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

Question 2

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

Question 3

Assuming Covered Interest Parity holds, a(n) ________ in the domestic interest rate will ________ the forward rate, all other things held constant.

Accepted Answer

A)  increase, increase 
B)  increase, decrease 
C)  decrease, decrease 
D)  decrease, have no effect on 
A)  increase, increase 
B)  increase, decrease 
C)  decrease, decrease 
D)  decrease, have no effect on

Question 4

Suppose the domestic cost of capital for a U.S.-based company is 8%. Also, the U.S. interest rate is 4% and the European interest rate is 7%. What is the foreign denominated cost of capital for the company?

Accepted Answer

A)  9.58% 
B)  11.12% 
C)  10.51% 
D)  10.98% 
A)  9.58% 
B)  11.12% 
C)  10.51% 
D)  10.98%

Question 5

What is a currency timeline?

Accepted Answer

A currency forward contract allows inves

Question 6

The one-year forward exchange rate for the British Pound is $1.80/Pound. If the one-year U.S. interest rate is 4.5% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

Accepted Answer

A)  $1.75/pound 
B)  $1.79/pound 
C)  $1.83/pound 
D)  $1.88/pound 
A)  $1.75/pound 
B)  $1.79/pound 
C)  $1.83/pound 
D)  $1.88/pound

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  Euro and Chinese yuan 
B)  U.S. dollar and the British pound 
C)  Euro and the British pound 
D)  U.S. dollar and the euro 
A)  Euro and Chinese yuan 
B)  U.S. dollar and the British pound 
C)  Euro and the British pound 
D)  U.S. dollar and the euro

Question 9

What is foreign exchange market?

Accepted Answer

The foreign exchange market, a

Question 10

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 11

Firms use forward foreign exchange contracts rather than a cash-and-carry strategy because ________.

Accepted Answer

A)  of lower transaction costs 
B)  of inability to borrow in different currencies 
C)  of higher interest costs if credit quality is poor 
D)  all of the above 
A)  of lower transaction costs 
B)  of inability to borrow in different currencies 
C)  of higher interest costs if credit quality is poor 
D)  all of the above

Question 12

Exchange rate risk exists if the firm's free cash flows are correlated with the spot exchange rate.

Accepted Answer

A) True 
 B)False

Question 13

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 ________.

Accepted Answer

A)  $5.1 million 
B)  $20.5 million 
C)  $35.6 million 
D)  $29.5 million 
A)  $5.1 million 
B)  $20.5 million 
C)  $35.6 million 
D)  $29.5 million

Question 14

A U.S. firm acquires a British firm that will generate cash flows of 10,000 pounds next year and these cash flows will grow at 6% a year. If the British WACC is 9% and the spot exchange rate is $1.9/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)  $716,289 
A)  $633,333 
B)  $654,876 
C)  $691,543 
D)  $716,289

Question 15

A U.S. 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/pound, 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 
A)  $820,000 
B)  $850,000 
C)  $870,000 
D)  $890,000

Question 16

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

Accepted Answer

A)  the risk-free rate for a foreign investor 
B)  the risk-free rate for a U.S. investor 
C)  the foreign currency discount rate 
D)  the dollar discount rate 
A)  the risk-free rate for a foreign investor 
B)  the risk-free rate for a U.S. investor 
C)  the foreign currency discount rate 
D)  the dollar discount rate

Question 17

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 Japanese operations is closest to ________.

Accepted Answer

A)  $29.5 million 
B)  $5.1 million 
C)  $50.0 million 
D)  $20.5 million 
A)  $29.5 million 
B)  $5.1 million 
C)  $50.0 million 
D)  $20.5 million

Question 18

How are exchange rates quoted in the Wall Street Journal?

Accepted Answer

Exchange rates in the Wall Street Journa

Question 19

A U.S.-based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 100,000 euros after one year. If the one-year forward exchange rate is $1.35/euro and the dollar cost of capital is 10%, what is the present value (PV) of the project cash flows?

Accepted Answer

A)  $122,675 
B)  $122,727 
C)  $127,150 
D)  $128,209 
A)  $122,675 
B)  $122,727 
C)  $127,150 
D)  $128,209

Question 20

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

Accepted Answer

A)  the dollar discount rate 
B)  the risk-free rate for a foreign investor 
C)  the risk-free rate for a U.S. investor 
D)  the foreign currency discount rate 
A)  the dollar discount rate 
B)  the risk-free rate for a foreign investor 
C)  the risk-free rate for a U.S. investor 
D)  the foreign currency discount rate

Exam 23: International Corporate Finance

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

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

Assuming Covered Interest Parity holds, a(n) ________ in the domestic interest rate will ________ the forward rate, all other things held constant.

Suppose the domestic cost of capital for a U.S.-based company is 8%. Also, the U.S. interest rate is 4% and the European interest rate is 7%. What is the foreign denominated cost of capital for the company?

What is a currency timeline?

The one-year forward exchange rate for the British Pound is $1.80/Pound. If the one-year U.S. interest rate is 4.5% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

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

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

What is foreign exchange market?

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

Firms use forward foreign exchange contracts rather than a cash-and-carry strategy because ________.

Exchange rate risk exists if the firm's free cash flows are correlated with the spot exchange rate.

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

How are exchange rates quoted in the Wall Street Journal?

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

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

Assuming Covered Interest Parity holds, a(n) in the domestic interest rate will the forward rate, all other things held constant.

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 ________.

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