Question 1

Long-run exposure to exchange rate risk relates to:

Accepted Answer

A)  daily variations in exchange rates.
B)  variances between spot and future rates.
C)  unexpected changes in relative economic conditions.
D)  differences between future spot rates and related forward rates.
E)  accounting gains and losses created by fluctuating exchange rates.F) A) and B)
G) A) and C)

Question 2

The interest rate parity approximation formula is:

Accepted Answer

A)  Ft = S0 × [1 + (RFC + RUS) ]t.
B)  Ft = S0 × [1 - (RFC - RUS) ]t.
C)  Ft = S0 × [1 + (RFC - RUS) ]t.
D)  Ft = S0 × [1 + (RFC × RUS) ]t.
E)  Ft = S0 × [1 - (RFC + RUS) ]t.F) A) and E)
G) C) and E)

Question 3

Today,you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S.dollars.Last year,100 U.S.dollars was worth 115 Canadian dollars or 1,291 Mexican pesos.Which one of the following statements is correct given this information?

Accepted Answer

A)  $100 converted into Canadian dollars last year would now be worth $105.22.
B)  $100 converted into Mexican pesos last year would now be worth $99.77.
C)  $100 converted into Mexican pesos last year would now be worth $100.36.
D)  $100 converted into Canadian dollars last year would now be worth $95.05.
E)  $100 invested in Canadian dollars last year would now be worth $100.F) A) and E)
G) A) and D)

Question 4

Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _____ relative to the Canadian dollar and the U.S.dollar is expected to _____ relative to the Canadian dollar.

Accepted Answer

A)  discount; appreciate
B)  discount; depreciate
C)  premium; appreciate
D)  premium; depreciate
E)  premium; remain constantF) C) and E)
G) D) and E)

Question 5

Trader A has agreed to give 100,000 U.S.dollars to Trader B in exchange for British pounds based on today's exchange rate of $1 = £0.62.The traders agree to settle this trade within two business day.What is this exchange called?

Accepted Answer

A)  swap
B)  option trade
C)  futures trade
D)  forward trade
E)  spot tradeF) A) and B)
G) B) and C)

Question 6

Which one of the following statements is correct given the following exchange rates?   U.S. $ per 1 foreign unit  Country  Fri ‾ Thu ‾ South Africa 0.10280.1023 Thailand 0.02840.0286\begin{array} { l c c } &  { 	ext { U.S. \$ per 1 foreign unit } } \ 	ext { Country } & \underline { 	ext { Fri } } & \underline { 	ext { Thu } } \\hline 	ext { South Africa } & 0.1028 & 0.1023 \	ext { Thailand } & 0.0284 & 0.0286\end{array} Country  South Africa  Thailand ​ U.S. $ per 1 foreign unit  Fri ​0.10280.0284​ Thu ​0.10230.0286​​

Accepted Answer

A)  On Thursday, one U.S.dollar was equal to 0.1023 South African rand.
B)  On Friday, one Thai baht was equal to $35.21.
C)  Both the South African rand and the Thai baht appreciated against the U.S.dollar from Thursday to Friday.
D)  The South African rand appreciated from Thursday to Friday against the U.S.dollar.
E)  The U.S.dollar depreciated from Thursday to Friday against the Thai baht. F) B) and D)
G) A) and C)

Question 7

Which one of the following securities is used as a means of investing in a foreign stock that otherwise could not be traded in the United States?

Accepted Answer

A)  American Depository Receipt
B)  Yankee bond
C)  Yankee stock
D)  LIBOR
E)  giltF) B) and D)
G) C) and D)

Question 8

International bonds issued in a single country and denominated in that country's currency are called:

Accepted Answer

A)  Treasury bonds.
B)  Eurobonds.
C)  gilts.
D)  Brady bonds.
E)  foreign bonds.F) None of the above
G) C) and D)

Question 9

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 4.2 percent while it is 3.1 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

A)  £0.6161
B)  £0.6178
C)  £0.6239
D)  £0.6279
E)  £0.6291F) A) and B)
G) B) and E)

Question 10

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?

Accepted Answer

A)  international risk
B)  diversifiable risk
C)  purchasing power risk
D)  exchange rate risk
E)  political riskF) C) and D)
G) D) and E)

Question 11

Suppose the spot and three-month forward rates for the yen are ¥128.79 and ¥135.22,respectively.What is the approximate annual percent difference between the inflation rate in the U.S.and in Japan?

Accepted Answer

A)  3.93 percent
B)  4.21 percent
C)  16.67 percent
D)  21.52 percent
E)  22.28 percentF) B) and E)
G) B) and D)

Question 12

How many Euros can you get for $2,200 if one euro is worth $1.2762?

Accepted Answer

A)  €1,638.09
B)  €1,723.87
C)  €2,676.67
D)  €2,680.02
E)  €2,684.15F) None of the above
G) C) and D)

Question 13

Which one of the following is the risk that a firm faces when it opens a facility in a foreign country,given that the exchange rate between the firm's home country and this foreign country fluctuates over time?

Accepted Answer

A)  international risk
B)  diversifiable risk
C)  purchasing power risk
D)  exchange rate risk
E)  political riskF) A) and C)
G) All of the above

Question 14

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.7119.The expected inflation rate in Norway is 4 percent and in the U.S.3 percent.A risk-free asset in the U.S.is yielding 4.5 percent.What approximate real rate of return should you expect on a risk-free Norwegian security?

Accepted Answer

A)  1.0 percent
B)  1.5 percent
C)  2.0 percent
D)  2.5 percent
E)  3.0 percentF) B) and C)
G) C) and E)

Question 15

Based on the following information,the value of the U.S.dollar will _____ with respect to the yen and will _____ with respect to the Canadian dollar.   Currency  Currency per U.S. $  Japan yen 110.05 6-months forward 113.75 Canada dollar 1.1379 3-months forward 1.1339\begin{array} { l c } 	ext { Currency } & 	ext { Currency per U.S. \$ } \ 	ext { Japan yen } & 110.05 \	ext { 6-months forward } & 113.75 \	ext { Canada dollar } & 1.1379 \	ext { 3-months forward } & 1.1339\end{array} Currency  Japan yen  6-months forward  Canada dollar  3-months forward ​ Currency per U.S. $ 110.05113.751.13791.1339​

Accepted Answer

A)  appreciate; appreciate
B)  appreciate; depreciate
C)  depreciate; appreciate
D)  depreciate; depreciate
E)  depreciate; remain constant F) A) and C)
G) C) and D)

Question 16

Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?

Accepted Answer

A)  unbiased forward rates condition
B)  uncovered interest parity
C)  international Fisher effect
D)  purchasing power parity
E)  interest rate parityF) B) and D)
G) None of the above

Question 17

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 2.6 percent while it is 4.3 percent in the U.S.What is the expected exchange rate four years from now if relative purchasing power parity exists?

Accepted Answer

A)  £0.5799
B)  £0.5822
C)  £0.6105
D)  £0.6623
E)  £0.6644F) C) and D)
G) A) and B)

Question 18

Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S.dollar and the British pound?

Accepted Answer

A)  S0 = PUK × PUS
B)  PUS = Ft × PUK
C)  PUK = S0 × PUS
D)  Ft = PUS × PUK
E)  S0 × Ft = PUK × PUSF) A) and B)
G) None of the above

Question 19

A risk-free asset in the U.S.is currently yielding 4 percent while a Canadian risk-free asset is yielding 2 percent.Assume the current spot rate is C$1.2103.What is the approximate three-year forward rate if interest rate parity holds?

Accepted Answer

A)  C$1.1391
B)  C$1.1744
C)  C$1.2241
D)  C$1.2295
E)  C$1.2470F) A) and D)
G) C) and D)

Question 20

Party A has agreed to exchange $1 million U.S.dollars for $1.21 million Canadian dollars.What is this agreement called?

Accepted Answer

A)  gilt
B)  LIBOR
C)  SWIFT
D)  Yankee agreements
E)  swapF) B) and E)
G) B) and D)

Exam 21: International Corporate Finance

Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _ relative to the Canadian dollar and the U.S.dollar is expected to _ relative to the Canadian dollar.

Correct Answer
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Correct Answer
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Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?

Correct Answer
verified

A risk-free asset in the U.S.is currently yielding 4 percent while a Canadian risk-free asset is yielding 2 percent.Assume the current spot rate is C$1.2103.What is the approximate three-year forward rate if interest rate parity holds?

Correct Answer
verified

Long-run exposure to exchange rate risk relates to:

Correct Answer
verified

The interest rate parity approximation formula is:

Correct Answer
verified

Suppose the spot and three-month forward rates for the yen are ¥128.79 and ¥135.22,respectively.What is the approximate annual percent difference between the inflation rate in the U.S.and in Japan?

Correct Answer
verified

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 2.6 percent while it is 4.3 percent in the U.S.What is the expected exchange rate four years from now if relative purchasing power parity exists?

Correct Answer
verified

Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S.dollar and the British pound?

Correct Answer
verified

Which one of the following securities is used as a means of investing in a foreign stock that otherwise could not be traded in the United States?

Correct Answer
verified

Which one of the following is the risk that a firm faces when it opens a facility in a foreign country,given that the exchange rate between the firm's home country and this foreign country fluctuates over time?

Correct Answer
verified

International bonds issued in a single country and denominated in that country's currency are called:

Correct Answer
verified

Party A has agreed to exchange $1 million U.S.dollars for $1.21 million Canadian dollars.What is this agreement called?

Correct Answer
verified

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 4.2 percent while it is 3.1 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Correct Answer
verified

Trader A has agreed to give 100,000 U.S.dollars to Trader B in exchange for British pounds based on today's exchange rate of $1 = £0.62.The traders agree to settle this trade within two business day.What is this exchange called?

Correct Answer
verified

Today,you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S.dollars.Last year,100 U.S.dollars was worth 115 Canadian dollars or 1,291 Mexican pesos.Which one of the following statements is correct given this information?

Correct Answer
verified

How many Euros can you get for $2,200 if one euro is worth $1.2762?

Correct Answer
verified

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?

Correct Answer
verified

Correct Answer
verified

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.7119.The expected inflation rate in Norway is 4 percent and in the U.S.3 percent.A risk-free asset in the U.S.is yielding 4.5 percent.What approximate real rate of return should you expect on a risk-free Norwegian security?

Correct Answer
verified

Exam 21: International Corporate Finance

Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _____ relative to the Canadian dollar and the U.S.dollar is expected to _____ relative to the Canadian dollar.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?

Correct AnswerverifiedShow Answer

A risk-free asset in the U.S.is currently yielding 4 percent while a Canadian risk-free asset is yielding 2 percent.Assume the current spot rate is C$1.2103.What is the approximate three-year forward rate if interest rate parity holds?

Correct AnswerverifiedShow Answer

Long-run exposure to exchange rate risk relates to:

Correct AnswerverifiedShow Answer

The interest rate parity approximation formula is:

Correct AnswerverifiedShow Answer

Suppose the spot and three-month forward rates for the yen are ¥128.79 and ¥135.22,respectively.What is the approximate annual percent difference between the inflation rate in the U.S.and in Japan?

Correct AnswerverifiedShow Answer

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 2.6 percent while it is 4.3 percent in the U.S.What is the expected exchange rate four years from now if relative purchasing power parity exists?

Correct AnswerverifiedShow Answer

Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S.dollar and the British pound?

Correct AnswerverifiedShow Answer

Which one of the following securities is used as a means of investing in a foreign stock that otherwise could not be traded in the United States?

Correct AnswerverifiedShow Answer

Which one of the following is the risk that a firm faces when it opens a facility in a foreign country,given that the exchange rate between the firm's home country and this foreign country fluctuates over time?

Correct AnswerverifiedShow Answer

International bonds issued in a single country and denominated in that country's currency are called:

Correct AnswerverifiedShow Answer

Party A has agreed to exchange $1 million U.S.dollars for $1.21 million Canadian dollars.What is this agreement called?

Correct AnswerverifiedShow Answer

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 4.2 percent while it is 3.1 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Correct AnswerverifiedShow Answer

Trader A has agreed to give 100,000 U.S.dollars to Trader B in exchange for British pounds based on today's exchange rate of $1 = £0.62.The traders agree to settle this trade within two business day.What is this exchange called?

Correct AnswerverifiedShow Answer

Today,you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S.dollars.Last year,100 U.S.dollars was worth 115 Canadian dollars or 1,291 Mexican pesos.Which one of the following statements is correct given this information?

Correct AnswerverifiedShow Answer

How many Euros can you get for $2,200 if one euro is worth $1.2762?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.7119.The expected inflation rate in Norway is 4 percent and in the U.S.3 percent.A risk-free asset in the U.S.is yielding 4.5 percent.What approximate real rate of return should you expect on a risk-free Norwegian security?

Correct AnswerverifiedShow Answer

Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _ relative to the Canadian dollar and the U.S.dollar is expected to _ relative to the Canadian dollar.

Correct Answer
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Correct Answer
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