Question 1

Currently, you can exchange $1 for 100.37 yen or €0.7538 in New York. In Tokyo, the exchange rate is ¥1 = €0.0077. If you have $1,000, how much profit can you earn using triangle arbitrage?

Accepted Answer

A)   $18.08
B)   $25.27
C)   $27.91
D)   $32.50
E)   $33.14F) A) and E)
G) A) and C)

Question 2

Which one of the following occurs when interest rate parity exists between countries A and B?

Accepted Answer

A)   Country A investors are indifferent between risk-free investments in countries A and B
B)   Forward exchange rates for countries A and B must be equal for all time periods
C)   Risk-free interest rates in countries A and B must be equal
D)   Spot and forward exchange rates between the currencies of the two countries must be equal
E)   Significant covered interest arbitrage opportunities between currencies A and B must existF) A) and E)
G) B) and C)

Question 3

The spot rate on the Canadian dollar is 1.23. Interest rates in Canada are expected to average 4.2 percent while they are anticipated to be 3.3 percent in the U.S. What is the expected exchange rate three years from now?

Accepted Answer

A)   C$1.2760
B)   C$1.2635
C)   C$1.2483
D)   C$1.2108
E)   C$1.1971F) B) and E)
G) A) and B)

Question 4

The current spot rate between the U.K. and the U.S. is £0.6789 per $1. The expected inflation rate in the U.S. is 2.1 percent. The expected inflation rate in the U.K. is 2.6 percent. If relative purchasing power parity exists, what will the exchange rate be next year?

Accepted Answer

A)   £0.6755/$1
B)   £0.6410/$1
C)   £0.6823/$1
D)   £0.7023/$1
E)   £0.7110/$1F) C) and D)
G) A) and D)

Question 5

Which one of the following is the best definition of Eurocurrency?

Accepted Answer

A)   Any paper money used by a country that has adopted the euro as its common currency
B)   Money deposited in a financial institution outside of the country whose currency is involved
C)   Both paper and coins officially adopted under the euro system of coinage
D)   U.S. dollars owned by any country which has adopted the euro as its currency
E)   Any exchange of funds between two countries that have adopted the euro as their official currencyF) A) and D)
G) B) and C)

Question 6

Your favorite running shoes cost $89 in the U.S. while the identical shoes cost C$114.50 in Canada. According to purchasing power parity, what is the C$/$ exchange rate?

Accepted Answer

A)   C$0.7773/$1
B)   C$0.8426/$1
C)   C$0.9108/$1
D)   C$1.2865/$1
E)   C$1.3305/$1F) A) and B)
G) A) and C)

Question 7

Which one of the following is the best universal definition of an exchange rate?

Accepted Answer

A)   Price of one country's currency expressed in terms of another country's currency
B)   Number of foreign dollars that can be purchased for every one U.S. dollar paid
C)   Price of a country's currency expressed in terms of that country's currency unit
D)   Number of units of a currency that were originally required to obtain one euro when a country adopted the euro as its official currency
E)   Price which must be paid to obtain a good or service from another countryF) All of the above
G) C) and E)

Question 8

If you have three thousand euros, how many dollars do you have given the following exchange rates?

Accepted Answer

A)   $2,261.42
B)   $2,608.14
C)   $3,211.09
D)   $3,979.80
E)   $4,216.50F) B) and D)
G) C) and E)

Question 9

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Accepted Answer

A)   difference in the risk-free interest rates in the two countries
B)   average interest rate in the two countries
C)   average inflation rate of the two countries
D)   difference in the inflation rates of the two countries
E)   difference between the two countries' average inflation and interest ratesF) B) and E)
G) A) and B)

Question 10

Suppose the spot exchange rate for the Canadian dollar is Can$1.19 and the six-month forward rate is Can$1.16. Assuming absolute PPP holds, what is the current cost in the United States of a beer if the price in Canada is Can$2.95?

Accepted Answer

A)   $2.48
B)   $2.54
C)   $2.95
D)   $3.42
E)   $3.51F) B) and D)
G) A) and B)

Question 11

An agreement to exchange currencies some time in the future is referred to as which one of the following?

Accepted Answer

A)   Forward trade
B)   Hedge
C)   Gilt
D)   Forward exchange rate
E)   Spot tradeF) A) and E)
G) C) and D)

Question 12

Suppose you could buy 1,320 South Korea won or 78 Pakistan rupees last year for $1. Today, $1 will buy you 1,318 won or 80 rupees. Which one of the following occurred over the past year?

Accepted Answer

A)   The dollar appreciated against the won.
B)   The dollar depreciated against the rupee.
C)   The dollar appreciated against both the won and the rupee.
D)   The won depreciated against the dollar.
E)   The rupee depreciated against the dollar.F) C) and D)
G) None of the above

Question 13

Currently, you can exchange €100 for $132.66. The inflation rate in Euroland is expected to be 3.1 percent as compared to 3.6 percent in the U.S. Assuming that relative purchasing power parity exists, what should the exchange rate be 5 years from now?

Accepted Answer

A)   €.7298/$1
B)   €.7351/$1
C)   €.7367/$1
D)   €.7405/$1
E)   €.7423/$1F) B) and E)
G) C) and D)

Question 14

Which one of the following is an example of the political risks associated with foreign operations?

Accepted Answer

A)   Technological changes
B)   Exchange rate fluctuations
C)   Translation exposure to exchange rate risk
D)   Changes in foreign tax laws
E)   Changes in relative wage rates between the home country and the foreign countryF) B) and E)
G) B) and C)

Question 15

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 which one of the following?

Accepted Answer

A)   Swap
B)   ADR
C)   Gilt
D)   Bulldog bond
E)   Samurai bondF) A) and E)
G) A) and B)

Question 16

Which one of the following terms is used to identify the concept that exchange rates vary to keep purchasing power constant among currencies?

Accepted Answer

A)   Exchange rate equilibrium
B)   Exchange rate parity
C)   Universal parity
D)   Market equilibrium
E)   Purchasing power parityF) B) and D)
G) None of the above

Question 17

The spot rate between Canada and the U.S. is C$1.2381 = $1, while the 1-year forward rate is C$1.2379 = $1. The risk-free rate in Canada is 2.8 percent. The risk-free rate in the U.S. is 3.6 percent. How much profit can you earn on a loan of $10,000 by utilizing covered interest arbitrage?

Accepted Answer

A)   -$81.42
B)   -$78.34
C)   -$53.60
D)   $34.91
E)   $65.07F) B) and D)
G) C) and D)

Question 18

35. Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the  is borrowed and  =  spot rate;  =  one-year forward rate;  =  foreign country risk-free rate; and  risk-free rate.

Accepted Answer

A)   
B)   
C)   
D)   
E)  F) B) and D)
G) A) and E)

Question 19

You are given the following exchange rates for the Canadian dollar versus the U.S. dollar:  Which one of the following statements is correct given this information?

Accepted Answer

A)   Last week, it took C$0.8078 to purchase US$1.
B)   This week you can exchange one Canadian dollar for $1.2376 American.
C)   It is cheaper for an American to travel in Canada this week as compared to last week.
D)   The Canadian dollar depreciated from last week to this week.
E)   You would have made a profit if you invested U.S. $100 in Canadian dollars last week and then converted your money back to U.S. dollars this week. Ignore any interest earnings.F) C) and D)
G) B) and E)

Question 20

Which one of the following is the rate that most international banks charge when they loan Eurodollars to other banks?

Accepted Answer

A)   ADR
B)   LIBOR
C)   Cross rate
D)   Gilt rate
E)   Swap rateF) C) and E)
G) B) and D)

Exam 18: International Aspects of Financial Management

Which one of the following is an example of the political risks associated with foreign operations?

Correct Answer
verified

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Correct Answer
verified

35. Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the is borrowed and = spot rate; = one-year forward rate; = foreign country risk-free rate; and risk-free rate.

Correct Answer
verified

The current spot rate between the U.K. and the U.S. is £0.6789 per $1. The expected inflation rate in the U.S. is 2.1 percent. The expected inflation rate in the U.K. is 2.6 percent. If relative purchasing power parity exists, what will the exchange rate be next year?

Correct Answer
verified

Suppose you could buy 1,320 South Korea won or 78 Pakistan rupees last year for $1. Today, $1 will buy you 1,318 won or 80 rupees. Which one of the following occurred over the past year?

Correct Answer
verified

You are given the following exchange rates for the Canadian dollar versus the U.S. dollar: Which one of the following statements is correct given this information?

Correct Answer
verified

Correct Answer
verified

Which one of the following terms is used to identify the concept that exchange rates vary to keep purchasing power constant among currencies?

Correct Answer
verified

Currently, you can exchange $1 for 100.37 yen or €0.7538 in New York. In Tokyo, the exchange rate is ¥1 = €0.0077. If you have $1,000, how much profit can you earn using triangle arbitrage?

Correct Answer
verified

Which one of the following is the best definition of Eurocurrency?

Correct Answer
verified

Your favorite running shoes cost $89 in the U.S. while the identical shoes cost C$114.50 in Canada. According to purchasing power parity, what is the C$/$ exchange rate?

Correct Answer
verified

The spot rate on the Canadian dollar is 1.23. Interest rates in Canada are expected to average 4.2 percent while they are anticipated to be 3.3 percent in the U.S. What is the expected exchange rate three years from now?

Correct Answer
verified

If you have three thousand euros, how many dollars do you have given the following exchange rates?

Correct Answer
verified

Which one of the following is the best universal definition of an exchange rate?

Correct Answer
verified

Which one of the following occurs when interest rate parity exists between countries A and B?

Correct Answer
verified

The spot rate between Canada and the U.S. is C$1.2381 = $1, while the 1-year forward rate is C$1.2379 = $1. The risk-free rate in Canada is 2.8 percent. The risk-free rate in the U.S. is 3.6 percent. How much profit can you earn on a loan of $10,000 by utilizing covered interest arbitrage?

Correct Answer
verified

Currently, you can exchange €100 for $132.66. The inflation rate in Euroland is expected to be 3.1 percent as compared to 3.6 percent in the U.S. Assuming that relative purchasing power parity exists, what should the exchange rate be 5 years from now?

Correct Answer
verified

An agreement to exchange currencies some time in the future is referred to as which one of the following?

Correct Answer
verified

Suppose the spot exchange rate for the Canadian dollar is Can$1.19 and the six-month forward rate is Can$1.16. Assuming absolute PPP holds, what is the current cost in the United States of a beer if the price in Canada is Can$2.95?

Correct Answer
verified

Which one of the following is the rate that most international banks charge when they loan Eurodollars to other banks?

Correct Answer
verified

Exam 18: International Aspects of Financial Management

Which one of the following is an example of the political risks associated with foreign operations?

Correct AnswerverifiedShow Answer

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Correct AnswerverifiedShow Answer

35. Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the is borrowed and = spot rate; = one-year forward rate; = foreign country risk-free rate; and risk-free rate.

Correct AnswerverifiedShow Answer

The current spot rate between the U.K. and the U.S. is £0.6789 per $1. The expected inflation rate in the U.S. is 2.1 percent. The expected inflation rate in the U.K. is 2.6 percent. If relative purchasing power parity exists, what will the exchange rate be next year?

Correct AnswerverifiedShow Answer

Suppose you could buy 1,320 South Korea won or 78 Pakistan rupees last year for $1. Today, $1 will buy you 1,318 won or 80 rupees. Which one of the following occurred over the past year?

Correct AnswerverifiedShow Answer

You are given the following exchange rates for the Canadian dollar versus the U.S. dollar: Which one of the following statements is correct given this information?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following terms is used to identify the concept that exchange rates vary to keep purchasing power constant among currencies?

Correct AnswerverifiedShow Answer

Currently, you can exchange $1 for 100.37 yen or €0.7538 in New York. In Tokyo, the exchange rate is ¥1 = €0.0077. If you have $1,000, how much profit can you earn using triangle arbitrage?

Correct AnswerverifiedShow Answer

Which one of the following is the best definition of Eurocurrency?

Correct AnswerverifiedShow Answer

Your favorite running shoes cost $89 in the U.S. while the identical shoes cost C$114.50 in Canada. According to purchasing power parity, what is the C$/$ exchange rate?

Correct AnswerverifiedShow Answer

The spot rate on the Canadian dollar is 1.23. Interest rates in Canada are expected to average 4.2 percent while they are anticipated to be 3.3 percent in the U.S. What is the expected exchange rate three years from now?

Correct AnswerverifiedShow Answer

If you have three thousand euros, how many dollars do you have given the following exchange rates?

Correct AnswerverifiedShow Answer

Which one of the following is the best universal definition of an exchange rate?

Correct AnswerverifiedShow Answer

Which one of the following occurs when interest rate parity exists between countries A and B?

Correct AnswerverifiedShow Answer

The spot rate between Canada and the U.S. is C$1.2381 = $1, while the 1-year forward rate is C$1.2379 = $1. The risk-free rate in Canada is 2.8 percent. The risk-free rate in the U.S. is 3.6 percent. How much profit can you earn on a loan of $10,000 by utilizing covered interest arbitrage?

Correct AnswerverifiedShow Answer

Currently, you can exchange €100 for $132.66. The inflation rate in Euroland is expected to be 3.1 percent as compared to 3.6 percent in the U.S. Assuming that relative purchasing power parity exists, what should the exchange rate be 5 years from now?

Correct AnswerverifiedShow Answer

An agreement to exchange currencies some time in the future is referred to as which one of the following?

Correct AnswerverifiedShow Answer

Suppose the spot exchange rate for the Canadian dollar is Can$1.19 and the six-month forward rate is Can$1.16. Assuming absolute PPP holds, what is the current cost in the United States of a beer if the price in Canada is Can$2.95?

Correct AnswerverifiedShow Answer

Which one of the following is the rate that most international banks charge when they loan Eurodollars to other banks?

Correct AnswerverifiedShow Answer

Correct Answer
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