Question 1

A ________ strategy replicates the forward contract by borrowing in one currency, converting to the other currency and investing in the new currency.

Accepted Answer

A)  cash-and-carry 
B)  futures 
C)  forward 
D)  none of the above 
A)  cash-and-carry 
B)  futures 
C)  forward 
D)  none of the above

Question 2

Which of the following statements is FALSE?

Accepted Answer

A)  U.S. tax policy requires U.S. corporations to pay taxes on their foreign income at the same rate as profits earned in the United States. 
B)  The home government gets an opportunity to tax the income from a foreign project to the domestic firm. 
C)  The general international arrangement prevailing with respect to taxation of corporate profits is that the home country gets the first opportunity to tax income. 
D)  The home government must establish a tax policy specifying its treatment of foreign income and foreign taxes paid on that income. 
A)  U.S. tax policy requires U.S. corporations to pay taxes on their foreign income at the same rate as profits earned in the United States. 
B)  The home government gets an opportunity to tax the income from a foreign project to the domestic firm. 
C)  The general international arrangement prevailing with respect to taxation of corporate profits is that the home country gets the first opportunity to tax income. 
D)  The home government must establish a tax policy specifying its treatment of foreign income and foreign taxes paid on that income.

Question 3

What is cash-and-carry strategy?

Accepted Answer

A strategy used to lock in the

Question 4

Under U.S. tax law, a multinational corporation may use any excess tax credits generated in high-tax foreign countries to offset its net U.S. tax liabilities on earnings in low-tax foreign countries.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)  Differential access to national capital markets is common enough that it provides the best explanation for the existence of currency swaps, which are like the interest rate swap contracts, but with the holder receiving coupons in one currency and paying coupons denominated in a different currency. 
B)  Currency swaps generally also have final face value payments, also in different currencies. 
C)  Using a currency swap, a firm can borrow in the market where it has the best access to capital, and then "swap" the coupon and principal payments to whichever currency it would prefer to make payments in. 
D)  With differential access to national markets, to maximize shareholder value, the firm should raise capital in the foreign market; the method of valuing the foreign project as if it were a domestic project would then provide the correct net present value (NPV). 
A)  Differential access to national capital markets is common enough that it provides the best explanation for the existence of currency swaps, which are like the interest rate swap contracts, but with the holder receiving coupons in one currency and paying coupons denominated in a different currency. 
B)  Currency swaps generally also have final face value payments, also in different currencies. 
C)  Using a currency swap, a firm can borrow in the market where it has the best access to capital, and then "swap" the coupon and principal payments to whichever currency it would prefer to make payments in. 
D)  With differential access to national markets, to maximize shareholder value, the firm should raise capital in the foreign market; the method of valuing the foreign project as if it were a domestic project would then provide the correct net present value (NPV).

Question 6

The amount of taxes paid by a foreign subsidiary does not depend on the amount repatriated back to the home country.

Accepted Answer

A) True 
 B)False

Question 7

The spot exchange rate for the British pound is 0.5 pounds/dollar. The one-year interest rate in the United States is 4% and the one-year interest rate in Britain is 5%. Based on these rates, what one-year forward exchange rate is consistent with the absence of arbitrage?

Accepted Answer

A)  0.606 pounds/dollar 
B)  0.612 pounds/dollar 
C)  0.617 pounds/dollar 
D)  0.505 pounds/dollar 
A)  0.606 pounds/dollar 
B)  0.612 pounds/dollar 
C)  0.617 pounds/dollar 
D)  0.505 pounds/dollar

Question 8

The spot exchange rate for Indian Rupees is Rs 44/$. The one-year forward exchange rate is Rs 46/$ and the one-year U.S. interest rate is 5%. What is the implied one-year interest rate in India?

Accepted Answer

A)  8.56% 
B)  9.24% 
C)  9.77% 
D)  10.24% 
A)  8.56% 
B)  9.24% 
C)  9.77% 
D)  10.24%

Question 9

The spot exchange rate for Indian Rupees is Rs 42/$. The one-year forward exchange rate is Rs 43/$ and the one-year U.S. interest rate is 4%. What is the implied one year interest rate in India?

Accepted Answer

A)  5.56% 
B)  6.48% 
C)  7.25% 
D)  8.91% 
A)  5.56% 
B)  6.48% 
C)  7.25% 
D)  8.91%

Question 10

________ is a term used to describe the transfer of profits from a foreign subsidiary to the home country.

Accepted Answer

A)  Repatriation 
B)  Depreciation 
C)  Privatization 
D)  Reversion 
A)  Repatriation 
B)  Depreciation 
C)  Privatization 
D)  Reversion

Question 11

One British pound can be purchased for $1.80. What is the exchange rate in terms of pounds per dollar?

Accepted Answer

A)  £0.451 
B)  £0.491 
C)  £0.526 
D)  £0.556 
A)  £0.451 
B)  £0.491 
C)  £0.526 
D)  £0.556

Question 12

Which of the following statements is FALSE?

Accepted Answer

A)  Other benefits from deferral arise because the firm effectively gains a real option to repatriate income at times when repatriation might be cheaper. 
B)  By pooling foreign income, the firm effectively pays the combined tax rate on all foreign income. 
C)  In years in which the U.S. tax rate exceeds the combined tax rate on all foreign income, the repatriation of additional income does not incur an additional U.S. tax liability, so the earnings can be repatriated tax free. 
D)  Deferring repatriation of earnings lowers the overall tax burden in much the same way as deferring capital gains lowers the tax burden imposed by the capital gains tax. 
A)  Other benefits from deferral arise because the firm effectively gains a real option to repatriate income at times when repatriation might be cheaper. 
B)  By pooling foreign income, the firm effectively pays the combined tax rate on all foreign income. 
C)  In years in which the U.S. tax rate exceeds the combined tax rate on all foreign income, the repatriation of additional income does not incur an additional U.S. tax liability, so the earnings can be repatriated tax free. 
D)  Deferring repatriation of earnings lowers the overall tax burden in much the same way as deferring capital gains lowers the tax burden imposed by the capital gains tax.

Question 13

The Law of One Price asserts that we will obtain the same valuation of a project whether
(a) we use the domestic cost of capital of the domestic currency equivalent cash flows at the forward exchange rates or
(b) we use the corresponding foreign cost of capital and then convert the present value (PV) of the foreign currency value of the cash flows at the spot rate.

Accepted Answer

A) True 
 B)False

Question 14

A(n) ________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

Accepted Answer

A)  financial 
B)  limit order 
C)  internationally integrated capital 
D)  over-the-counter 
A)  financial 
B)  limit order 
C)  internationally integrated capital 
D)  over-the-counter

Question 15

Multinational firms often use currency forward contracts and currency options to hedge foreign exchange rate risk.

Accepted Answer

A) True 
 B)False

Question 16

All investors in the developed and developing world have access to the financial securities in all markets.

Accepted Answer

A) True 
 B)False

Question 17

A firm wants to hedge a potential transaction but is also concerned about a possibility that it may not take place. In this case it is better to hedge potential risks using ________.

Accepted Answer

A)  options 
B)  forwards 
C)  futures 
D)  none of the above 
A)  options 
B)  forwards 
C)  futures 
D)  none of the above

Question 18

What are the timings of the foreign exchange market?

Accepted Answer

The foreign exchange

Question 19

What are internationally integrated capital markets?

Accepted Answer

When an investor can exchange currencies

Question 20

A(n) ________ capital market is one where all investors do not have access to all the financial securities in the various markets.

Accepted Answer

A)  integrated 
B)  divested 
C)  managed 
D)  segmented 
A)  integrated 
B)  divested 
C)  managed 
D)  segmented

Exam 23: International Corporate Finance

A ________ strategy replicates the forward contract by borrowing in one currency, converting to the other currency and investing in the new currency.

Which of the following statements is FALSE?

What is cash-and-carry strategy?

Under U.S. tax law, a multinational corporation may use any excess tax credits generated in high-tax foreign countries to offset its net U.S. tax liabilities on earnings in low-tax foreign countries.

Which of the following statements is FALSE?

The amount of taxes paid by a foreign subsidiary does not depend on the amount repatriated back to the home country.

The spot exchange rate for the British pound is 0.5 pounds/dollar. The one-year interest rate in the United States is 4% and the one-year interest rate in Britain is 5%. Based on these rates, what one-year forward exchange rate is consistent with the absence of arbitrage?

The spot exchange rate for Indian Rupees is Rs 44/$. The one-year forward exchange rate is Rs 46/$ and the one-year U.S. interest rate is 5%. What is the implied one-year interest rate in India?

The spot exchange rate for Indian Rupees is Rs 42/$. The one-year forward exchange rate is Rs 43/$ and the one-year U.S. interest rate is 4%. What is the implied one year interest rate in India?

________ is a term used to describe the transfer of profits from a foreign subsidiary to the home country.

One British pound can be purchased for $1.80. What is the exchange rate in terms of pounds per dollar?

Which of the following statements is FALSE?

A(n) ________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

Multinational firms often use currency forward contracts and currency options to hedge foreign exchange rate risk.

All investors in the developed and developing world have access to the financial securities in all markets.

A firm wants to hedge a potential transaction but is also concerned about a possibility that it may not take place. In this case it is better to hedge potential risks using ________.

What are the timings of the foreign exchange market?

What are internationally integrated capital markets?

A(n) ________ capital market is one where all investors do not have access to all the financial securities in the various markets.

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

Filters