Question 1

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

Accepted Answer

A)  The U.S.inflation rate is lower than the U.K.inflation rate.
B)  The U.K.pound is selling at a premium.
C)  The U.K.pound is selling at a discount.
D)  U.S.interest rates are lower than U.S.interest rates.
E)  The U.S.dollar is expected to depreciate.F) A) and B)
G) B) and D)

Question 2

Assume the inflation rate in the U.S.is 3.6 percent.The spot rate for a foreign currency is 5.872 while the 3-year forward rate is 6.084.What is the approximate rate of inflation in the foreign country?

Accepted Answer

A)  4.68%
B)  2.37%
C)  2.42%
D)  2.41%
E)  4.79%F) A) and B)
G) A) and C)

Question 3

You want to import $50,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01819?

Accepted Answer

A)  2,748,763.06RS
B)  2,803,006.47RS
C)  2,821,048.19RS
D)  1,002.18RS
E)  909.50RSF) A) and D)
G) None of the above

Question 4

Interest rate parity:

Accepted Answer

A)  eliminates exchange rate fluctuations.
B)  exists when spot rates are equal for multiple countries.
C)  exists when the spot rate is equal to the forward rate.
D)  means that the nominal risk-free rate of return must be the same across countries.
E)  eliminates covered interest arbitrage opportunities.F) A) and B)
G) B) and E)

Question 5

You are planning a trip to Australia.The hotel will cost you A$160 per night for seven nights.You expect to spend another A$2,500 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 1.0503?

Accepted Answer

A)  $3,446.63
B)  $2,961.85
C)  $2,532.61
D)  $3,668.14
E)  $3,802.09F) B) and D)
G) A) and E)

Question 6

Assume the spot exchange rate is £.6229.The expected inflation rate in the U.K.is 3.8 percent and in the U.S.it is 2.9 percent.What is the expected exchange rate three years from now if relative purchasing power parity exists?

Accepted Answer

A)  £.5391
B)  £.6399
C)  £.6062
D)  £.6285
E)  £.6233F) B) and D)
G) A) and B)

Question 7

Assume the current spot rate is C$1.0135 and the 1-year forward rate is C$1.0132.The nominal risk-free rate in Canada is 2.5 percent while it is 2 percent in the U.S.Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.for one year.

Accepted Answer

A)  $.0142
B)  $.0033
C)  $.0053
D)  $.0154
E)  $.0047F) A) and E)
G) B) and D)

Question 8

Which one of these combinations of country,currency,and currency symbol is incorrect?

Accepted Answer

A)  Mexico,peso,Ps
B)  Japan,yen,¥
C)  United Kingdom,pound,£
D)  Saudi Arabia,riyal,Ry
E)  EMU,euro,€F) B) and C)
G) None of the above

Question 9

Which one of these statements is correct?

Accepted Answer

A)  Relative purchasing power parity says that the expected spot rate one year from now is equal to the current spot rate multiplied by (1 + U.S.inflation rate - Foreign inflation rate) .
B)  The interest rate parity formula is based on real rates of interest.
C)  An indirect quote is the number of dollars required to purchase one unit of a foreign currency.
D)  Uncovered interest parity is a combination of the unbiased forward rate and interest rate parity.
E)  If the euro per dollar is more expensive in the forward market than in the spot market,the euro is selling at a discount.F) A) and E)
G) A) and D)

Question 10

A coffee mug that suits your style costs $5.98 in the U.S.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 1.013?

Accepted Answer

A)  C$6.06
B)  C$5.99
C)  C$6.08
D)  C$5.90
E)  C$5.92F) A) and B)
G) A) and C)

Question 11

You want to invest in a riskless project in London.The project has an initial cost of £50,000 and is expected to produce cash inflows of £28,000 a year for two years.The project will be worthless after two years.The expected inflation rate in the U.K.is 2.2 percent while it is 2.6 percent in the U.S.A risk-free security is paying 3.9 percent in the U.S.The current spot rate is $1 = £.63.What is the net present value of this project in U.S.dollars? Use the foreign currency approach.

Accepted Answer

A)  $5,065.78
B)  $3,587.74
C)  $2,010.61
D)  $5,211.18
E)  $6,998.04F) A) and B)
G) B) and E)

Question 12

Assume the spot exchange rate is 6.22 Chinese yuan per U.S.dollar.If the inflation rate in China is expected to be double that in the U.S.for the next two years,then the:

Accepted Answer

A)  exchange rate will decrease.
B)  exchange rate will double.
C)  yuan will appreciate relative to the dollar.
D)  yuan will become more valuable.
E)  dollar will strengthen against the yuan.F) A) and B)
G) All of the above

Question 13

What does LIBOR stand for?

Accepted Answer

A)  London Interest Bearing Orderly Rate
B)  Lisbon Interest Bearing Organization Rate
C)  Liberal Interest Bearing Offer Rate
D)  Lisbon International Bank Offering Rate
E)  London Interbank Offer RateF) C) and D)
G) B) and D)

Question 14

How well do you think relative purchasing power parity and uncovered interest parity behave? That is,do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?

Accepted Answer

Each of the variables in these equations...

Question 15

Which one of these must be true if absolute purchasing power parity is to absolutely hold?

Accepted Answer

A)  Customer preferences for an item must be identical across markets.
B)  There must be greater demand for the item in one area as compared to another area.
C)  Forward rates must equal spot rates.
D)  The goods traded must have a feature unique to each individual market.
E)  Transaction costs must be imposed on both ends of a trade.F) None of the above
G) All of the above

Question 16

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

Question 17

An international firm that imports raw materials can reduce its _____ exposure to _______ rate risk by entering into a forward contract.

Accepted Answer

A)  short-term;inflation
B)  long-term;inflation
C)  total;interest
D)  short-run;exchange
E)  long-run;exchangeF) B) and D)
G) A) and E)

Question 18

A fancy new coat costs SKr1,559.90.You can exchange SKr1 for $.1524 and €1 for $1.3026.How much will the identical coat cost in euros if absolute purchasing power parity exists?

Accepted Answer

A)  €182.50
B)  €144.88
C)  €78.58
D)  €211.99
E)  €133.33F) B) and E)
G) B) and C)

Question 19

Assume that $1 can buy you either ¥108 or £.55.If a TV in London costs £555,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Accepted Answer

A)  ¥35,255.45
B)  ¥32,967.00
C)  ¥97,273.33
D)  ¥98,008.18
E)  ¥108,981.82F) All of the above
G) A) and E)

Question 20

Which one of these statements related to the foreign exchange market is correct?

Accepted Answer

A)  Currency trading floors are operated by the central bank of each country.
B)  The primary currency trading floor is located in London.
C)  The foreign exchange market is second in size as a financial market only to the New York Stock Exchange.
D)  Currency trading floors are located in all the major financial centers of the world and operated by commercial banks.
E)  SWIFT is a means of handling foreign currency transactions that is sponsored by a Belgian cooperative.F) B) and D)
G) A) and B)

Exam 20: International Corporate Finance

Interest rate parity:

Correct Answer
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Which one of these statements related to the foreign exchange market is correct?

Correct Answer
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Correct Answer
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Correct Answer
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Assume the spot exchange rate is 6.22 Chinese yuan per U.S.dollar.If the inflation rate in China is expected to be double that in the U.S.for the next two years,then the:

Correct Answer
verified

Assume that $1 can buy you either ¥108 or £.55.If a TV in London costs £555,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Correct Answer
verified

Assume the inflation rate in the U.S.is 3.6 percent.The spot rate for a foreign currency is 5.872 while the 3-year forward rate is 6.084.What is the approximate rate of inflation in the foreign country?

Correct Answer
verified

Which one of these combinations of country,currency,and currency symbol is incorrect?

Correct Answer
verified

You are planning a trip to Australia.The hotel will cost you A$160 per night for seven nights.You expect to spend another A$2,500 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 1.0503?

Correct Answer
verified

What does LIBOR stand for?

Correct Answer
verified

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

Correct Answer
verified

A fancy new coat costs SKr1,559.90.You can exchange SKr1 for $.1524 and €1 for $1.3026.How much will the identical coat cost in euros if absolute purchasing power parity exists?

Correct Answer
verified

Assume the spot exchange rate is £.6229.The expected inflation rate in the U.K.is 3.8 percent and in the U.S.it is 2.9 percent.What is the expected exchange rate three years from now if relative purchasing power parity exists?

Correct Answer
verified

An international firm that imports raw materials can reduce its _ exposure to ___ rate risk by entering into a forward contract.

Correct Answer
verified

How well do you think relative purchasing power parity and uncovered interest parity behave? That is,do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?

Correct Answer
verified
Each of the variables in these equations...
View Answer

A coffee mug that suits your style costs $5.98 in the U.S.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 1.013?

Correct Answer
verified

The forward rate market is dependent upon:

Correct Answer
verified

Which one of these statements is correct?

Correct Answer
verified

Which one of these must be true if absolute purchasing power parity is to absolutely hold?

Correct Answer
verified

You want to import $50,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01819?

Correct Answer
verified

Exam 20: International Corporate Finance

Interest rate parity:

Correct AnswerverifiedShow Answer

Which one of these statements related to the foreign exchange market is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume the spot exchange rate is 6.22 Chinese yuan per U.S.dollar.If the inflation rate in China is expected to be double that in the U.S.for the next two years,then the:

Correct AnswerverifiedShow Answer

Assume that $1 can buy you either ¥108 or £.55.If a TV in London costs £555,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Correct AnswerverifiedShow Answer

Assume the inflation rate in the U.S.is 3.6 percent.The spot rate for a foreign currency is 5.872 while the 3-year forward rate is 6.084.What is the approximate rate of inflation in the foreign country?

Correct AnswerverifiedShow Answer

Which one of these combinations of country,currency,and currency symbol is incorrect?

Correct AnswerverifiedShow Answer

You are planning a trip to Australia.The hotel will cost you A$160 per night for seven nights.You expect to spend another A$2,500 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 1.0503?

Correct AnswerverifiedShow Answer

What does LIBOR stand for?

Correct AnswerverifiedShow 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 one of the following is true?

Correct AnswerverifiedShow Answer

A fancy new coat costs SKr1,559.90.You can exchange SKr1 for $.1524 and €1 for $1.3026.How much will the identical coat cost in euros if absolute purchasing power parity exists?

Correct AnswerverifiedShow Answer

Assume the spot exchange rate is £.6229.The expected inflation rate in the U.K.is 3.8 percent and in the U.S.it is 2.9 percent.What is the expected exchange rate three years from now if relative purchasing power parity exists?

Correct AnswerverifiedShow Answer

An international firm that imports raw materials can reduce its _____ exposure to _______ rate risk by entering into a forward contract.

Correct AnswerverifiedShow Answer

How well do you think relative purchasing power parity and uncovered interest parity behave? That is,do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?

Correct AnswerverifiedEach of the variables in these equations...View AnswerShow Answer

A coffee mug that suits your style costs $5.98 in the U.S.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 1.013?

Correct AnswerverifiedShow Answer

The forward rate market is dependent upon:

Correct AnswerverifiedShow Answer

Which one of these statements is correct?

Correct AnswerverifiedShow Answer

Which one of these must be true if absolute purchasing power parity is to absolutely hold?

Correct AnswerverifiedShow Answer

You want to import $50,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01819?

Correct AnswerverifiedShow Answer

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
verified

Correct Answer
verified

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

An international firm that imports raw materials can reduce its _ exposure to ___ rate risk by entering into a forward contract.

Correct Answer
verified

Correct Answer
verified
Each of the variables in these equations...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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