Exam 19: International Business Finance

The spot exchange rate for the Thai bhat is 33.135 bhat to the dollar or .00318 dollar to the bhat.For capital budgeting purposes,Ramo Corp needs to estimate the exchange rate 5 years from now.The U.S.interest rate is 4%;the interest rate in Thailand is 8%.The estimated 5 year forward rate is:

The following are the prices in the foreign exchange market between the U.S.dollar and a foreign currency (fc).Spot 0.6335US$/fc;three-month forward 0.6375US$/fc.What was the discount or premium on three-month forward for the foreign currency?

Which of the following international business activities constitutes a foreign direct investment? All firms mentioned are U.S.based.

A narrow spread indicates efficiency in the spot exchange market.

After the U.S.dollar,the most widely traded currency is:

The major advantage of the forward market is risk reduction.

Assume that a firm purchases foreign currency in order to complete the purchase of raw material from an overseas supplier.The currency is purchased today at an exchange rate that is good only for today.This transaction is referred to as a(n)________ transaction.

A theory that relates the ratios of spot and forward exchange to differences in interest rates in two countries or currency zones is known as:

Trading in foreign exchange markets is dominated by:

A dealer in New York offers to buy U.K.pounds for $1.60 and sell them for $1.605.The different prices are due to:

Forward rates,like spot rates,are quoted in both direct and indirect form.

Millheim Electronics is an American firm operating in India,whose government refuses to allow Millheim to send its earnings out of the country.This is an example of repatriation of profits.

Expropriation of plant and equipment without compensation is an example of financial risk from direct foreign investments.

Exchange rate risk:

The exchange rate that represents the number of units of a foreign currency that can be purchased with one unit of a home currency is referred to as a(n)________ quote.

Spot exchange markets are efficient due to arbitrage forces.

Assume that an investor purchased 200,000,000 Japanese yen in New York at an exchange rate of 93 yen to the dollar and simultaneously sold the yen in Tokyo at an exchange rate of 91 Japanese yen to the dollar.Further assume that there was no cost associated with this transaction.What profit or loss did the investor make?

Transactions carried out in the foreign exchange markets include:

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 90-day forward rate for Canadian dollars is:

The interest rate in the U.S.is 4%,in Switzerland it is 3%.The spot rate is 1.0232 USD to the Swiss franc.A U.S.based hotel chain needs to project forward exchange rates for the next five years.Complete the table below.