Question 1

You are expecting a payment of 800,000PLN 2 years from now. The risk-free rate of return is 4.5 % in Canada and 3 % in Poland. Currently, you can buy 323PLN for $100. How much will the payment 2 years from now be worth in Canadian dollars?

Accepted Answer

A)   $244,018
B)   $246,009
C)   $247,678
D)   $255,279
E)   $256,142F) B) and C)
G) B) and E)

Question 2

You are analyzing a project with an initial cost of  ≤\le≤ 50,000. The project is expected to return  ≤\le≤ 10,000 the first year,  ≤\le≤ 35,000 the second year and  ≤\le≤ 40,000 the third and final year. The current spot rate is  ≤\le≤ 0.5086. The nominal return relevant to the project is 11 % in the U.S. The nominal risk-free rate in the U.S. is three % while it is five % in the U.K. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?

Accepted Answer

A)   $23,611
B)   $25,408
C)   $26,930
D)   $29,639
E)   $30,796 F) A) and D)
G) C) and D)

Question 3

The changes in the relative economic conditions between countries are referred to as the:

Accepted Answer

A)   International Fisher Effect.
B)   International exchange rate effect.
C)   Translation exposure to exchange rate risk.
D)   Long-run exposure to exchange rate risk.
E)   The interest rate parity risk.F) A) and C)
G) B) and E)

Question 4

The interest rate parity approximation formula is:

Accepted Answer

A)   Ft = S0 * [1 + (RFC + RCDN) ]t.
B)   Ft = S0 * [1 - (RFC - RCDN) ]t.
C)   Ft = S0 * [1 + (RFC - RCDN) ]t.
D)   Ft = S0 * [1 + (RFC *RCDN) ]t.
E)   Ft = S0 * [1 - (RFC + RCDN) ]t.F) A) and B)
G) D) and E)

Question 5

Spot trades must be settled:

Accepted Answer

A)   On the day of the trade.
B)   On the day following the day of the trade.
C)   Within two business days.
D)   Within three business days.
E)   Within one week of the trade date.F) B) and D)
G) C) and D)

Question 6

If a commodity costs the same regardless of the currency used to purchase it or the country where it is sold, then _________________.

Accepted Answer

A)   Forward exchange rates are equal.
B)   Interest rate parity holds.
C)   Relative purchasing power parity holds.
D)   Uncovered interest rate parity holds.
E)   Absolute purchasing power parity holds.F) C) and E)
G) C) and D)

Question 7

Today, you can exchange $1 for  ≤\le≤ .5694. Last week,  ≤\le≤ 1 was worth $1.7498. Last week, you converted  ≤\le≤ 100 into dollars. If you convert the dollars back into pounds today, you will have:

Accepted Answer

A)    ≤\le≤ 99.47.
B)    ≤\le≤ 99.63.
C)    ≤\le≤ 99.82.
D)    ≤\le≤ 99.91.
E)    ≤\le≤ 100.04. F) All of the above
G) A) and B)

Question 8

The current spot rate for the Norwegian krone is $1 = NKr6.0888. The expected inflation rate in Norway is six % and in the U.S. five %. A risk-free asset in the U.S. is yielding 7.5 %. What approximate real rate of return should you expect on a risk-free Norwegian security?

Accepted Answer

A)   2.5 %
B)   3.0 %
C)   6.5 %
D)   7.5 %
E)   8.5 %F) None of the above
G) A) and B)

Question 9

The current spot rate between Australian dollars and Canadian dollars is A$1.015 per $1. The rate on Canadian T-bills is 5% and the rate on an Australian risk-free security is 10%. What is the one-year forward rate if interest rate parity holds?

Accepted Answer

A)   A$0.9689 per $1
B)   A$1.0486 per $1
C)   A$1.0633 per $1
D)   A$1.0827 per $1
E)   A$1.1124 per $1F) A) and D)
G) None of the above

Question 10

Which of the following is the best definition of uncovered interest parity (UIP) .

Accepted Answer

A)   A call or put option that can be exercised on or before its expiration date.
B)   The condition stating that the expected percentage change in the exchange rate is equal to the difference in interest rates.
C)   The condition stating that the current forward rate is an unbiased predictor of the future exchange rate.
D)   Agreements to exchange two securities or currencies.
E)   An agreement to trade currencies based on the exchange rate today for settlement in two days.F) A) and B)
G) All of the above

Question 11

The exchange rate on a spot trade is called the _____ exchange rate.

Accepted Answer

A)   Spot.
B)   Forward.
C)   Triangle.
D)   Cross.
E)   Open.F) D) and E)
G) B) and D)

Question 12

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.F) None of the above
G) B) and E)

Question 13

The use of management fees is a method by which a foreign subsidiary can remit cash to its parent company.

Accepted Answer

A) True 
 B)False

Question 14

International Pooch is headquartered in Canada, but is considering the construction of a plant in Japan. If they use the home currency approach to calculating the NPV, they will:
1) Convert all dollar cash flows into yen;
2) Discount the cash flows at the firm's required return for Japanese denominated cash flows;
3) Compute the NPV in yen.

Accepted Answer

A) True 
 B)False

Question 15

Assume that you can buy 205 Australian dollars (A$)  with 100 United Kingdom pounds (GBP) . How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 GBD?

Accepted Answer

A)   .61 GBP
B)   .73 GBP
C)   .77 GBP
D)   .84 GBP
E)   .88 GBPF) A) and E)
G) D) and E)

Question 16

The International Fisher Effect is expressed as:

Accepted Answer

A)   E(S1)  = S0 * [1 + (hFC - hCDN) ].
B)   E(S1)  = S0 - [1 * (hFC - hCDN) ].
C)   RCDN + hCDN = RFC + hCDN.
D)   RCDN - hCDN = RFC - hCDN.
E)   RCDN * hCDN = RFC * hCDN.F) A) and B)
G) B) and D)

Question 17

Provide a definition for foreign exchange market.

Accepted Answer

The market where one...

Question 18

Suppose the direct exchange rate for the Canadian dollar and U.S. dollar is 1.11, this means that you can buy $1.11 U.S. for $1 Canadian.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is the best definition of purchasing power parity (PPP) .

Accepted Answer

A)   The exchange rate on a spot trade.
B)   The idea that the exchange rate adjusts to keep purchasing power constant among currencies.
C)   Risk related to changes in value that arise because of political actions.
D)   Large borrowers issue notes up to one year in maturity in the Euromarket. Banks underwrite or sell notes.
E)   The rate most international banks charge one another for overnight Eurodollar loans.F) A) and D)
G) A) and E)

Question 20

Which of the following is the best definition of forward exchange rate.

Accepted Answer

A)   British and Irish government securities, including issues of local British authorities and some overseas public-sector offerings.
B)   The condition stating that the interest rate differential between two countries is equal to the difference between the forward exchange rate and the spot exchange rate.
C)   The theory that real interest rates are equal across countries.
D)   Agreement to exchange currency at some time in the future.
E)   The agreed-on exchange rate to be used in a forward trade.F) C) and D)
G) A) and C)

Exam 21: International Corporate Finance

Provide a definition for foreign exchange market.

Correct Answer
verified
The market where one...
View Answer

You are expecting a payment of 800,000PLN 2 years from now. The risk-free rate of return is 4.5 % in Canada and 3 % in Poland. Currently, you can buy 323PLN for $100. How much will the payment 2 years from now be worth in Canadian dollars?

Correct Answer
verified

Spot trades must be settled:

Correct Answer
verified

Which of the following is the best definition of forward exchange rate.

Correct Answer
verified

Which of the following is the best definition of uncovered interest parity (UIP) .

Correct Answer
verified

If a commodity costs the same regardless of the currency used to purchase it or the country where it is sold, then _________________.

Correct Answer
verified

The current spot rate for the Norwegian krone is $1 = NKr6.0888. The expected inflation rate in Norway is six % and in the U.S. five %. A risk-free asset in the U.S. is yielding 7.5 %. What approximate real rate of return should you expect on a risk-free Norwegian security?

Correct Answer
verified

Today, you can exchange $1 for $\le$ .5694. Last week, $\le$ 1 was worth $1.7498. Last week, you converted $\le$ 100 into dollars. If you convert the dollars back into pounds today, you will have:

Correct Answer
verified

Suppose the direct exchange rate for the Canadian dollar and U.S. dollar is 1.11, this means that you can buy $1.11 U.S. for $1 Canadian.

Correct Answer
verified

Correct Answer
verified

The changes in the relative economic conditions between countries are referred to as the:

Correct Answer
verified

Which of the following is the best definition of purchasing power parity (PPP) .

Correct Answer
verified

The International Fisher Effect is expressed as:

Correct Answer
verified

The use of management fees is a method by which a foreign subsidiary can remit cash to its parent company.

Correct Answer
verified

The current spot rate between Australian dollars and Canadian dollars is A$1.015 per $1. The rate on Canadian T-bills is 5% and the rate on an Australian risk-free security is 10%. What is the one-year forward rate if interest rate parity holds?

Correct Answer
verified

The interest rate parity approximation formula is:

Correct Answer
verified

Assume that you can buy 205 Australian dollars (A$) with 100 United Kingdom pounds (GBP) . How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 GBD?

Correct Answer
verified

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

Correct Answer
verified

The exchange rate on a spot trade is called the _____ exchange rate.

Correct Answer
verified

Correct Answer
verified

Exam 21: International Corporate Finance

Provide a definition for foreign exchange market.

Correct AnswerverifiedThe market where one...View AnswerShow Answer

You are expecting a payment of 800,000PLN 2 years from now. The risk-free rate of return is 4.5 % in Canada and 3 % in Poland. Currently, you can buy 323PLN for $100. How much will the payment 2 years from now be worth in Canadian dollars?

Correct AnswerverifiedShow Answer

Spot trades must be settled:

Correct AnswerverifiedShow Answer

Which of the following is the best definition of forward exchange rate.

Correct AnswerverifiedShow Answer

Which of the following is the best definition of uncovered interest parity (UIP) .

Correct AnswerverifiedShow Answer

If a commodity costs the same regardless of the currency used to purchase it or the country where it is sold, then _________________.

Correct AnswerverifiedShow Answer

The current spot rate for the Norwegian krone is $1 = NKr6.0888. The expected inflation rate in Norway is six % and in the U.S. five %. A risk-free asset in the U.S. is yielding 7.5 %. What approximate real rate of return should you expect on a risk-free Norwegian security?

Correct AnswerverifiedShow Answer

Today, you can exchange $1 for ≤\le≤ .5694. Last week, ≤\le≤ 1 was worth $1.7498. Last week, you converted ≤\le≤ 100 into dollars. If you convert the dollars back into pounds today, you will have:

Correct AnswerverifiedShow Answer

Suppose the direct exchange rate for the Canadian dollar and U.S. dollar is 1.11, this means that you can buy $1.11 U.S. for $1 Canadian.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The changes in the relative economic conditions between countries are referred to as the:

Correct AnswerverifiedShow Answer

Which of the following is the best definition of purchasing power parity (PPP) .

Correct AnswerverifiedShow Answer

The International Fisher Effect is expressed as:

Correct AnswerverifiedShow Answer

The use of management fees is a method by which a foreign subsidiary can remit cash to its parent company.

Correct AnswerverifiedShow Answer

The current spot rate between Australian dollars and Canadian dollars is A$1.015 per $1. The rate on Canadian T-bills is 5% and the rate on an Australian risk-free security is 10%. What is the one-year forward rate if interest rate parity holds?

Correct AnswerverifiedShow Answer

The interest rate parity approximation formula is:

Correct AnswerverifiedShow Answer

Assume that you can buy 205 Australian dollars (A$) with 100 United Kingdom pounds (GBP) . How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 GBD?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The exchange rate on a spot trade is called the _____ exchange rate.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified
The market where one...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Today, you can exchange $1 for $\le$ .5694. Last week, $\le$ 1 was worth $1.7498. Last week, you converted $\le$ 100 into dollars. If you convert the dollars back into pounds today, you will have:

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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