Question 1

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n):

Accepted Answer

A)  open exchange rate. 
B)  cross-rate. 
C)  backward rate. 
D)  forward rate. 
E)  interest ratE.

Question 2

Suppose the spot exchange rate is 2 U.S. dollars per British pound. The forward exchange rate is 1.9 dollars per pound. Which of the following is true?

Accepted Answer

A)  The U.S. inflation rate is lower. 
B)  The pound is selling at a premium. 
C)  The pound is selling at a discount. 
D)  U.S. interest rates are lower. 
E)  More than one of these is truE.

Question 3

Which one of following statements is not correct?

Accepted Answer

A)  Importers are participants in the foreign exchange market. 
B)  The foreign exchange market is an over-the-counter market. 
C)  There are no speculators in the foreign exchange market. 
D)  Exporters are participants in the foreign exchange market. 
E)  Portfolio managers are participants in the foreign exchange market.

Question 4

In international capital budgeting,there are two approaches- the home currency approach and the foreign currency approach. Describe both and explain the key difference from the aspect of capital budgeting for international firms.

Accepted Answer

The answer of In international capital budgeting,there are two approaches-...

Question 5

When the German mark is quoted as $.52,this quote is a(n):

Accepted Answer

A)  triangular rate. 
B)  indirect rate. 
C)  direct rate. 
D)  cross rate. 
E)  None of these.

Question 6

You just returned from some extensive traveling throughout the Americas. You started your trip with $10,000 in your pocket. You spent 1.4 million pesos while in Chile. You spent another 40,000 bolivars in Venezuela. Then on the way home,you spent 34,000 pesos in Mexico. How many dollars did you have left by the time you returned to the U.S. given the following exchange rates?

Accepted Answer

A)  $3,887 
B)  $4,039 
C)  $4,117 
D)  $4,244 
E)  $4,299

Question 7

The current spot rate is C$1.362 and the one-year forward rate is C$1.371. The nominal risk-free rate in Canada is 6 percent while it is 3.5 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

Accepted Answer

A)  $.0018 
B)  $.0045 
C)  $.0120 
D)  $.0180 
E)  $.0240

Question 8

Are exchange rate changes between the U.S. dollar and the Japanese yen necessarily good or bad for Japanese automakers?
 Explain your reasoning.

Accepted Answer

The answer of Are exchange rate changes between the U.S....

Question 9

Interest rate parity:

Accepted Answer

A)  eliminates covered interest arbitrage opportunities. 
B)  exists when spot rates are equal for multiple countries. 
C)  means that the nominal risk-free rate of return must be the same across countries. 
D)  exists when the spot rate is equal to the futures rate. 
E)  eliminates exchange rate fluctuations.

Question 10

The most important complication of international finance is the:

Accepted Answer

A)  basic principles of corporate finance do not apply. 
B)  process of foreign exchange valuation of different currencies. 
C)  NPV principle cannot be applied to foreign operations. 
D)  All of these. 
E)  None of these.

Question 11

The foreign exchange market is where:

Accepted Answer

A)  one country's stocks are exchanged for another's. 
B)  one country's bonds are exchanged for another's. 
C)  one country's currency is traded for another's. 
D)  international banks make loans to one another. 
E)  international businesses finalize import/export relationships with one another.

Question 12

Assume that you can buy 250 Canadian dollars with 100 British pounds. Which one of the following statements is correct given the following exchange rates? Assume that you start out with British pounds.

Accepted Answer

A)  You can earn a profit of C$2.47 by using triangle arbitrage. 
B)  You can earn a profit of £1.17 by using triangle arbitrage. 
C)  You can earn a profit of C$1.17 by using triangle arbitrage. 
D)  You can earn a profit of £2.47 by using triangle arbitrage. 
E)  You cannot earn a profit given the current exchange rates.

Question 13

Which one of the following statements is correct assuming that exchange rates are quoted as units of foreign currency per dollar?

Accepted Answer

A)  The exchange rate moves opposite to the value of the dollar. 
B)  The exchange rate rises when the U.S. inflation rate is higher than the foreign country's. 
C)  When a foreign currency appreciates in value it strengthens relative to the dollar. 
D)  The exchange rate falls as the dollar strengthens. 
E)  The exchange rate is unaffected by differences in the inflation rates of the two countries.

Question 14

The condition stating that the expected percentage change in the exchange rate is equal to the difference in interest rates between the countries is called:

Accepted Answer

A)  the unbiased forward rates condition. 
B)  uncovered interest parity. 
C)  the international Fisher effect. 
D)  purchasing power parity. 
E)  interest rate parity.

Question 15

You want to import $45,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.0218?

Accepted Answer

A)  1,843,010Rs 
B)  2,032,018Rs 
C)  2,064,220Rs 
D)  2,075,002Rs 
E)  2,076,289Rs

Question 16

In the spot market,$1 is currently equal to A$1.42. The expected inflation rate is 3 percent in Australia and 2 percent in the U.S.. What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

A)  A$1.4058 
B)  A$1.4062 
C)  A$1.4286 
D)  A$1.4342 
E)  A$1.4484

Question 17

When the German mark is quoted as 1.923 marks to the dollar,this quote is a(n):

Accepted Answer

A)  indirect rate. 
B)  direct rate. 
C)  cross rate. 
D)  triangular rate. 
E)  None of these.

Question 18

You are expecting a payment of C$100,000 four years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Canada. The inflation rate is 3 percent in the U.S. and 2 percent in Canada. The current exchange rate is C$1 = $.72. How much will the payment four years from now be worth in U.S. dollars?

Accepted Answer

A)  $68,887 
B)  $69,191 
C)  $69,300 
D)  $72,222 
E)  $74,953

Question 19

An agreement to exchange currencies at some point in the future using an agreed-upon exchange rate is called a _____ trade.

Accepted Answer

A)  spot 
B)  forward 
C)  swap 
D)  floating 
E)  triangle

Question 20

A foreign bond issued in the United States and denominated in dollars is called a(n):

Accepted Answer

A)  American Depository Receipt. 
B)  European Currency Unit. 
C)  Yankee bond. 
D)  swap bond. 
E)  Eurobond.

Exam 31: International Corporate Finance

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n) :