Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

The most serious type of political risk involves

Accepted Answer

A) restrictive labor concerning hiring,wages and layoffs. 
B) major changes in tax rates. 
C) price and wage controls. 
D) expropriation of assets with limited compensation. 
A) restrictive labor concerning hiring,wages and layoffs. 
B) major changes in tax rates. 
C) price and wage controls. 
D) expropriation of assets with limited compensation. D

Question 3

A direct quote in Bombay tells one how many British pounds can buy one Indian rupee.

Accepted Answer

A) True 
 B)False  False

Question 4

Arbitrage is the process of buying and selling in one market in order to make a riskless profit.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

RAH Inc. ,a U.S.corporation is evaluating a proposal to construct and lease an office building in Kiev.RAH's weighted average cost of capital is 11%.The risk free rate in the U.S.is 3.75%.RAH believes that conditions in Kiev warrant a required rate of return that is 12% above the risk-free rate.Cash flows from the hotel project should be discounted at

Accepted Answer

A) 23%. 
B) 14.75%. 
C) 15.75%. 
D) 12%. 
A) 23%. 
B) 14.75%. 
C) 15.75%. 
D) 12%.

Question 8

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

Accepted Answer

A) the ruble to strengthen against the dollar. 
B) the exchange rate between the Canadian dollar and the ruble to stay the same because of interest rate parity. 
C) the exchange rate between the Canadian dollar and the ruble to stay the same because of purchasing price parity. 
D) the Canadian dollar to strengthen against the ruble. 
A) the ruble to strengthen against the dollar. 
B) the exchange rate between the Canadian dollar and the ruble to stay the same because of interest rate parity. 
C) the exchange rate between the Canadian dollar and the ruble to stay the same because of purchasing price parity. 
D) the Canadian dollar to strengthen against the ruble.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

A foreign exchange dealer in New York posts an ask price of .01818 for Indian rupees and a bid price of .01820.What is the dealer's profit on the simultaneous purchase and sale of 1 million rupees?

Accepted Answer

A) $20 profit 
B) ($20 )loss 
C) $200 profit 
D) ($2)loss 
A) $20 profit 
B) ($20 )loss 
C) $200 profit 
D) ($2)loss

Question 11

The forward rate is the same as the spot rate that will prevail in the future.

Accepted Answer

A) True 
 B)False

Question 12

The foreign exchange market is similar in form to the New York Stock Exchange.

Accepted Answer

A) True 
 B)False

Question 13

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 14

What is meant by interest rate parity?

Accepted Answer

Interest rate parity is the theory that

Question 15

What keeps foreign exchange quotes in two different countries in line with each other?

Accepted Answer

A) Cross rates 
B) Forward rates 
C) Arbitrage 
D) Spot rates 
A) Cross rates 
B) Forward rates 
C) Arbitrage 
D) Spot rates

Question 16

Assume that an investor purchased 200,000,000 Japanese yen in New York at an exchange rate of 101 yen to the dollar and simultaneously sold the yen in Tokyo at an exchange rate of 99 Japanese yen to the dollar.Further assume that there was no cost associated with this transaction.What profit or loss did the investor make? Round your answer to the nearest dollar.

Accepted Answer

A) ($400,040)loss 
B) $40,004 
C) ($40,004)loss 
D) $400,040 profit 
A) ($400,040)loss 
B) $40,004 
C) ($40,004)loss 
D) $400,040 profit

Question 17

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.

Accepted Answer

The answer of The interest rate in the U.S.is 4%,in...

Question 18

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

Accepted Answer

A) interest rate parity. 
B) purchasing power parity. 
C) market efficiency. 
D) forward/spot equivalence hypothesis. 
A) interest rate parity. 
B) purchasing power parity. 
C) market efficiency. 
D) forward/spot equivalence hypothesis.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

If a currency's forward price in U.S.dollars is lower than the spot price,interest rates are higher in the foreign country than they are in the U.S.

Accepted Answer

A) True 
 B)False

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

The most serious type of political risk involves

A direct quote in Bombay tells one how many British pounds can buy one Indian rupee.

Arbitrage is the process of buying and selling in one market in order to make a riskless profit.

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

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

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

A foreign exchange dealer in New York posts an ask price of .01818 for Indian rupees and a bid price of .01820.What is the dealer's profit on the simultaneous purchase and sale of 1 million rupees?

The forward rate is the same as the spot rate that will prevail in the future.

The foreign exchange market is similar in form to the New York Stock Exchange.

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

What is meant by interest rate parity?

What keeps foreign exchange quotes in two different countries in line with each other?

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.

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

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

If a currency's forward price in U.S.dollars is lower than the spot price,interest rates are higher in the foreign country than they are in the U.S.

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

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

The most serious type of political risk involves

A direct quote in Bombay tells one how many British pounds can buy one Indian rupee.

Arbitrage is the process of buying and selling in one market in order to make a riskless profit.

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

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

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

A foreign exchange dealer in New York posts an ask price of .01818 for Indian rupees and a bid price of .01820.What is the dealer's profit on the simultaneous purchase and sale of 1 million rupees?

The forward rate is the same as the spot rate that will prevail in the future.

The foreign exchange market is similar in form to the New York Stock Exchange.

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

What is meant by interest rate parity?

What keeps foreign exchange quotes in two different countries in line with each other?

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.

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

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

If a currency's forward price in U.S.dollars is lower than the spot price,interest rates are higher in the foreign country than they are in the U.S.

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