Exam 23: International Corporate Finance

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 converting into dollars and then discounting is closest to ________.

Which of the following statements is FALSE?

Firms must consider the impact of exchange rate risk if ________ of the project are affected by exchange rate changes.

The one-year forward exchange rate for the British Pound is $1.70/Pound. If the one-year U.S. interest rate is 5% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

The ________ rate is a price for a currency denominated in another currency.

Hedging with currency options involves a commitment by a firm to buy currency at a fixed rate.

Suppose the domestic cost of capital for a U.S.-based company is 10%. Also, the U.S. interest rate is 6% and the European interest rate is 7%. What is the foreign denominated cost of capital for the company?

You are a U.S. investor who is trying to calculate the present value (PV) of £15 million cash inflow that will occur one year from now. The spot exchange rate is $1.5742/£ and the forward rate is F1 = $1.5682/£. The appropriate dollar discount rate for this cash flow is 1.05% and the appropriate £ discount rate is 1.45%. What is the present value of the £ cash inflow computed by first discounting the £ and converting them into dollars?

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

What is floating rate?

You are a U.S. investor who is trying to calculate the present value (PV) of £15 million cash inflow that will occur one year from now. The spot exchange rate is $1.5742/£ and the forward rate is F1 = $1.5682/£. The appropriate dollar discount rate for this cash flow is 1.05% and the appropriate £ discount rate is 1.45%. What is the present value of the dollar cash inflow computed by first converting the £ into dollars and then discounting the dollars?

U.S. tax liabilities are ________ until the foreign subsidiary profits are repatriated to the United States.

The one-year forward exchange rate is Rupees 40/$. If the one-year interest rate in the United States is 4% and in India is 7%, what is the spot exchange rate so as to preclude arbitrage?

________ give a firm a right, but not an obligation, to exchange currency at a given rate.

Pooling of all foreign tax liabilities on earnings allows corporations to ________.

A ________ exchange rate means that the rate changes constantly depending on the quantity supplied and demanded for the currency.

Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT's U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -The amount of the taxes paid in dollars for the Japanese operations is closest to ________.

Firms use forward foreign exchange contracts rather than a cash-and-carry strategy because ________.

If a firm purchases its inputs and sells its goods in the same foreign market, evaluation of the project ________.

Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT's U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -After the Japanese taxes are paid, the amount of the earnings before interest and after taxes in dollars from the Japanese operations is closest to ________.