Question 1

The U.S.dollar spot exchange rate with the Canadian dollar is $1 = CA$1.12.The U.S.dollar and Swiss franc exchange rate is $1 = 1.275.If the cross-rate between the franc and Canadian dollar is 1 franc = CA$0.9750,which of the following statements is correct?

Accepted Answer

A) Starting with U.S.dollars, buy Swiss francs and convert them to Canadian dollars, and then convert back to U.S.dollars. 
B) Starting with Canadian dollars, buy Swiss francs and convert them to U.S.dollars, and then convert back to Swiss francs. 
C) Starting with Swiss francs, buy Canadian dollars and convert them to Swiss francs, and then convert back to U.S.dollars. 
D) Starting with Canadian dollars, buy U.S.dollars and convert them to Swiss francs, and then convert back to U.S.dollars.

Question 2

All of the following are political risks to the assets and cash flows of multinational corporations EXCEPT:

Accepted Answer

A) government seizure of a company's assets in the country. 
B) enactment of new taxation. 
C) expropriation with minimal compensation. 
D) improving exchange rates to stimulate foreign investment.

Question 3

Compute the amount of each foreign currency that can be purchased for $5,000:
A.1 Danish krone = $0.18
B.1 Indian rupee = $0.15
C.1 Israeli shekel = $0.37
$5,000 equals:

Accepted Answer

A) 17,777.78 krone; 33,333.33 rupee; 18,513.51 shekel 
B) 17,777.78 krone; 33,333.33 rupee; 13,513.51 shekel 
C) 27,777.78 krone; 38,333.33 rupee; 13,513.51 shekel 
D) 27,777.78 krone; 33,333.33 rupee; 13,513.51 shekel

Question 4

If a popular video gaming system costs $400 in the United States,what do you think it should cost in Japan? What are some reasons that your price might not be right?

Accepted Answer

The answer of If a popular video gaming system costs...

Question 5

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote:
1 Israeli shekel = $0.2351

Accepted Answer

A) 0.2351 shekel 
B) 0.7649 shekel 
C) 1.2351 shekel 
D) 4.2535 shekel

Question 6

Currency Exchange Compute the number of dollars that can be bought with 1.5 million of foreign currency units:
$1 = 0.5467 Latvian lat

Accepted Answer

A) $969,806.68520 
B) $9,698,066.852 
C) $82,003,061.45 
D) $2,743,735.138

Question 7

Explain political risks when investing internationally and how it can be managed.

Accepted Answer

The answer of Explain political risks when investing internationally and...

Question 8

The Russian financial crisis of 1998 caused Russia's currency to be dramatically devalued.What is the percentage change in value of a $100 million investment in Russia when the exchange rate changes from $1 = 6 rubles to $1 = 25 rubles?

Accepted Answer

A) -49 percent 
B) -57 percent 
C) -69 percent 
D) -76 percent

Question 9

Given these two exchange rates,$1 = 1.32 Australian dollars and $1 = £0.56,compute the cross-rate between the Australian dollar and the pound.State this exchange rate in Australian dollars and in pounds.

Accepted Answer

A) A$2.49 
B) A$2.36 
C) A$2.91 
D) A$2.17

Question 10

Triangular Arbitrage The U.S.dollar spot exchange rate with the Australian dollar is $1 = AU$1.2835.The U.S.dollar and euro exchange rate is $1 = €0.7605.If the cross-rate between the euro and Australian dollar is €1 = AU$1.610 then show that an arbitrage is possible.What positions should be taken to profit from the mispricing?

Accepted Answer

A) Starting with U.S.dollars, buy Australian dollars and convert them to euros, then convert back to U.S.dollars. 
B) Starting with U.S.dollars, buy euros and convert them to Australian dollars, then convert back to U.S.dollars. 
C) Starting with euros, buy U.S.dollars and covert them to Australian dollars, then convert back to euros. 
D) Starting with Australian dollars, buy euros and convert them to U.S.dollars, then convert back to Australian dollars.

Question 11

Exchange Rate Risk In the late 1990s,many East Asian currencies suddenly and dramatically devalued.What is the percentage change in value of a $75 million investment in Indonesia when the exchange rate changes from $1 = 1,000 rupiah to $1 = 7,000 rupiah?

Accepted Answer

A) 14.29 percent 
B) 85.71 percent 
C) 12.5 percent 
D) 87.5 percent

Question 12

Law of One Price If the price of copper in Europe is €2.22 per ounce,what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.7802?

Accepted Answer

A) $3.0002 per ounce 
B) $3.514 per ounce 
C) $1.7320 per ounce 
D) $2.8454 per ounce

Question 13

Which of these is the trade agreement between South American countries to create their own free trade zone?

Accepted Answer

A) South American Union 
B) South American Free Trade Agreement (SAFT
A)  
C) South American Monetary Fund (SAMF) 
D) Mercosur

Question 14

Currency Exchange Compute the number of dollars that can be bought with 2 million of foreign currency units:
$1 = 48.210 Philippine peso

Accepted Answer

A) $41,485.16905 
B) $1,959,439.60 
C) $414,851.6905 
D) $4,148,516.905

Question 15

Which of these is defined as the price of one currency in terms of another?

Accepted Answer

A) Exchange rate 
B) Spot transaction 
C) Indirect exchange quote 
D) Direct exchange quote

Question 16

The current spot rate between the U.S.dollar and the Swedish krona is $1 = 7.5500 krona.If the inflation rate in the United States is 4 percent and in Sweden is 1 percent,then what is the expected spot rate in one year?

Accepted Answer

A) $0.1908 per krona 
B) $0.2116 per krona 
C) $0.1529 per krona 
D) $0.1364 per krona

Question 17

Purchasing power parity (PPP)may not hold exactly because of which of the following?

Accepted Answer

A) Shipping costs 
B) Insurance costs 
C) Trading costs 
D) All of these are transaction costs that may not allow PPP to hold exactly.

Question 18

Exchange Rate Risk In the late 1990s,many East Asian currencies suddenly and dramatically devalued.What is the percentage change in value of a $10 million investment in Indonesia when the exchange rate changes from $1 = 3,000 rupiah to $1 = 10,000 rupiah?

Accepted Answer

A) 30 percent 
B) 10 percent 
C) 70 percent 
D) 90 percent

Question 19

Which of the following is the theory relating the expected adjustment needed in the future spot exchange rate between countries to the inflation rate in each country?

Accepted Answer

A) Purchasing power parity 
B) Interest rate parity 
C) Law of one price 
D) Currency swap parity

Question 20

Which of these is defined as the practice of simultaneously purchasing and selling an asset in different forms or markets to take advantage of an imbalance in price?

Accepted Answer

A) Arbitrage 
B) Spot transaction 
C) Indirect quote 
D) Cross quote

Exam 19: International Corporate Finance