Question 1

A U.S.firm has total assets valued at £318,000 located in London.This valuation did not change from last year.Last year, the exchange rate was £.61 = $1.Today, the exchange rate is £.63 = $1.By what amount did these assets change in value on the firm's U.S.financial statements?

Accepted Answer

A)  -$16,549.57
B)  -$13,511.03
C)  -$12,248.91
D)  $13,511.03
E)  $0F) C) and E)
G) A) and B)

Question 2

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Accepted Answer

A)  Change in book value when the market value of an asset remains constant
B)  Daily fluctuations in the spot rate
C)  Increases in the forward rate as the time to settlement increases
D)  Changes in relative economic conditions between two countries
E)  Unrealized foreign exchange gainsF) A) and B)
G) C) and E)

Question 3

Assume the one-year forward rate between the U.S.and Japan is ¥120.38 = $1.A one-year risk-free security in Japan is yielding 4.3 percent while it is 3.8 percent in the U.S.Assume interest rate parity exists.What is the spot rate between the U.S.and Japan?

Accepted Answer

A)  ¥120.41
B)  ¥121.08
C)  ¥119.80
D)  ¥120.94
E)  ¥119.03F) C) and E)
G) A) and E)

Question 4

Assume the exchange rate is 0.98 Swiss francs per U.S.dollar.How many U.S.dollars are needed to purchase 1,750 Swiss francs?

Accepted Answer

A)  $1,715.79
B)  $1,785.71
C)  $1,728.80
D)  $1,740.00
E)  $1,818.46F) C) and D)
G) A) and E)

Question 5

The spot rate on the Norwegian kroner is 8.49.The exchange rate one year from now is expected to be 8.53 assuming that relative interest rate parity exists.Interest rates in Norway are 2 percent.What is the interest rate in the U.S.?

Accepted Answer

A)  1.53 percent
B)  2.0 percent
C)  1.77 percent
D)  1.04 percent
E)  1.24 percentF) A) and B)
G) A) and D)

Question 6

Assume that PE is the euro price of a product, PUS is the U.S.price of the identical product, and S0 is the spot exchange rate, quoted as the amount of foreign currency per dollar.Given this, which one of the following correctly expresses absolute purchasing power parity?

Accepted Answer

A)  PUS = S0/PE
B)  PUS = S0 *PE
C)  PUS = S0 + PE
D)  PE = S0/PUS
E)  PE = S0 *PUSF) D) and E)
G) C) and D)

Question 7

Assume the exchange rates for the Canadian dollar versus the U.S.dollar are:  Which statement is correct given this information?

Accepted Answer

A)  Last week, it took C$.8759 to purchase $1.
B)  This week you can exchange C$1 for $1.1414.
C)  It is cheaper for an American to travel in Canada this week than it was last week.
D)  The Canadian dollar depreciated from last week to this week.
E)  You would have made a profit if you had invested $100 in Canadian dollars last week and then converted your money back to U.S.dollars this week.Ignore any interest earnings.F) B) and E)
G) B) and D)

Question 8

Assume a Big Mac sells for $4.39 in the United States and Ps62.5 in Mexico, what is the Ps/$ exchange rate according to the purchasing power parity theory?

Accepted Answer

A)  Ps.0702/$1
B)  Ps.0752/$1
C)  Ps13.29/$1
D)  Ps14.24/$1
E)  Ps14.32/$1F) B) and C)
G) C) and E)

Question 9

Which one of the following best describes an agreement you make today to exchange U.S.dollars for British pounds three months from now?

Accepted Answer

A)  Forward trade
B)  Spot trade
C)  Arbitrage transaction
D)  Cross-rate exchange
E)  Eurocurrency transactionF) D) and E)
G) B) and D)

Question 10

Assume the exchange rate is 1.05 Swiss francs per U.S.dollar.How many U.S.dollars are needed to purchase 1,250 Swiss francs?

Accepted Answer

A)  $1,315.79
B)  $1,190.48
C)  $1,128.80
D)  $1,140.00
E)  $1,318.46F) D) and E)
G) C) and D)

Question 11

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 1.9 percent.The expected inflation rate in the UK is 2.1 percent.If relative purchasing power parity exists, what will the exchange rate be two years from now?

Accepted Answer

A)  £.6549/$1
B)  £.6404/$1
C)  £.6417/$1
D)  £.6382/$1
E)  £.6453/$1F) A) and B)
G) B) and D)

Question 12

Assume a canned soft drink costs $1 in the U.S.and $1.30 in Canada.At the same time, the currency per U.S.dollar is C$1.30.Which one of the following conditions exists in this situation?

Accepted Answer

A)  Absolute purchasing power parity
B)  Interest rate parity
C)  Relative purchasing power parity
D)  Translation exposure
E)  Equal spot and forward ratesF) B) and E)
G) B) and D)

Question 13

You live in the U.S.and want to invest in a Chinese company, which will be referred to as "CC," because you believe its stock is uniquely positioned to be unusually profitable over the next five years.However, you do not have direct access to the Chinese financial markets.You may be able to indirectly invest in CC by purchasing a(n) :

Accepted Answer

A)  swap.
B)  American depository receipt.
C)  gilt.
D)  Bulldog bond.
E)  Samurai bond.F) C) and E)
G) B) and D)

Question 14

Which one of the following is the suggested method of handling exchange rate risk for a large, multinational firm headquartered in the U.S.? Assume the operations in each country represent a different division of the firm.

Accepted Answer

A)  At the division level
B)  At a level that combines all divisions representing a separate geographic continent
C)  At a level that combines divisions based on the currency used by each division
D)  By segregating U.S.operations and foreign operations
E)  On a centralized basis for all divisionsF) C) and D)
G) B) and E)

Question 15

Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the $1 is borrowed and S0 = spot rate; F1 = one-year forward rate; RF = foreign country risk-free rate; and RUS = U.S.risk-free rate.

Accepted Answer

A)  $1 * F1 * (1 + RF) /S0- $1 * (1 + RUS) 
B)  $1 * S0 * (1 + RF) /F1- $1 * (1 + RUS) 
C)  $1* F1* (1 + RF) /S0 + $1 * (1 + RUS) 
D)  $1* S0 * (1 + RF)  - $1 * (1 + RUS) /F1
E)  $1 * S0 * (1 + RF) /F1 + $1 * (1 + RUS) F) C) and D)
G) B) and C)

Question 16

The foreign subsidiary of a U.S.firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S.dollars.This is an example of which one of the following?

Accepted Answer

A)  Interest rate disparities
B)  Short-run exposure to exchange rate risk
C)  Long-run exposure to exchange rate risk
D)  Political risk associated with the foreign operations
E)  Translation exposure to exchange rate riskF) C) and D)
G) B) and C)

Question 17

Which term is defined as having international operations in a world where relative currency values change?

Accepted Answer

A)  Political risk
B)  Relative purchasing power parity
C)  Interest rate parity
D)  Absolute purchasing power parity
E)  Exchange rate riskF) A) and E)
G) A) and C)

Question 18

The spot rate between Canada and the U.S.is C$1.1381 = $1, while the one-year forward rate is Can$1.1407 = $1.The risk-free rate in Canada is 2.4 percent.The risk-free rate in the U.S.is 2.1 percent.How much profit can you earn on a loan of $1,000 by utilizing covered interest arbitrage?

Accepted Answer

A)  $.81
B)  $.67
C)  $.36
D)  $.49
E)  $.57F) A) and B)
G) A) and C)

Question 19

The spot rate on the Hong Kong dollar is 7.84.Interest rates in Hong Kong are expected to be 2.75 percent while they are anticipated to be 2.5 percent in the U.S.What is the expected exchange rate two years from now?

Accepted Answer

A)  HK$7.9825
B)  HK$7.1808
C)  HK$7.8792
D)  HK$8.3778
E)  HK$8.4141F) B) and C)
G) A) and D)

Question 20

You are going to London and plan on spending £5,300.How many dollars will this trip cost you if the currency per $1 is £..77?

Accepted Answer

A)  $6,875.95
B)  $6,892.16
C)  $6,883.12
D)  $6,890.01
E)  $7,044.04F) B) and E)
G) C) and D)

Exam 18: International Aspects of Financial Management

Assume the exchange rate is 0.98 Swiss francs per U.S.dollar.How many U.S.dollars are needed to purchase 1,750 Swiss francs?

Correct Answer
verified

Assume the exchange rates for the Canadian dollar versus the U.S.dollar are: Which statement is correct given this information?

Correct Answer
verified

Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the $1 is borrowed and S₀ = spot rate; F₁ = one-year forward rate; R_F = foreign country risk-free rate; and R_US = U.S.risk-free rate.

Correct Answer
verified

A U.S.firm has total assets valued at £318,000 located in London.This valuation did not change from last year.Last year, the exchange rate was £.61 = $1.Today, the exchange rate is £.63 = $1.By what amount did these assets change in value on the firm's U.S.financial statements?

Correct Answer
verified

You are going to London and plan on spending £5,300.How many dollars will this trip cost you if the currency per $1 is £..77?

Correct Answer
verified

The spot rate on the Norwegian kroner is 8.49.The exchange rate one year from now is expected to be 8.53 assuming that relative interest rate parity exists.Interest rates in Norway are 2 percent.What is the interest rate in the U.S.?

Correct Answer
verified

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Correct Answer
verified

Assume a canned soft drink costs $1 in the U.S.and $1.30 in Canada.At the same time, the currency per U.S.dollar is C$1.30.Which one of the following conditions exists in this situation?

Correct Answer
verified

Assume the exchange rate is 1.05 Swiss francs per U.S.dollar.How many U.S.dollars are needed to purchase 1,250 Swiss francs?

Correct Answer
verified

Which one of the following best describes an agreement you make today to exchange U.S.dollars for British pounds three months from now?

Correct Answer
verified

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 1.9 percent.The expected inflation rate in the UK is 2.1 percent.If relative purchasing power parity exists, what will the exchange rate be two years from now?

Correct Answer
verified

The spot rate between Canada and the U.S.is C$1.1381 = $1, while the one-year forward rate is Can$1.1407 = $1.The risk-free rate in Canada is 2.4 percent.The risk-free rate in the U.S.is 2.1 percent.How much profit can you earn on a loan of $1,000 by utilizing covered interest arbitrage?

Correct Answer
verified

Assume that P_E is the euro price of a product, P_US is the U.S.price of the identical product, and S₀ is the spot exchange rate, quoted as the amount of foreign currency per dollar.Given this, which one of the following correctly expresses absolute purchasing power parity?

Correct Answer
verified

Which term is defined as having international operations in a world where relative currency values change?

Correct Answer
verified

The spot rate on the Hong Kong dollar is 7.84.Interest rates in Hong Kong are expected to be 2.75 percent while they are anticipated to be 2.5 percent in the U.S.What is the expected exchange rate two years from now?

Correct Answer
verified

Which one of the following is the suggested method of handling exchange rate risk for a large, multinational firm headquartered in the U.S.? Assume the operations in each country represent a different division of the firm.

Correct Answer
verified

Assume a Big Mac sells for $4.39 in the United States and Ps62.5 in Mexico, what is the Ps/$ exchange rate according to the purchasing power parity theory?

Correct Answer
verified

Assume the one-year forward rate between the U.S.and Japan is ¥120.38 = $1.A one-year risk-free security in Japan is yielding 4.3 percent while it is 3.8 percent in the U.S.Assume interest rate parity exists.What is the spot rate between the U.S.and Japan?

Correct Answer
verified

The foreign subsidiary of a U.S.firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S.dollars.This is an example of which one of the following?

Correct Answer
verified

Correct Answer
verified

Exam 18: International Aspects of Financial Management

Assume the exchange rate is 0.98 Swiss francs per U.S.dollar.How many U.S.dollars are needed to purchase 1,750 Swiss francs?

Correct AnswerverifiedShow Answer

Assume the exchange rates for the Canadian dollar versus the U.S.dollar are: Which statement is correct given this information?

Correct AnswerverifiedShow Answer

Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the $1 is borrowed and S0 = spot rate; F1 = one-year forward rate; RF = foreign country risk-free rate; and RUS = U.S.risk-free rate.

Correct AnswerverifiedShow Answer

A U.S.firm has total assets valued at £318,000 located in London.This valuation did not change from last year.Last year, the exchange rate was £.61 = $1.Today, the exchange rate is £.63 = $1.By what amount did these assets change in value on the firm's U.S.financial statements?

Correct AnswerverifiedShow Answer

You are going to London and plan on spending £5,300.How many dollars will this trip cost you if the currency per $1 is £..77?

Correct AnswerverifiedShow Answer

The spot rate on the Norwegian kroner is 8.49.The exchange rate one year from now is expected to be 8.53 assuming that relative interest rate parity exists.Interest rates in Norway are 2 percent.What is the interest rate in the U.S.?

Correct AnswerverifiedShow Answer

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Correct AnswerverifiedShow Answer

Assume a canned soft drink costs $1 in the U.S.and $1.30 in Canada.At the same time, the currency per U.S.dollar is C$1.30.Which one of the following conditions exists in this situation?

Correct AnswerverifiedShow Answer

Assume the exchange rate is 1.05 Swiss francs per U.S.dollar.How many U.S.dollars are needed to purchase 1,250 Swiss francs?

Correct AnswerverifiedShow Answer

Which one of the following best describes an agreement you make today to exchange U.S.dollars for British pounds three months from now?

Correct AnswerverifiedShow Answer

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 1.9 percent.The expected inflation rate in the UK is 2.1 percent.If relative purchasing power parity exists, what will the exchange rate be two years from now?

Correct AnswerverifiedShow Answer

The spot rate between Canada and the U.S.is C$1.1381 = $1, while the one-year forward rate is Can$1.1407 = $1.The risk-free rate in Canada is 2.4 percent.The risk-free rate in the U.S.is 2.1 percent.How much profit can you earn on a loan of $1,000 by utilizing covered interest arbitrage?

Correct AnswerverifiedShow Answer

Assume that PE is the euro price of a product, PUS is the U.S.price of the identical product, and S0 is the spot exchange rate, quoted as the amount of foreign currency per dollar.Given this, which one of the following correctly expresses absolute purchasing power parity?

Correct AnswerverifiedShow Answer

Which term is defined as having international operations in a world where relative currency values change?

Correct AnswerverifiedShow Answer

The spot rate on the Hong Kong dollar is 7.84.Interest rates in Hong Kong are expected to be 2.75 percent while they are anticipated to be 2.5 percent in the U.S.What is the expected exchange rate two years from now?

Correct AnswerverifiedShow Answer

Which one of the following is the suggested method of handling exchange rate risk for a large, multinational firm headquartered in the U.S.? Assume the operations in each country represent a different division of the firm.

Correct AnswerverifiedShow Answer

Assume a Big Mac sells for $4.39 in the United States and Ps62.5 in Mexico, what is the Ps/$ exchange rate according to the purchasing power parity theory?

Correct AnswerverifiedShow Answer

Assume the one-year forward rate between the U.S.and Japan is ¥120.38 = $1.A one-year risk-free security in Japan is yielding 4.3 percent while it is 3.8 percent in the U.S.Assume interest rate parity exists.What is the spot rate between the U.S.and Japan?

Correct AnswerverifiedShow Answer

The foreign subsidiary of a U.S.firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S.dollars.This is an example of which one of the following?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the $1 is borrowed and S₀ = spot rate; F₁ = one-year forward rate; R_F = foreign country risk-free rate; and R_US = U.S.risk-free rate.

Correct Answer
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Assume that P_E is the euro price of a product, P_US is the U.S.price of the identical product, and S₀ is the spot exchange rate, quoted as the amount of foreign currency per dollar.Given this, which one of the following correctly expresses absolute purchasing power parity?

Correct Answer
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