000 euros at a rate of 1.50 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?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

Using the covered interest parity condition,the calculated one-year forward rate F₁is closest to:

If the cash flows generated by a foreign investment are with ,we do not need to consider the impact of exchange rate risk.