Exam 19: International Business Finance

The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the

What is the law of one price? How does it apply to foreign exchange rates?

The price of a Big Mac is more or less the same everywhere in the world.

Assume that a buyer of Italian wine saw the following quotes: spot rate of .9505 euros to the U.S. dollar; 30-day forward rate of .9497 euro to the U.S. dollar; 90-day forward rate of .9482 euros to the U.S. dollar. What does this information imply?

The direct 6 month forward rate for the Japanese yen is 0.008853.; the yen is expected to

Forward exchange rates

What is the difference between forward rates and spot rates? What is the purpose of forward contracts?

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

Suppose International Trading Enterprises purchased 25,000 kilograms of Belgian chocolate for a price of 100,000 euros. If the current exchange rate is 0.95 euro to the U.S. dollar, what is the purchase price of the chocolate in dollars?

A narrow spread indicates efficiency in the spot exchange market.

Briefly discuss the factors that multinational firms consider in arriving at capital structure decisions.

Millheim Electronics is an American firm operating in a country whose government refuses to allow Millheim to send its earnings out of the country. This is an example of repatriation of profits.

The spot exchange rate for the Thai bhat is 33.135 bhat to the dollar. The Host Hotel Company will be able to repatriate profits from its luxury resort hotel in Phuket in 5 years. It has estimated the 5 year forward rate at 38 bhat to the dollar. The risk-free rate in the U.S. is 4% and Host uses an 11 % risk premium for investments of this type. If the expected accumulated profits after 5 years are 100 million bhat, what is their present value in U.S. dollars.

The nominal rate of interest in Russia is 9.5% and the inflation rate is 8%. The nominal rate of interest in Spain is 3% and the inflation rate is 1%. Which country has the higher real rate of interest?

Forward rates are quoted

Assume that an investor owned 5,000 shares of Anheuser-Busch Corporation common stock prior to the acquisition by InBev of Belgium. At the time of the acquisition, the dollar was worth .77 euro. Further assume that the purchase price was equal to 54 euros per share. What was the sales price of Anheuser Busch common stock per share in U.S. dollars?

One U.S. dollar buys 112 yen and 21.5 Mexican pesos. What is price of pesos in yen?

An investor purchased 20,000,000 Japanese yen at an exchange rate of 113.25. yen to the dollar. the yen cost her ________. Round answer to the nearest dollar.

A dealer in London posts an ask rate of .6238 and a bid rate of .6237. How much, in U.K. pounds, would it cost to purchase $100,000. For how much in pounds could you sell $100,000?

Which of the following is a conceptual method for keeping the foreign currency market in equilibrium?