Question 1

If real interest rates are different across countries,investors will shift their money into countries with high real interest rates.

Accepted Answer

A) True 
 B)False

Question 2

If the direct quote for the euro is USD1.35=EUR1,then the indirect quote for the euro is:

Accepted Answer

A)  EUR0.51 = USD1. 
B)  EUR0.74 = USD1. 
C)  EUR0.68 = USD1. 
D)  EUR0.65 = USD1.

Question 3

A US firm has a contractual payment of £1 million due in 3 months.Which one of the following actions would incur exchange rate risk?

Accepted Answer

A)  Buy pounds now at the current spot rate. 
B)  Buy pounds in 3 months at the current spot rate. 
C)  Contract forward today to buy pounds in 3 months. 
D)  Buy pounds today in the futures market.

Question 4

A U.S.importer of a Japanese product should sell Japanese yen forward to avoid the risk of an appreciation of the yen.

Accepted Answer

A) True 
 B)False

Question 5

Consider the following spot exchange rates for the British pound,the Japanese yen,the euro and the Swedish krona: USD1.60 = GBP1,JPY105 = USD1,USD0.625 = EUR1,and SEK6.2 = USD1.If gold sells for $290 per ounce in the United States,which one of the following prices for 1 ounce of gold seems to violate the law of one price?

Accepted Answer

A)  £181.25 
B)  ¥30,450 
C)  €405 
D)  kr1,798

Question 6

Interest rate parity suggests that it is cheaper to borrow in a currency with a low nominal rate of interest.

Accepted Answer

A) True 
 B)False

Question 7

Forward contracts are standardized contracts sold in organized exchanges.

Accepted Answer

A) True 
 B)False

Question 8

You have estimated the cash flows in pesos from a project in Switzerland and also the dollar-based cost of capital for the project.To compute the project NPV in dollars,you now need to compute the:

Accepted Answer

A)  current spot rate only. 
B)  opportunity cost of capital measured in terms of the foreign currency. 
C)  implied forward exchange rate for each year in which the project has cash flows. 
D)  actual spot rates for each year in which the project has cash flows.

Question 9

Yesterday the spot exchange rate of yen-to-dollar was JPY105 = USD1.What is today's spot exchange rate if the yen has appreciated 10% against the dollar today?

Accepted Answer

A)  JPY94.5 = USD1 
B)  JPY95.5 = USD1 
C)  JPY116.7 = USD1 
D)  JPY105 = USD1

Question 10

The international Fisher effect states that nominal interest rates should be equal in all countries.

Accepted Answer

A) True 
 B)False

Question 11

The international Fisher effect is valid in the long run because:

Accepted Answer

A)  inflation rates are equal in different countries. 
B)  investors will move their money into countries with high real interest rates. 
C)  investors will move their money into countries with high nominal interest rates. 
D)  investors will move their money into countries with low inflation.

Question 12

If prices in the United States rise less rapidly than in Canada,which of the following would be expected according to purchasing power parity?

Accepted Answer

A)  The value of the Canadian dollar will decline, relative to the U.S. dollar. 
B)  The value of the U.S. dollar will decline, relative to the Canadian dollar. 
C)  Inflation in the U.S. will exceed inflation in Canada. 
D)  The exchange rate will be unaffected by the price changes.

Question 13

According to the theory of purchasing power parity,exchange rates will adjust to offset differences in:

Accepted Answer

A)  interest rates across countries. 
B)  forward rates across countries. 
C)  expected inflation rates across countries. 
D)  international Fisher rates.

Question 14

Interest rate parity tells us that the cost of buying yen forward is exactly the same as the cost of borrowing dollars,buying yen in the spot market,and leaving them on yen deposit.

Accepted Answer

A) True 
 B)False

Question 15

If the spot exchange rate between euros and dollars is USD1.1=EUR1 before the dollar depreciates by 10%,how many dollars will it take after the depreciation has occurred to pay an invoice of €500?

Accepted Answer

A)  $550 
B)  $611 
C)  $500 
D)  $345

Question 16

Suppose that the spot exchange rates against the US dollar are: SEK9.3924 = USD1
CHF1.5231 = USD1
JPY123.380 = USD1
What rate do you think a Japanese bank would quote for exchanging Swiss francs into Swedish krone?

Accepted Answer

A)  SEK6.167 = CHF1 
B)  SEK0.162 = CHF1 
C)  SEK13.136 = CHF1 
D)  SEK1 = CHF1

Question 17

Current 1-year interest rates are 4% and 8% in the United States and Spain,respectively.The anticipated inflation in the United States is 2%.If the international Fisher effect holds,what is the expected inflation rate in Spain?

Accepted Answer

A)  4.00% 
B)  4.04% 
C)  5.92% 
D)  6.00%

Question 18

The current 1-year nominal interest in the United States is 7%.If the anticipated inflation for the coming year in the United States is 2.5%,what is the real interest rate in the U.S.?

Accepted Answer

A)  4.21% 
B)  4.39% 
C)  4.50% 
D)  7.18%

Question 19

Which one of the following is more likely to be roughly equal across countries?

Accepted Answer

A)  Nominal interest rates 
B)  Real interest rates 
C)  Inflation rates 
D)  Forward premium

Question 20

If the yen is trading at a forward discount relative to the dollar,then you'll receive less yen per dollar in the future.

Accepted Answer

A) True 
 B)False

Exam 22: International Financial Management

If real interest rates are different across countries,investors will shift their money into countries with high real interest rates.

If the direct quote for the euro is USD1.35=EUR1,then the indirect quote for the euro is:

A US firm has a contractual payment of £1 million due in 3 months.Which one of the following actions would incur exchange rate risk?

A U.S.importer of a Japanese product should sell Japanese yen forward to avoid the risk of an appreciation of the yen.

Interest rate parity suggests that it is cheaper to borrow in a currency with a low nominal rate of interest.

Forward contracts are standardized contracts sold in organized exchanges.

You have estimated the cash flows in pesos from a project in Switzerland and also the dollar-based cost of capital for the project.To compute the project NPV in dollars,you now need to compute the:

Yesterday the spot exchange rate of yen-to-dollar was JPY105 = USD1.What is today's spot exchange rate if the yen has appreciated 10% against the dollar today?

The international Fisher effect states that nominal interest rates should be equal in all countries.

The international Fisher effect is valid in the long run because:

If prices in the United States rise less rapidly than in Canada,which of the following would be expected according to purchasing power parity?

According to the theory of purchasing power parity,exchange rates will adjust to offset differences in:

Interest rate parity tells us that the cost of buying yen forward is exactly the same as the cost of borrowing dollars,buying yen in the spot market,and leaving them on yen deposit.

If the spot exchange rate between euros and dollars is USD1.1=EUR1 before the dollar depreciates by 10%,how many dollars will it take after the depreciation has occurred to pay an invoice of €500?

Suppose that the spot exchange rates against the US dollar are: SEK9.3924 = USD1 CHF1.5231 = USD1 JPY123.380 = USD1 What rate do you think a Japanese bank would quote for exchanging Swiss francs into Swedish krone?

Current 1-year interest rates are 4% and 8% in the United States and Spain,respectively.The anticipated inflation in the United States is 2%.If the international Fisher effect holds,what is the expected inflation rate in Spain?

The current 1-year nominal interest in the United States is 7%.If the anticipated inflation for the coming year in the United States is 2.5%,what is the real interest rate in the U.S.?

Which one of the following is more likely to be roughly equal across countries?

If the yen is trading at a forward discount relative to the dollar,then you'll receive less yen per dollar in the future.