Question 1

According to the domestic Fisher effect,if the inflation rate is 3% and the real rate of interest is 2%,the nominal rate of interest will be:

Accepted Answer

A) 5.06%. 
B) 5.00%. 
C) 6%. 
D) 8.15%. 
A) 5.06%. 
B) 5.00%. 
C) 6%. 
D) 8.15%.

Question 2

Foreign countries claim that multinational corporations:

Accepted Answer

A) cause stability in their currencies in foreign exchange markets. 
B) exploit local labor with low wages. 
C) have no political or cultural loyalty. 
D) both B and C. 
A) cause stability in their currencies in foreign exchange markets. 
B) exploit local labor with low wages. 
C) have no political or cultural loyalty. 
D) both B and C.

Question 3

The 1 year interest rate in the U.S.is 1%.The spot exchange rate for yen is 92.61 to the dollar.The 6 months forward rate is 92.57 to the dollar.These prices indicate that interest rates in Japan,on an annualized basis,are about:

Accepted Answer

A) .08% lower. 
B) .08% higher. 
C) .04% higher. 
D) .8% lower. 
A) .08% lower. 
B) .08% higher. 
C) .04% higher. 
D) .8% lower.

Question 4

The asked rate is the price a customer will receive from a foreign currency trader when selling a foreign currency.

Accepted Answer

A) True 
 B)False

Question 5

A barrel of oil currently costs $85 in U.S.dollars.The current exchange rate is $1.40 U.S.to the euro.If purchasing power parity prevails what is the price of a barrel of oil in euros?

Accepted Answer

A) 71.43 euros 
B) 140 euros 
C) 119 euros 
D) 60.71 euros 
A) 71.43 euros 
B) 140 euros 
C) 119 euros 
D) 60.71 euros

Question 6

As of January 8,2010,the spot rate for Swiss francs was .9772.The 180 day forward rate was .9783.Compute the annualized percentage rate premium or discount for Swiss francs.

Accepted Answer

(.9783 - .9772)/.977

Question 7

Exchange rate risk:

Accepted Answer

A) exists when the contract is written in terms of the foreign currency. 
B) exists also in direct foreign investments and foreign portfolio investments. 
C) does not exist if the international trade contract is written in terms of the domestic currency. 
D) all of the above. 
A) exists when the contract is written in terms of the foreign currency. 
B) exists also in direct foreign investments and foreign portfolio investments. 
C) does not exist if the international trade contract is written in terms of the domestic currency. 
D) all of the above.

Question 8

The relevant sources of risk for direct foreign investment capital budgeting decisions are the same as those faced when making domestic capital budgeting decisions.

Accepted Answer

A) True 
 B)False

Question 9

Use the following information to answer the following question(s).
Below is an excerpt from Table 19.1,Foreign Exchange Ratrd (January 8,2010)that appears in your text.(Sources The Wall Street Journal and Reuters)
  
-The British pound to Swiss franc exchange rate is:

Accepted Answer

A) 1.64 British pounds to the Swiss franc. 
B) 1.5663 British pounds to the Swiss franc. 
C) .6097 British pounds to the Swiss franc. 
D) .9772 British pounds to the Swiss franc. 
A) 1.64 British pounds to the Swiss franc. 
B) 1.5663 British pounds to the Swiss franc. 
C) .6097 British pounds to the Swiss franc. 
D) .9772 British pounds to the Swiss franc.

Question 10

The international currency system that presently exists is best described as a ________ rate currency system.

Accepted Answer

A) parity 
B) fixed 
C) multinational 
D) floating 
A) parity 
B) fixed 
C) multinational 
D) floating

Question 11

Buying and selling in more than one market to make a riskless profit is called:

Accepted Answer

A) profit maximization. 
B) arbitrage. 
C) international trading. 
D) cannot be determined from the above information. 
A) profit maximization. 
B) arbitrage. 
C) international trading. 
D) cannot be determined from the above information.

Question 12

You are on your way to a beautiful Mexican resort.The current exchange rate is 12 pesos to the dollar.When you arrive,you convert 1,000 US$ for how many pesos?

Accepted Answer

A) 12,000 pesos 
B) 1,200 pesos 
C) 8,333 pesos 
D) 83.33 pesos 
A) 12,000 pesos 
B) 1,200 pesos 
C) 8,333 pesos 
D) 83.33 pesos

Question 13

The nominal rate of interest in Russia is 9.5% and the inflation rate is 8%.The nominal rate of interest in Spain is 3% and the inflation rate is 1%.Which country has the higher real rate of interest?

Accepted Answer

A) Russia 
B) Spain 
C) There is no difference. 
D) There is not enough information 
A) Russia 
B) Spain 
C) There is no difference. 
D) There is not enough information

Question 14

Assume that an importer of wine were to purchase 5,000 cases of premium French Bordeaux for 700,000 euros.Further assume that the quoted exchange rates are as follows: spot rate = .70 euros to the U.S.dollar;30-day forward rate = .705 euros to the U.S.dollar;and 90-day forward rate = .710 euros to the U.S.dollar.If the actual currency exchange rate at the time payment is due in 90 days is equal to the forward rate of .710 euros to the U.S.dollar,how much would the wine cost the importer in U.S.dollars if payment is made in 90 days? Round to the nearest dollar.

Accepted Answer

A) $704,225 
B) $355,000 
C) $497,000 
D) $985,915 
A) $704,225 
B) $355,000 
C) $497,000 
D) $985,915

Question 15

Arbitrage eliminates forward discounts and premiums across the markets of a single currency.

Accepted Answer

A) True 
 B)False

Question 16

An investor purchased Canadian dollars at an exchange rate of $0.97 U.S.to 1 Canadian dollar.The Canadian dollars cost her $1,000,000 (U.S.dollars).How many Canadian dollars did she buy?

Accepted Answer

A) $103,090 
B) $970,026 
C) $1,030,927 
D) $97,000 
A) $103,090 
B) $970,026 
C) $1,030,927 
D) $97,000

Question 17

A trader who simultaneously bought Swiss francs in New York for .9772 and sold them in Zurich for .9774 would be practicing:

Accepted Answer

A) simple arbitrage. 
B) inside trading. 
C) compound arbitrage. 
D) parity exploitation. 
A) simple arbitrage. 
B) inside trading. 
C) compound arbitrage. 
D) parity exploitation.

Question 18

In 2010,the U.S.A.comprised ________ of the world's stock market capitalization.

Accepted Answer

A) 20% 
B) just under 50% 
C) 75% 
D) 90% 
A) 20% 
B) just under 50% 
C) 75% 
D) 90%

Question 19

The difference between the asked price and the bid price is known as the spread.

Accepted Answer

A) True 
 B)False

Question 20

10,000 bushels of corn currently sells in the U.S.for $57,300.The current exchange rate is 45.5 rupees to the dollar.If purchasing power parity prevails,what is the price of 10,000 bushels of corn in rupees?

Accepted Answer

A) 2,607,150 rupees 
B) 12,593.34 rupees 
C) 45,500 rupees 
D) 260,715 rupees 
A) 2,607,150 rupees 
B) 12,593.34 rupees 
C) 45,500 rupees 
D) 260,715 rupees

According to the domestic Fisher effect,if the inflation rate is 3% and the real rate of interest is 2%,the nominal rate of interest will be:

Foreign countries claim that multinational corporations:

The 1 year interest rate in the U.S.is 1%.The spot exchange rate for yen is 92.61 to the dollar.The 6 months forward rate is 92.57 to the dollar.These prices indicate that interest rates in Japan,on an annualized basis,are about:

The asked rate is the price a customer will receive from a foreign currency trader when selling a foreign currency.

A barrel of oil currently costs $85 in U.S.dollars.The current exchange rate is $1.40 U.S.to the euro.If purchasing power parity prevails what is the price of a barrel of oil in euros?

As of January 8,2010,the spot rate for Swiss francs was .9772.The 180 day forward rate was .9783.Compute the annualized percentage rate premium or discount for Swiss francs.

Exchange rate risk:

The relevant sources of risk for direct foreign investment capital budgeting decisions are the same as those faced when making domestic capital budgeting decisions.

Use the following information to answer the following question(s). Below is an excerpt from Table 19.1,Foreign Exchange Ratrd (January 8,2010)that appears in your text.(Sources The Wall Street Journal and Reuters) -The British pound to Swiss franc exchange rate is:

The international currency system that presently exists is best described as a ________ rate currency system.

Buying and selling in more than one market to make a riskless profit is called:

You are on your way to a beautiful Mexican resort.The current exchange rate is 12 pesos to the dollar.When you arrive,you convert 1,000 US$ for how many pesos?

The nominal rate of interest in Russia is 9.5% and the inflation rate is 8%.The nominal rate of interest in Spain is 3% and the inflation rate is 1%.Which country has the higher real rate of interest?

Arbitrage eliminates forward discounts and premiums across the markets of a single currency.

An investor purchased Canadian dollars at an exchange rate of $0.97 U.S.to 1 Canadian dollar.The Canadian dollars cost her $1,000,000 (U.S.dollars).How many Canadian dollars did she buy?

A trader who simultaneously bought Swiss francs in New York for .9772 and sold them in Zurich for .9774 would be practicing:

In 2010,the U.S.A.comprised ________ of the world's stock market capitalization.

The difference between the asked price and the bid price is known as the spread.

10,000 bushels of corn currently sells in the U.S.for $57,300.The current exchange rate is 45.5 rupees to the dollar.If purchasing power parity prevails,what is the price of 10,000 bushels of corn in rupees?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

Corporate Risk Management

Filters

Exam 19: International Business Finance

According to the domestic Fisher effect,if the inflation rate is 3% and the real rate of interest is 2%,the nominal rate of interest will be:

Foreign countries claim that multinational corporations:

The 1 year interest rate in the U.S.is 1%.The spot exchange rate for yen is 92.61 to the dollar.The 6 months forward rate is 92.57 to the dollar.These prices indicate that interest rates in Japan,on an annualized basis,are about:

The asked rate is the price a customer will receive from a foreign currency trader when selling a foreign currency.

A barrel of oil currently costs $85 in U.S.dollars.The current exchange rate is $1.40 U.S.to the euro.If purchasing power parity prevails what is the price of a barrel of oil in euros?

As of January 8,2010,the spot rate for Swiss francs was .9772.The 180 day forward rate was .9783.Compute the annualized percentage rate premium or discount for Swiss francs.

Exchange rate risk:

The relevant sources of risk for direct foreign investment capital budgeting decisions are the same as those faced when making domestic capital budgeting decisions.

Use the following information to answer the following question(s). Below is an excerpt from Table 19.1,Foreign Exchange Ratrd (January 8,2010)that appears in your text.(Sources The Wall Street Journal and Reuters) -The British pound to Swiss franc exchange rate is:

The international currency system that presently exists is best described as a ________ rate currency system.

Buying and selling in more than one market to make a riskless profit is called:

You are on your way to a beautiful Mexican resort.The current exchange rate is 12 pesos to the dollar.When you arrive,you convert 1,000 US$ for how many pesos?

The nominal rate of interest in Russia is 9.5% and the inflation rate is 8%.The nominal rate of interest in Spain is 3% and the inflation rate is 1%.Which country has the higher real rate of interest?

Arbitrage eliminates forward discounts and premiums across the markets of a single currency.

An investor purchased Canadian dollars at an exchange rate of $0.97 U.S.to 1 Canadian dollar.The Canadian dollars cost her $1,000,000 (U.S.dollars).How many Canadian dollars did she buy?

A trader who simultaneously bought Swiss francs in New York for .9772 and sold them in Zurich for .9774 would be practicing:

In 2010,the U.S.A.comprised ________ of the world's stock market capitalization.

The difference between the asked price and the bid price is known as the spread.

10,000 bushels of corn currently sells in the U.S.for $57,300.The current exchange rate is 45.5 rupees to the dollar.If purchasing power parity prevails,what is the price of 10,000 bushels of corn in rupees?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

Corporate Risk Management

Filters