Exam 19: International Business Finance

A foreign exchange dealer in New York posts an ask price of .02201 for Indian rupees and a bid price of .02197.What is the dealer's profit on the simultaneous purchase and sale of 1 million rupees?

Forward rates are quoted:

The spot exchange rate for the Thai bhat is 33.135 bhat to the dollar.The 1 year forward rate is 34.175.Ramo Corp.has undertaken a capital project in Bangkok that is expected to produce a cash flow of 17,087,500 bhat at the end of the first year.The company will discount cash flows at a rate of 14%.What is the present value of the first year cash flow in U.S.dollars.

The spot exchange rate for Canadian dollars is .97 to the U.S.dollar.The 6 months forward rate is .9698 to the U.S.dollar.The interest rate in Canada (annual)is 2.04%.What is the U.S.Interest rate?

Assume that an investor owned 5,000 shares of Anheuser-Busch Corporation common stock prior to the acquisition by InBev of Belgium.At the time of the acquisition,the dollar was worth .77 euros.Further assume that the purchase price was equal to 54 euros per share.What was the sales price of Anheuser Busch common stock per share in U.S.dollars?

A cross rate is the computation of an exchange rate for a currency from the exchange rates of two other countries.

Multinational corporations can have lower cost of capital and more continuous access to external finance compared to a domestic firm.

The foreign exchange market provides a physical entity that transfers the purchasing power from one currency to another.

Forward contracts are usually quoted for periods greater than one year.

Spot transactions are made immediately in the market place at the market price.

Transactions carried out in the foreign exchange markets can include direct or indirect exchange rate quotes.

What is the role of arbitrage in the foreign exchange markets?

Assume that a Toyota sold for 1,476,000 yen in 1990.If the price for this automobile was $8,200 in 1985,and the car still sells for the same amount of yen today,but the current exchange rate is 90 yen per dollar,what is the car selling for today in U.S.dollars?

Some complexities of conducting international business include:

The 1 year interest rate in the U.S.is 2%.The spot exchange rate for Canadian dollars .97 to the U.S.dollar.The 6 months forward rate is .9698 to the U.S.dollar.These prices indicate that interest rates in Canada,on an annualized basis,are about:

The cost of debt used in the international investment decision is the lesser of the parent's or the subsidiary's cost of debt.

The efficiency of foreign currency markets is ensured,in large measure,by the process of arbitrageurs.

Based on the forward rates in table 19.1,the British pound is expected to:

The nominal rate of interest in Russia is 9.5% and the inflation rate is 8%.The nominal rate of interest in Canada is 2.5% and the inflation rate is zero.We would expect:

The purchasing power parity theory is least likely to apply to the price of: