Question 1

Assume the current spot rate between the UK and the U.S.is £0.6058 per $1, the expected inflation rate in the U.S.is 2.2 percent, and the expected inflation rate in the UK is 3 percent.If relative purchasing power parity exists, what will the exchange rate be next year?

Accepted Answer

A)  £.6389/$1
B)  £.6106/$1
C)  £.6223/$1
D)  £.6022/$1
E)  £.6336/$1 B

Question 2

Assume you can exchange $1 for either C$1.1417 or ¥118.62.What is the cross-rate between the Canadian dollar and the Japanese yen?

Accepted Answer

A)  C$.009625/¥1
B)  C$.003723/¥1
C)  C$.004582/¥1
D)  C$138.2191/¥1
E)  C$135.43/¥1 A

Question 3

A U.S.firm has total assets valued at €918,000 located in Germany.This valuation did not change from last year.Last year, the exchange rate was €.92 = $1.Today, the exchange rate is €.80 = $1.By what amount did these assets change in value for the year on the firm's U.S.financial statements?

Accepted Answer

A)  -$149,673.91
B)  -$162,311.19
C)  $162,311.19
D)  $149,673.91
E)  $0 D

Question 4

The treasurer of a major U.S.firm has $8.2 million to invest for three months.The interest rate in the U.S.is .53 percent per month.The interest rate in the UK is .54 percent per month.The spot exchange rate is £.64, and the three-month forward rate is £.65.Ignore transaction costs.The treasurer should invest the funds in the ____ because he can earn an additional ____.

Accepted Answer

A)  US; $131,072.23
B)  US;$125,722.20
C)  UK; $9,418.02
D)  UK; $38,522.47
E)  UK; $121,510.67

Question 5

Which one of the following is the rate that most international banks charge when they loan Eurodollars to other banks?

Accepted Answer

A)  ADR
B)  LIBOR
C)  Cross-rate
D)  Gilt rate
E)  Swap rate

Question 6

Suppose the Swiss franc exchange rate is SF.9703 = $1, and the euro exchange rate is €.8024 = $1.What is the cross-rate in terms of Swiss francs per euro?

Accepted Answer

A)  SF.7692/€1
B)  SF.7786/€1
C)  SF1.1054/€1
D)  SF1.1832/€1
E)  SF1.2092/€1

Question 7

Which country is correctly matched with its currency?

Accepted Answer

A)  Canada-pound
B)  China-yuan
C)  Mexico-real
D)  Japan-lira
E)  United Kingdom-euro

Question 8

Currently, you can exchange €100 for $112.55.The inflation rate in Europe is expected to be 1.4 percent.In one year, it is expected that €100 can be exchanged for $113.50.Assume relative purchasing power parity exists.What is the expected inflation rate in the U.S.?

Accepted Answer

A)  2.69 percent
B)  2.98percent
C)  2.24 percent
D)  3.65 percent
E)  3.98 percent

Question 9

Assume you can exchange $1 for either €.8031 euro or £.6390.What is the cross-rate between the pound and the euro?

Accepted Answer

A)  £.7519/€1
B)  £.8356/€1
C)  £.7957/€1
D)  £1.0852/€1
E)  £1.5577/€1

Question 10

Currently, you can exchange $1 for SF1.14.Assume the average inflation rate in the U.S.over the next two years will be 2.5 percent annually as compared to 3 percent in Switzerland.Based on this information and relative purchasing power parity, which of the following assumptions can you make regarding the next two years?

Accepted Answer

A)  The Swiss franc will appreciate against all currencies.
B)  The Swiss franc will appreciate against the U.S.dollar.
C)  The U.S.dollar will appreciate against all currencies.
D)  The U.S.dollar will appreciate against the Swiss franc.
E)  Both the U.S.dollar and the Swiss franc will appreciate against all other currencies.

Question 11

Suppose the spot exchange rate for the Canadian dollar is C$1.22 and the six-month forward rate is C$1.27.Assuming absolute PPP holds, what is the current cost in the United States of a hamburger if the price in Canada of an equivalent burger in Canada is C$6.00?

Accepted Answer

A)  $5.36
B)  $5.15
C)  $4.92
D)  $4.99
E)  $4.23

Question 12

Assume the one-year forward rate for the British pound is £.6381 = $1.The spot rate is £.6392 = $1.The interest rate on a risk-free asset in the UK is 4.4 percent.If interest rate parity exists, what is the one-year risk-free rate in the U.S.?

Accepted Answer

A)  4.68 percent
B)  4.58 percent
C)  4.77 percent
D)  4.63 percent
E)  4.67 percent

Question 13

Assume the spot rate for the pound is £.6390 = $1 and for the Canadian dollar is C$1.1417 = $1.What is the £/C$ cross-rate?

Accepted Answer

A)  £.5597/C$1
B)  £.6027/C$1
C)  £.7295/C$1
D)  £.7594/C$1
E)  £.7608/C$1

Question 14

Your German friend has decided to come and visit you in the U.S.You estimate the cost of her trip at $2,200.What is the cost to her in euros if the U.S.dollar equivalent of the euro is 1.2452?

Accepted Answer

A)  €1,566.67
B)  €1,766.78
C)  €1,908.50
D)  €2,739.44
E)  €2,806.16

Question 15

Which of the following parties are participants in the foreign exchange market?
I.U.S.importers
II.U.S.exporters
III.U.S.travelers to Europe
IV.Foreign portfolio managers who purchase American securities

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I, III, and IV only
D)  II, III, and IV only
E)  I, II, III, and IV

Question 16

Currently, you can exchange €100 for $124.15.The inflation rate in Europe is expected to be 3.3 percent as compared to 3.1 percent in the U.S.Assuming that relative purchasing power parity exists, what should the exchange rate be five years from now?

Accepted Answer

A)  €.8098/$1
B)  €.8136/$1
C)  €.8071/$1
D)  €.8039/$1
E)  €.7975/$1

Question 17

Assume that in New York, you can exchange $1 for €0.89 or £.0.6391 In Berlin, £1 costs €1.16.How much profit can you earn on $1,000 using triangle arbitrage?

Accepted Answer

A)  $912.81
B)  $138.56
C)  $.200.50
D)  $317.75
E)  $187.47

Question 18

Which statement is correct?

Accepted Answer

A)  Exchange rates are adjusted each morning and held constant until the following morning.
B)  The four most commonly traded currencies in the foreign exchange markets are the U.S.dollar, French franc, European euro, and Brazilian real.
C)  All South American countries use the peso as their currency.
D)  New Zealand uses the same currency as Australia and that is the A$.
E)  The foreign exchange market is the largest financial market in the world.

Question 19

Assume $1 = €.8036 = A$1.1757.What is the cross-rate for Australian dollars in terms of euros?

Accepted Answer

A)  A$1.1066/€1
B)  A$1.2908/€1
C)  A$1.3929/€1
D)  A$1.4630/€1
E)  A$1.5042/€1

Question 20

You are planning an extended trip to India and have located some housing that you can lease for 37,250 rupees per month.What is the cost per month in U.S.dollars if the exchange rate is Rs1 = $.01606?

Accepted Answer

A)  $1,208.15
B)  $598.24
C)  $1,311.27
D)  $695.35
E)  $709.30

Exam 18: International Aspects of Financial Management