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Exam 21: International Corporate Finance

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Question 1

Multiple Choice

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A large U.S. company has £500,000 in excess cash from its foreign operations. The company would like to exchange these funds for U.S. dollars. In which of the following markets can this exchange be arranged?

A) ADR
B) National registry
C) National discount exchange
D) Forex
E) Eurobond market

F) None of the above
G) A) and E)

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Question 2

Multiple Choice

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Assume the spot rate for the British pound currently is £.6369 per $1. Also assume the one-year forward rate is £.6421 per $1. A risk-free asset in the U.S. is currently earning 3.2 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free British security?

A) 4.18 percent
B) 4.57 percent
C) 3.67 percent
D) 4.04 percent
E) 4.92 percent

F) All of the above
G) A) and C)

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Question 3

Multiple Choice

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You are planning a trip to Australia. Your hotel will cost you A$135 per night for six nights. You expect to spend another A$2,400 for meals, tours, souvenirs, and so forth. How much will this trip cost you in U.S. dollars if $1 = A$1.2904?

Suppose the spot exchange rates are ¥102 = $1 and £1 = $1.57. Also suppose the cross-rate is ¥159 = £1. What is the arbitrage profit per one U.S. dollar?

Assume quotes are based on units of foreign currency per dollar and the U.S. dollar appreciated against the euro today. This means that:

Which of the following variables used in the covered interest arbitrage formula is correctly defined?

You are expecting a payment of C$100,000 two years from now. The risk-free rate of return is 3.8 percent in the U.S. and 4.1 percent in Canada. The inflation rate is 2 percent in the U.S. and 3 percent in Canada. Suppose the current exchange rate is C$1 = $.9132. How much will the payment two years from now be worth in U.S. dollars?

Assume $1 is currently equal to £.7658. Also assume the expected inflation rate in the U.K. is 3.6 percent while it is 3.3 percent in the U.S. What is the expected exchange rate four years from now if relative purchasing power parity exists?

The market value of the Blackwell Corporation just declined by 5 percent. Analysts believe this decrease in value was caused by recent legislation passed by Congress. Which type of risk does this illustrate?

Assume you can exchange $100 today for C$109.58 or for 1,304 Mexican pesos. Assume that last year, $100 was equivalent to C$105.48 or 1,310 Mexican pesos. One hundred dollars converted into ________ last year can now be converted into ________.

Absolute purchasing power parity is most apt to exist for which one of the following items?

Assume the spot rate on the Japanese yen is ¥110.05 while it is C$1.1379 on the Canadian dollar. The respective three-month forward rates are ¥111.75 and C$1.1339. The value of the U.S. dollar will ________ with respect to the yen and will ________ with respect to the Canadian dollar.

Interest rate parity:

Global Inc. just placed an order for 25,000 units at a cost of 162 Singapore dollars each, which will be payable when the shipment arrives in 120 days. Global sells these units at $148 each. The spot exchange rate is S$1.2537. What will the profit be on this order if the exchange rate increases to S$1.2602 over the next 120 days?

Which one of the following names matches the country where the bond is issued?

Mr. Black and Mr. White have agreed to exchange C$12,500 for $10,000 with the exchange occurring four months from now. This agreed-upon exchange rate is called the:

The foreign currency approach to capital budgeting analysis:

You would like to purchase a foreign bond that is issued by the Netherlands government. Which one of the following should you purchase?

The LIBOR is primarily used as the basis for the rate charged on:

Assume the spot rate for the Japanese yen currently is ¥102.32 per $1 and the one-year forward rate is ¥102.69 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?