Question 1

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Accepted Answer

A) True 
 B)False  True

Question 2

In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars?

Accepted Answer

A)   $5.964
B)   $8,200
C)   $10,250
D)   $12,628
E)   $13,525 C

Question 3

The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.

Accepted Answer

A) True 
 B)False  True

Question 4

Suppose a carton of hockey pucks sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey pucks in the United States?

Accepted Answer

A)   $14.79
B)   $63.00
C)   $74.55
D)   $85.88
E)   $147.88

Question 5

Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What is the cross-rate of Swiss francs to euros?

Accepted Answer

A)   0.43
B)   0.86
C)   1.41
D)   1.64
E)   2.27

Question 6

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market, then the forward currency is said to be selling at a discount to the spot rate.

Accepted Answer

A) True 
 B)False

Question 7

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ____ to the spot rate.

Accepted Answer

A)   premium of 8%
B)   premium of 18%
C)   discount of 18%
D)   discount of 8%
E)   premium of 16%

Question 8

Multinational financial management requires that financial analysts consider the effects of changing currency values.

Accepted Answer

A) True 
 B)False

Question 9

Suppose Stackpool Inc. had inventory in Britain valued at 240,000 pounds one year ago. The exchange rate for dollars to pounds was 1£ = 2 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates?

Accepted Answer

A)   $240,000
B)   $43,200
C)   $0
D)   $43,200.
E)   $47,473

Question 10

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates available on U.S. money market instruments.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that 1 British pound currently equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?

Accepted Answer

A)   1 british pound equals 3.2400 swiss francs
B)   1 british pound equals 2.6244 swiss francs
C)   1 british pound equals 1.8588 swiss francs
D)   1 british pound equals 1.0000 swiss francs
E)   1 british pound equals 0.3810 swiss francs

Question 12

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   foreign bonds and eurobonds are two important types of international bonds.
B)   foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold.
C)   the term eurobond applies only to foreign bonds denominated in u.s. currency.
D)   a foreign bond might pay a higher nominal interest rate than a u.s. bond.
E)   any bond sold outside the country of the borrower is called an international bond.

Question 13

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

Accepted Answer

A) True 
 B)False

Question 14

If it takes $0.71 U.S. dollars to purchase one Swiss franc, how many Swiss francs can one U.S. dollar buy?

Accepted Answer

A)   0.50
B)   0.71
C)   1.00
D)   1.41
E)   2.81

Question 15

A product sells for $750 in the United States. The exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland?

Accepted Answer

A)   123.75 swiss francs
B)   454.55 swiss francs
C)   750.00 swiss francs
D)   1,237.50 swiss francs
E)   1,650.00 swiss francs

Question 16

Suppose it takes 1.82 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

Accepted Answer

A)   1.12
B)   1.63
C)   1.82
D)   2.04
E)   3.64

Question 17

A Eurodollar is a U.S. dollar deposited in a bank outside the United States.

Accepted Answer

A) True 
 B)False

Question 18

Exchange rate quotations consist solely of direct quotations.

Accepted Answer

A) True 
 B)False

Question 19

The threat of expropriation creates an incentive for the multinational firm to minimize inventory holdings in certain countries and to bring in goods only as needed.

Accepted Answer

A) True 
 B)False

Question 20

Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.65. If interest rate parity holds, what is the spot exchange rate?

Accepted Answer

A)   1 pound = $1.8000
B)   1 pound = $1.6582
C)   1 pound = $1.0000
D)   1 pound = $0.8500
E)   1 pound = $0.6031

Exam 27: Multinational Financial Management

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars?

The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.

Suppose a carton of hockey pucks sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey pucks in the United States?

Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What is the cross-rate of Swiss francs to euros?

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market, then the forward currency is said to be selling at a discount to the spot rate.

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ____ to the spot rate.

Multinational financial management requires that financial analysts consider the effects of changing currency values.

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates available on U.S. money market instruments.

Suppose that 1 British pound currently equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?

Which of the following statements is NOT CORRECT?

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

If it takes $0.71 U.S. dollars to purchase one Swiss franc, how many Swiss francs can one U.S. dollar buy?

A product sells for $750 in the United States. The exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland?

Suppose it takes 1.82 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

A Eurodollar is a U.S. dollar deposited in a bank outside the United States.

Exchange rate quotations consist solely of direct quotations.

The threat of expropriation creates an incentive for the multinational firm to minimize inventory holdings in certain countries and to bring in goods only as needed.