Exam 23: International Corporate Finance

The one-year forward exchange rate for the British Pound is $1.90/Pound. If the one-year U.S. interest rate is 4% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

Use the information for the question(s) below. You are a U.S. investor who is trying to calculate the present value (PV) of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.8839/£ and the forward rate is F1 = $1.8862/£. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%. -The present value (PV) of the £5 million cash inflow computed by first discounting the £s and then converting into dollars is closest to ________.

Firms that have a considerable amount of earnings abroad do not face any risk from changes in exchange rates.

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

Use the information for the question(s) below. The current spot exchange rate, S, is $1.8862/£. Suppose that the yield curve in both countries is flat. The risk-free rate on dollars, r$, is 5.35% and the risk-free interest rate on pounds, r£, is 4.80%. -Using the covered interest parity condition, the calculated three-year forward rate F3 is closest to ________.

What is foreign exchange market?

The spot exchange rate for the British pound is 0.6 pounds/dollar. The one-year interest rate in the United States is 5% and the one-year interest rate in Britain is 6%. Based on these rates, what one-year forward exchange rate is consistent with the absence of arbitrage?

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

One British pound can be purchased for $1.90. What is the exchange rate in terms of pounds per dollar?

The spot exchange rate for the British pound is 0.65 pounds/dollar. The one-year interest rate in the United States is 5% and the one-year interest rate in Britain is 7%. Based on these rates, what one-year forward exchange rate is consistent with the absence of arbitrage?

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

The importer-exporter dilemma is caused by ________.

Suppose the domestic cost of capital for a U.S.-based company is 9%. Also, the U.S. interest rate is 5% and the European interest rate is 5%. What is the foreign denominated cost of capital for the company?

Use the information for the question(s) below. The current spot exchange rate, S, is $1.8862/£. Suppose that the yield curve in both countries is flat. The risk-free rate on dollars, r$, is 5.35% and the risk-free interest rate on pounds, r£, is 4.80%. -Using the covered interest parity condition, the calculated one-year forward rate F1 is closest to ________.

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

Even though a project may generate foreign currency cash flows, the firm cares about the home currency value of the project.

Which of the following statements is FALSE?

You firm needs to pay its British supplier £1,000,000. If the exchange rate is $1.61/ £, how many dollars will you need to pay the British supplier?

What is a currency timeline?

A U.S.-based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 100,000 euros after one year. If the one-year forward exchange rate is $1.35/euro and the dollar cost of capital is 10%, what is the present value (PV) of the project cash flows?