Question 1

If fewer dollars will buy a unit of foreign currency,then the dollar is:

Accepted Answer

A) strengthening. 
B) weakening. 
C) violating the law of purchasing power parity. 
D) not in equilibrium.

Question 2

Convert the following direct quote to dollar indirect quote: 1 Indian rupee = $0.2110.

Accepted Answer

A) 5.0226 rupee 
B) 4.7393 rupee 
C) 4.8814 rupee 
D) 4.9097 rupee

Question 3

Which of the following is a theory that the difference in interest rates between two countries is equal to the difference between the forward currency exchange rate and the spot exchange rate?

Accepted Answer

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

Question 4

Currency Exchange Compute the amount of foreign currency that can be purchased for $200,000:
1 Danish krone = $0.1755

Accepted Answer

A) 200,000 krone 
B) 11,396 krone 
C) 35,100 krone 
D) 1,139,601.14 krone

Question 5

Triangular Arbitrage The U.S.dollar spot exchange rate with the Australian dollar is $1 = AU$1.2219.The U.S.dollar and euro exchange rate is $1 = €0.7595.If the cross-rate between the euro and Australian dollar is €1 = AU$1.575 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 convert 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 6

Cross Rate Given these two exchange rates,$1 = 11.25 Mexican peso and $1 = €0.7521,compute the cross rate between the Mexican peso and the euro.State this exchange rate in pesos and in euros.

Accepted Answer

A) 0.0669 euros, 14.9589 pesos 
B) 1.3296 euros, 0.0889 pesos 
C) 14.9589 euros, 0.0669 pesos 
D) 0.0889 euros, 1.3296 pesos

Question 7

China's exchange rate is pegged to the:

Accepted Answer

A) U.S.dollar. 
B) price of a barrel of oil. 
C) euro. 
D) none of these.

Question 8

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote:
$1 = 7.2501 South African rand

Accepted Answer

A) $0.1379 
B) $0.72501 
C) $1.00 
D) $1.1379

Question 9

How might financial managers plan to work through capital budgeting issues for international investments?

Accepted Answer

The answer of How might financial managers plan to work...

Question 10

Which of these is defined as an exchange rate regime where the country's central bank allows its currency price to float freely between an upper and lower bound and may buy and sell large amounts of it in order to provide price support or resistance?

Accepted Answer

A) Foreign market regime 
B) Freely floating regime 
C) Currency market regime 
D) Managed-floating regime

Question 11

If more dollars are required to buy a unit of foreign currency,then the dollar is:

Accepted Answer

A) strengthening. 
B) weakening. 
C) violating the law of one price. 
D) not in equilibrium.

Question 12

Convert each of the following indirect quotes to dollar direct quotes:
• $1 = 3.95 Saudi Arabian riyal
• $1 = 41.45 Philippine peso
• $1 = 0.58 Latvian lat
$1 equals:

Accepted Answer

A) 0.22 riyal; 0.02 peso; 1.75 lat 
B) 0.25 riyal; 0.02 peso; 1.72 lat 
C) 0.38 riyal; 0.05 peso; 1.72 lat 
D) 0.38 riyal; 0.02 peso; 1.95 lat

Question 13

Discount Rates A financial manager has determined that the appropriate discount rate for a foreign project is 15 percent.However,that discount rate applies in the United States using dollars.What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 5 percent and 7 percent,respectively.

Accepted Answer

A) 13 percent 
B) 17 percent 
C) 18 percent 
D) 20 percent

Question 14

Which of these is defined as an exchange rate regime where a currency's price is fixed to the value of another currency or to a basket of other currencies?

Accepted Answer

A) Fixed peg arrangement 
B) Freely floating regime 
C) Currency market regime 
D) Managed-floating regime

Question 15

If the price of silver in England is £6.25 per ounce,what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.55?

Accepted Answer

A) $11.36 
B) $13.25 
C) $10.17 
D) $14.06

Question 16

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote:
1 Korean won = $0.001045

Accepted Answer

A) 0.1045 won 
B) 1.001045 won 
C) 9.5694 won 
D) 956.9378 won

Question 17

China's exchange rate is a:

Accepted Answer

A) freely floating regime. 
B) managed floating regime. 
C) fixed peg arrangement. 
D) none of these.

Question 18

What are the two methods financial managers can use for resolving the problem of having cash flows from a foreign project in a foreign currency,while the discount rate is usually evaluated from the domestic country perspective?

Accepted Answer

The answer of What are the two methods financial managers...

Question 19

Exchange Rate Risk What is the percentage change in value of a $50 million investment in Russia when the exchange rate changes from $1 = 7 rubles to $1 = 12 rubles?

Accepted Answer

A) 41.67 percent 
B) 58.33 percent 
C) 36.84 percent 
D) 63.16 percent

Question 20

All of the following are examples of factors that affect trading activity between countries EXCEPT:

Accepted Answer

A) charging a 0.75 percent import tax on steel imported from China into the United States. 
B) Charging $3 tariff per barrel of crude oil imported in the United States. 
C) restricting the importation of produce into the United States from South America. 
D) All of these are factors that affect trading activity between countries.

Exam 19: International Corporate Finance