Question 1

Suppose that the one-year forward rate on pounds is $1.75£.Given no arbitrage opportunities,this implies that traders expect:

Accepted Answer

A)   the spot rate to be $1.75£ in one year.
B)   the spot rate to be greater than $1.75£ in one year.
C)   the spot rate to be less than $1.75£ in one year.
D)   the spot rate to be greater than or equal to $1.75£ in one year.
E)   the spot rate to be less than or equal to $1.75£ in one year.F) C) and D)
G) A) and E)

Question 2

The direct rate exchange for D-marks is .56.The indirect exchange rate for pounds is .61.If there is no triangle arbitrage,how many pounds does it take to buy a D-mark?

Accepted Answer

A)   0.340.
B)   3.400.
C)   0.920.
D)   1.090.E) A) and D)
F) A) and B) A

Question 3

The European Currency Unit (ECU) is (a) :

Accepted Answer

A)   measure of how well the European Community keeps up with the times.
B)   basket of 30 European currencies.
C)   money on deposit in financial centers outside the country whose currency is involved.
D)   the nickname for NATO troops from Europe.E) A) and C)
F) C) and D)

Question 4

Suppose that the Greer Company knows that it must pay £7 million for goods that it will receive in England.The current exchange rate is $1.75£.The risk that the corporate Treasurer faces is that:

Accepted Answer

A)   the pound exchange rate falls in a month's time to $1.50£.
B)   the pound exchange rate rises in a month's time to $2.00£.
C)   the pound exchange rate does not change from its current position.
D)   the pound exchange rate falls in a month's time to $1.25£.E) C) and D)
F) A) and B)

Question 5

"A commodity costs the same regardless of what currency is used to purchase it." This is a statement of:

Accepted Answer

A)   the law of one price (LOP) .
B)   relative purchasing power parity (RPPP) .
C)   the first principle of international finance.
D)   the conservation of currency value.E) B) and C)
F) A) and B)

Question 6

What kind of trade involves agreeing today on an exchange rate for settlement in future?

Accepted Answer

A)   Spot trade.
B)   Futures trade.
C)   Forward trade.
D)   Triangle trade.E) B) and C)
F) C) and D)

Question 7

In foreign exchange markets the swap rate is:

Accepted Answer

A)   the volume of currency traded in a day.
B)   the rate of profit made on any transaction.
C)   the nightlife of the stereotypical Frenchman.
D)   the difference in the foreign exchange rates on a roundtrip agreement to buy and sell a currency.E) A) and B)
F) All of the above

Question 8

The Deutschemark is currently selling for .72 U.S.dollars and also for .87 Canadian dollars.If you determined the rate of exchange between U.S.and Canadian dollars from this information you would have calculated:

Accepted Answer

A)   the ECU value.
B)   interest rate parity.
C)   the cross rate.
D)   the indirect rate.E) A) and B)
F) All of the above

Question 9

The inflation rates in the U.S.and Canada are predicted to be 3 and 5%,respectively,in the coming year.The exchange rate is currently 1.44 Canadian dollars for 1 U.S.dollars.Assuming RPPP holds,how many U.S.dollars will it take to buy 1 Canadian dollar at the end of the year? What will it cost to buy a U.S.dollar?

Accepted Answer

[1.03/1.05] = [S_CD (1 ...

Question 10

The U.S.inflation rate for the coming year is 2%.The German inflation rate for the coming year is 42%.You can buy 1.7 D-marks with 1 U.S.dollar today.Based on relative purchase power parity,how many D-marks will you be able to buy with 1 dollar in 1 year?

Accepted Answer

(1 + π_US)S_DM (1 + t)
(1 ...

Question 11

How many euros can you get for $2,500 given the following exchange rates?

Accepted Answer

A)   €2,306
B)   €2,357
C)   €2,451
D)   €2,652
E)   €2,675F) A) and C)
G) A) and B)

Question 12

If financial markets are segmented,and if firms in the U.S.are not subject to the same barriers of international investment,then this could lead to _____ risk premiums on international projects.

Accepted Answer

A)   higher
B)   zero
C)   negative
D)   lower
E)   infiniteF) C) and D)
G) A) and D)

Question 13

When the German mark is quoted as 1.923 marks this quote is a(n) :

Accepted Answer

A)   indirect rate.
B)   direct rate.
C)   cross rate.
D)   triangular rate.E) A) and B)
F) None of the above

Question 14

The forward rate market is dependent upon:

Accepted Answer

A)   current forward rates exceeding current spot rates.
B)   current spot rates exceeding current forward rates over time.
C)   current spot rates equaling current forward rates on average over time.
D)   forward rates equaling the actual future spot rates on average over time.E) A) and B)
F) A) and C) D

Question 15

The 90-day risk-free rate in the U.S.is 3%.The spot exchange rate between the U.S.and Japan is 1 dollar for 133 yen.The 90-day forward exchange rate is 1 dollar for 135 yen.What is the Japanese 90-day risk-free rate?

Accepted Answer

[1.03/X] = [135/133]...

Question 16

Suppose the spot exchange rate is 2 U.S.dollars per British pound.The forward exchange rate is 1.9 dollars per pound.Which of the following is true?

Accepted Answer

A)   The U.S. inflation rate is higher.
B)   The pound is selling at a premium.
C)   The pound is selling at a discount.
D)   U.S. interest rates are lower.E) B) and C)
F) A) and D)

Question 17

You want to invest in a riskless project in Sweden.The project has an initial cost of SKr2.1 million and is expected to produce cash inflows of SKr810,000 a year for 3 years.The project will be worthless after the first 3 years.The expected inflation rate in Sweden is 2 percent while it is 5 percent in the U.S.A risk-free security is paying 6 percent in the U.S.The current spot rate is $1 = SKr7.55.What is the net present value of this project in Swedish krona using the foreign currency approach? Assume that the international Fisher effect applies.

Accepted Answer

A)   SKr185,607
B)   SKr192,434
C)   SKr196,910
D)   SKr197,867
E)   SKr202,818F) B) and C)
G) C) and E) B

Question 18

Dollar-denominated bonds issued in several European countries by a U.S.company are called:

Accepted Answer

A)   Eurobonds.
B)   American Depository Bonds (ADBs) .
C)   Foreign bonds.
D)   European Original Issue (EOI)  bonds.E) A) and B)
F) A) and C)

Question 19

The acronym LIBOR stands for:

Accepted Answer

A)   London Interbank Offered Rate.
B)   Lending Institution Bank Receipt.
C)   Leading Indicator Borrowing Rate.
D)   Loan Interest Bank Order Receipt.E) A) and C)
F) A) and B)

Question 20

The cross rate is the:

Accepted Answer

A)   exchange rate between the US dollar and other currency.
B)   exchange rate between two currencies generally other than the US dollar.
C)   rate converting the direct rate into the indirect rate.
D)   the attitude of the agent at the exchange kiosk.E) All of the above
F) A) and B)

Exam 32: International Corporate Finance

Suppose that the one-year forward rate on pounds is $1.75£.Given no arbitrage opportunities,this implies that traders expect:

Correct Answer
verified

The direct rate exchange for D-marks is .56.The indirect exchange rate for pounds is .61.If there is no triangle arbitrage,how many pounds does it take to buy a D-mark?

Correct Answer
verified
A

The European Currency Unit (ECU) is (a) :

Correct Answer
verified

Suppose that the Greer Company knows that it must pay £7 million for goods that it will receive in England.The current exchange rate is $1.75£.The risk that the corporate Treasurer faces is that:

Correct Answer
verified

"A commodity costs the same regardless of what currency is used to purchase it." This is a statement of:

Correct Answer
verified

What kind of trade involves agreeing today on an exchange rate for settlement in future?

Correct Answer
verified

In foreign exchange markets the swap rate is:

Correct Answer
verified

The Deutschemark is currently selling for .72 U.S.dollars and also for .87 Canadian dollars.If you determined the rate of exchange between U.S.and Canadian dollars from this information you would have calculated:

Correct Answer
verified

Correct Answer
verified
[1.03/1.05] = [S_CD (1 ...
View Answer

The U.S.inflation rate for the coming year is 2%.The German inflation rate for the coming year is 42%.You can buy 1.7 D-marks with 1 U.S.dollar today.Based on relative purchase power parity,how many D-marks will you be able to buy with 1 dollar in 1 year?

Correct Answer
verified
(1 + π_US)S_DM (1 + t)
(1 ...
View Answer

How many euros can you get for $2,500 given the following exchange rates?

Correct Answer
verified

If financial markets are segmented,and if firms in the U.S.are not subject to the same barriers of international investment,then this could lead to _____ risk premiums on international projects.

Correct Answer
verified

When the German mark is quoted as 1.923 marks this quote is a(n) :

Correct Answer
verified

The forward rate market is dependent upon:

Correct Answer
verified
D

The 90-day risk-free rate in the U.S.is 3%.The spot exchange rate between the U.S.and Japan is 1 dollar for 133 yen.The 90-day forward exchange rate is 1 dollar for 135 yen.What is the Japanese 90-day risk-free rate?

Correct Answer
verified
[1.03/X] = [135/133]...
View Answer

Suppose the spot exchange rate is 2 U.S.dollars per British pound.The forward exchange rate is 1.9 dollars per pound.Which of the following is true?

Correct Answer
verified

Correct Answer
verified
B

Dollar-denominated bonds issued in several European countries by a U.S.company are called:

Correct Answer
verified

The acronym LIBOR stands for:

Correct Answer
verified

The cross rate is the:

Correct Answer
verified

Exam 32: International Corporate Finance

Suppose that the one-year forward rate on pounds is $1.75£.Given no arbitrage opportunities,this implies that traders expect:

Correct AnswerverifiedShow Answer

The direct rate exchange for D-marks is .56.The indirect exchange rate for pounds is .61.If there is no triangle arbitrage,how many pounds does it take to buy a D-mark?

Correct AnswerverifiedA

The European Currency Unit (ECU) is (a) :

Correct AnswerverifiedShow Answer

Suppose that the Greer Company knows that it must pay £7 million for goods that it will receive in England.The current exchange rate is $1.75£.The risk that the corporate Treasurer faces is that:

Correct AnswerverifiedShow Answer

"A commodity costs the same regardless of what currency is used to purchase it." This is a statement of:

Correct AnswerverifiedShow Answer

What kind of trade involves agreeing today on an exchange rate for settlement in future?

Correct AnswerverifiedShow Answer

In foreign exchange markets the swap rate is:

Correct AnswerverifiedShow Answer

The Deutschemark is currently selling for .72 U.S.dollars and also for .87 Canadian dollars.If you determined the rate of exchange between U.S.and Canadian dollars from this information you would have calculated:

Correct AnswerverifiedShow Answer

Correct Answerverified[1.03/1.05] = [SCD (1 ...View AnswerShow Answer

The U.S.inflation rate for the coming year is 2%.The German inflation rate for the coming year is 42%.You can buy 1.7 D-marks with 1 U.S.dollar today.Based on relative purchase power parity,how many D-marks will you be able to buy with 1 dollar in 1 year?

Correct Answerverified(1 + πUS)SDM (1 + t)(1 ...View AnswerShow Answer

How many euros can you get for $2,500 given the following exchange rates?

Correct AnswerverifiedShow Answer

If financial markets are segmented,and if firms in the U.S.are not subject to the same barriers of international investment,then this could lead to _____ risk premiums on international projects.

Correct AnswerverifiedShow Answer

When the German mark is quoted as 1.923 marks this quote is a(n) :

Correct AnswerverifiedShow Answer

The forward rate market is dependent upon:

Correct AnswerverifiedD

The 90-day risk-free rate in the U.S.is 3%.The spot exchange rate between the U.S.and Japan is 1 dollar for 133 yen.The 90-day forward exchange rate is 1 dollar for 135 yen.What is the Japanese 90-day risk-free rate?

Correct Answerverified[1.03/X] = [135/133]...View AnswerShow Answer

Suppose the spot exchange rate is 2 U.S.dollars per British pound.The forward exchange rate is 1.9 dollars per pound.Which of the following is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Dollar-denominated bonds issued in several European countries by a U.S.company are called:

Correct AnswerverifiedShow Answer

The acronym LIBOR stands for:

Correct AnswerverifiedShow Answer

The cross rate is the:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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A

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

Correct Answer
verified

Correct Answer
verified
[1.03/1.05] = [S_CD (1 ...
View Answer

Correct Answer
verified
(1 + π_US)S_DM (1 + t)
(1 ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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[1.03/X] = [135/133]...
View Answer

Correct Answer
verified

Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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