Question 1

How are exchange rates quoted in the Wall Street Journal?

Accepted Answer

Exchange rates in the Wall Street Journa

Question 2

Consider the following equation:   =  
(1 +  
) - 1
The term  
In this equation refers to ________.

Accepted Answer

A)  the risk-free rate of interest on the dollar 
B)  the risk-free rate of interest on the yen 
C)  the cost of capital for the firm in terms of yen 
D)  the cost of capital in terms of dollars 
A)  the risk-free rate of interest on the dollar 
B)  the risk-free rate of interest on the yen 
C)  the cost of capital for the firm in terms of yen 
D)  the cost of capital in terms of dollars

Question 3

The supply and demand for a currency is driven by ________.

Accepted Answer

A)  firms trading goods 
B)  investors trading securities 
C)  actions of central banks in each country 
D)  all of the above 
A)  firms trading goods 
B)  investors trading securities 
C)  actions of central banks in each country 
D)  all of the above

Question 4

You have just landed in Paris with $750 in your wallet. At the foreign exchange booth, you see that euros are being quoted at $1.34/€. How many euros can you exchange for your $750?

Accepted Answer

A)  1,005 euros 
B)  559.70 euros 
C)  750.00 euros 
D)  179.56 euros 
A)  1,005 euros 
B)  559.70 euros 
C)  750.00 euros 
D)  179.56 euros

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)  When the foreign tax rate is less than the U.S. tax rate, deferral can provide significant benefits. 
B)  The U.S. tax liability is not incurred until the profits are brought back home if the foreign operation is set up as a foreign branch rather than as a separately incorporated subsidiary. 
C)  If a company chooses not to repatriate £12.5 million in pretax earnings, for example, it effectively reinvests those earnings abroad and defers its U.S. tax liability. 
D)  When the foreign tax rates exceed the U.S. tax rates, there are no benefits to deferral because in such a case there is no additional U.S. tax liability. 
A)  When the foreign tax rate is less than the U.S. tax rate, deferral can provide significant benefits. 
B)  The U.S. tax liability is not incurred until the profits are brought back home if the foreign operation is set up as a foreign branch rather than as a separately incorporated subsidiary. 
C)  If a company chooses not to repatriate £12.5 million in pretax earnings, for example, it effectively reinvests those earnings abroad and defers its U.S. tax liability. 
D)  When the foreign tax rates exceed the U.S. tax rates, there are no benefits to deferral because in such a case there is no additional U.S. tax liability.

Question 6

Assume IBM enters into a forward contract to purchase 200,000 euros at a rate of $1.90/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

Accepted Answer

A)  $300,000 
B)  $325,000 
C)  $380,000 
D)  $400,000 
A)  $300,000 
B)  $325,000 
C)  $380,000 
D)  $400,000

Question 7

With internationally integrated capital markets the value of an investment depends on the currency used in the analysis.

Accepted Answer

A) True 
 B)False

Question 8

What is a currency forward contract?

Accepted Answer

A currency forward contract is a contrac

Question 9

A U.S. firm acquires a British firm that will generate cash flows of 20,000 pounds next year and these cash flows will grow at 4% a year. If the British WACC is 9% and the spot exchange rate is $1.8/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)  $720,000 
A)  $633,333 
B)  $654,876 
C)  $691,543 
D)  $720,000

Question 10

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 11

Assume IBM enters into a forward contract to purchase 200,000 euros at a rate of $1.50/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

Accepted Answer

A)  $200,000 
B)  $225,000 
C)  $400,000 
D)  $300,000 
A)  $200,000 
B)  $225,000 
C)  $400,000 
D)  $300,000

Question 12

Which of the following statements is FALSE?

Accepted Answer

A)  In some countries, especially in the developing world, all investors do not have equal access to financial securities. 
B)  Firms may face differential access to markets if there is any kind of asymmetry with respect to information about them. 
C)  In some cases, a country's risk-free securities are internationally integrated but markets for a specific firm's securities are not. 
D)  When countries' capital markets are not integrated we call them disintegrated capital markets. 
A)  In some countries, especially in the developing world, all investors do not have equal access to financial securities. 
B)  Firms may face differential access to markets if there is any kind of asymmetry with respect to information about them. 
C)  In some cases, a country's risk-free securities are internationally integrated but markets for a specific firm's securities are not. 
D)  When countries' capital markets are not integrated we call them disintegrated capital markets.

Question 13

Luther Industries, a U.S. firm, is considering an investment in Japan. The dollar cost of equity for Luther is 12%. The risk-free interest rates on dollars and yen are r$ = 5.5% and r¥ = 1.5%, respectively. Luther Industries is willing to assume that capital markets are internationally integrated. Luther Industries needs to know the comparable cost of equity in Japanese yen for a project with free cash flows that are uncorrelated with spot exchange rates. The yen cost of equity for Luther Industries is closest to ________.

Accepted Answer

A)  14.0% 
B)  12.3% 
C)  7.8% 
D)  18.5% 
A)  14.0% 
B)  12.3% 
C)  7.8% 
D)  18.5%

Question 14

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

Accepted Answer

A)  the future spot exchange rate 
B)  the current spot exchange rate 
C)  the amount of foreign currency 
D)  the forward exchange rate 
A)  the future spot exchange rate 
B)  the current spot exchange rate 
C)  the amount of foreign currency 
D)  the forward exchange rate

Question 15

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 16

________ asserts that because a forward contract and a cash-and-carry strategy accomplish the same conversion, they must result in the same exchange rate.

Accepted Answer

A)  Covered interest parity 
B)  Forward premium puzzle 
C)  Forward discount puzzle 
D)  None of the above 
A)  Covered interest parity 
B)  Forward premium puzzle 
C)  Forward discount puzzle 
D)  None of the above

Question 17

Which of the following statements is FALSE?

Accepted Answer

A)  If the foreign tax rate exceeds the U.S. tax rate, companies must pay this higher rate on foreign earnings. 
B)  U.S. tax policy allows companies to apply the part of the tax credit that is not used to offset domestic taxes owed, so this extra tax credit is not wasted. 
C)  If the foreign tax rate is less than the U.S. tax rate, the company pays total taxes equal to the U.S. tax rate on its foreign earnings. 
D)  A full tax credit is given for foreign taxes paid up to the amount of the U.S. tax liability. 
A)  If the foreign tax rate exceeds the U.S. tax rate, companies must pay this higher rate on foreign earnings. 
B)  U.S. tax policy allows companies to apply the part of the tax credit that is not used to offset domestic taxes owed, so this extra tax credit is not wasted. 
C)  If the foreign tax rate is less than the U.S. tax rate, the company pays total taxes equal to the U.S. tax rate on its foreign earnings. 
D)  A full tax credit is given for foreign taxes paid up to the amount of the U.S. tax liability.

Question 18

Which of the following statements is FALSE?

Accepted Answer

A)  If the foreign project is owned by a domestic corporation, managers and shareholders need to determine the home currency value of the foreign currency cash flows. 
B)  The most obvious difference between a domestic project and a foreign project is that the foreign project will most likely generate cash flows in a foreign currency. 
C)  The risk of the foreign project is unlikely to be exactly the same as the risk of domestic projects (or the firm as a whole), because the foreign project contains residual exchange rate risk that the domestic projects often do not contain. 
D)  In an internationally integrated capital market, two equivalent methods are available for calculating the net present value (NPV) of a foreign project: Either we can calculate the net present value (NPV) in the foreign country and convert it to the local currency at the forward rate, or we can convert the cash flows of the foreign project into the local currency and then calculate the net present value (NPV) of these cash flows. 
A)  If the foreign project is owned by a domestic corporation, managers and shareholders need to determine the home currency value of the foreign currency cash flows. 
B)  The most obvious difference between a domestic project and a foreign project is that the foreign project will most likely generate cash flows in a foreign currency. 
C)  The risk of the foreign project is unlikely to be exactly the same as the risk of domestic projects (or the firm as a whole), because the foreign project contains residual exchange rate risk that the domestic projects often do not contain. 
D)  In an internationally integrated capital market, two equivalent methods are available for calculating the net present value (NPV) of a foreign project: Either we can calculate the net present value (NPV) in the foreign country and convert it to the local currency at the forward rate, or we can convert the cash flows of the foreign project into the local currency and then calculate the net present value (NPV) of these cash flows.

Question 19

One British pound can be purchased for $1.65. What is the exchange rate in terms of pounds per dollar?

Accepted Answer

A)  £0.551 
B)  £0.606 
C)  £0.626 
D)  £0.645 
A)  £0.551 
B)  £0.606 
C)  £0.626 
D)  £0.645

Question 20

A ________ exchange rate is the rate that a firm can tie in for a future transaction date.

Accepted Answer

A)  fixed 
B)  forward 
C)  floating 
D)  none of the above 
A)  fixed 
B)  forward 
C)  floating 
D)  none of the above

Exam 23: International Corporate Finance

How are exchange rates quoted in the Wall Street Journal?

Consider the following equation: = (1 + ) - 1 The term In this equation refers to ________.

The supply and demand for a currency is driven by ________.

You have just landed in Paris with $750 in your wallet. At the foreign exchange booth, you see that euros are being quoted at $1.34/€. How many euros can you exchange for your $750?

Which of the following statements is FALSE?

Assume IBM enters into a forward contract to purchase 200,000 euros at a rate of $1.90/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

With internationally integrated capital markets the value of an investment depends on the currency used in the analysis.

What is a currency forward contract?

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

Assume IBM enters into a forward contract to purchase 200,000 euros at a rate of $1.50/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

Which of the following statements is FALSE?

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

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

________ asserts that because a forward contract and a cash-and-carry strategy accomplish the same conversion, they must result in the same exchange rate.

Which of the following statements is FALSE?

Which of the following statements is FALSE?

One British pound can be purchased for $1.65. What is the exchange rate in terms of pounds per dollar?

A ________ exchange rate is the rate that a firm can tie in for a future transaction date.

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

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