Question 1

Which one of the following is an example of long-run exposure to exchange rate risk? Ignore all fees and transaction costs.

Accepted Answer

A)  A U.S.firm owns land in Mexico valued at three million pesos.That value has remained constant in Mexican pesos for the past year.However, the firm's financial statement reflects a 3 percent decrease in the value of that land for last year.
B)  A U.S.firm sells $250,000 worth of goods to Peru.However, when the payment for those goods arrives and the U.S.firm exchanges the foreign currency, it receives only $248,700.
C)  A U.S.firm purchases $120,000 worth of goods from Canada.However, by the time the goods arrive and the invoice is payable, the cost of those goods has increased to $120,400.
D)  A few years ago, a U.S.firm built a factory in Asia to take advantage of the lower labor costs.Today, the Asian labor costs have increased such that the Asian factory no longer provides a cost advantage over a U.S.factory.
E)  A U.S.traveler withdrew an extra $2,000 in cash from her savings account to take with her as emergency funds when she traveled to Mexico.Before leaving on her trip, she exchanged this money into Mexican pesos.She never used any of this money during her vacation, so exchanged all of it back into U.S.dollars on her return and received $1,960.F) C) and E)
G) A) and B)

Question 2

Which of the following parties are participants in the foreign exchange market?
I.U.S.importers
II.U.S.exporters
III.U.S.travelers to Europe
IV.Foreign portfolio managers who purchase American securities

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I, III, and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) D) and E)
G) A) and C)

Question 3

Assume the USD equivalent of the Norwegian krone is .1425.If you have NKr5,500,how much do you have in US dollars?

Accepted Answer

A)  $861.42
B)  $42,608.14
C)  $38,596.49
D)  $783.75
E)  $16,216.50F) A) and D)
G) A) and E)

Question 4

Later this week,you are traveling from the U.S.to Canada for a week's vacation.This morning,you exchanged some U.S.dollars for Canadian dollars in preparation for that trip.Which one of the following best describes this exchange?

Accepted Answer

A)  Forward trade
B)  Spot trade
C)  Arbitrage transaction
D)  Cross-rate exchange
E)  Eurocurrency transactionF) C) and E)
G) A) and C)

Question 5

Currently,you can exchange $1 for SF1.14.Assume the average inflation rate in the U.S.over the next two years will be 2.5 percent annually as compared to 3 percent in Switzerland.Based on this information and relative purchasing power parity,which of the following assumptions can you make regarding the next two years?

Accepted Answer

A)  The Swiss franc will appreciate against all currencies.
B)  The Swiss franc will appreciate against the U.S.dollar.
C)  The U.S.dollar will appreciate against all currencies.
D)  The U.S.dollar will appreciate against the Swiss franc.
E)  Both the U.S.dollar and the Swiss franc will appreciate against all other currencies.F) A) and B)
G) A) and C)

Question 6

Eurobonds are best defined as international bonds issued in _____ and denominated in ____.

Accepted Answer

A)  a single country; multiple currencies
B)  a single country; a single currency
C)  multiple countries; multiple currencies
D)  multiple countries; a single currency
E)  Euroland; eurosF) A) and D)
G) A) and C)

Question 7

Which of these must be significantly eliminated if interest rate parity is to exist?

Accepted Answer

A)  Absolute purchasing power parity
B)  Short-run exposure to exchange rate risk
C)  Covered interest arbitrage opportunities
D)  Relative purchasing power parity
E)  Translation exposureF) B) and C)
G) A) and D)

Question 8

Which one of the following is the agreed-upon exchange rate that is to be used when currencies are exchanged at some point in the future based on an agreement made today?

Accepted Answer

A)  Spot rate
B)  ADR rate
C)  London Interbank Offer Rate
D)  Forward exchange rate
E)  Cross-rateF) None of the above
G) A) and C)

Question 9

You are planning an extended trip to India and have located some housing that you can lease for 37,250 rupees per month.What is the cost per month in U.S.dollars if the exchange rate is Rs1 = $.01606?

Accepted Answer

A)  $1,208.15
B)  $598.24
C)  $1,311.27
D)  $695.35
E)  $709.30F) C) and D)
G) B) and E)

Question 10

Which of these states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Accepted Answer

A)  Arbitrage equilibrium
B)  Relative purchasing power parity
C)  Absolute purchasing power parity
D)  Interest rate parity
E)  Cross-rate parityF) B) and D)
G) B) and C)

Question 11

Suppose the Swiss franc exchange rate is SF.9703 = $1,and the euro exchange rate is €.8024 = $1.What is the cross-rate in terms of Swiss francs per euro?

Accepted Answer

A)  SF.7692/€1
B)  SF.7786/€1
C)  SF1.1054/€1
D)  SF1.1832/€1
E)  SF1.2092/€1F) B) and D)
G) A) and B)

Question 12

A trader in Switzerland just agreed to trade Swiss francs for British pounds based on today's exchange rate.The trade is expected to settle tomorrow.What term best describes this exchange?

Accepted Answer

A)  Arbitrage transaction
B)  Forward trade
C)  Spot trade
D)  Purchasing power parity
E)  Interest rate parityF) A) and B)
G) A) and C)

Question 13

Assume you can purchase either 114 Canadian dollars or 11,865 Japanese yen for $100.What is the ¥/C$ cross-rate?

Accepted Answer

A)  ¥104.08/C$1
B)  ¥99.94/C$1
C)  ¥101.23/C$1
D)  ¥106.27/C$1
E)  ¥107.08/C$1F) C) and E)
G) None of the above

Question 14

An American Depositary Receipt is defined as a security:

Accepted Answer

A)  that has been deposited in an interest-bearing account at a U.S.bank.
B)  issued outside the U.S.that represents shares of a U.S.stock.
C)  issued in the U.S.that represents shares of a foreign stock.
D)  that has a guarantee of payment from a U.S.bank.
E)  issued in multiple countries but denominated in U.S.currencyF) C) and D)
G) A) and E)

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 a(n) :

Accepted Answer

A)  swap.
B)  American depository receipt.
C)  gilt.
D)  Bulldog bond.
E)  Samurai bond.F) A) and C)
G) A) and D)

Question 16

Assume the spot rate between Japan and the U.S.is ¥119.37 = $1,while the one-year forward rate is ¥119.07 = $1.A one-year risk-free security in the U.S.is yielding 4.2 percent.What is the rate of return on a one-year risk-free security in Japan assuming that interest rate parity exists?

Accepted Answer

A)  3.82 percent
B)  3.94 percent
C)  3.44 percent
D)  3.49 percent
E)  4.46 percentF) All of the above
G) B) and E)

Question 17

Assume a canned soft drink costs $1 in the U.S.and $1.30 in Canada.At the same time,the currency per U.S.dollar is C$1.30.Which one of the following conditions exists in this situation?

Accepted Answer

A)  Absolute purchasing power parity
B)  Interest rate parity
C)  Relative purchasing power parity
D)  Translation exposure
E)  Equal spot and forward ratesF) A) and B)
G) All of the above

Question 18

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) A) and B)
G) A) and C)

Question 19

Assume the one-year forward rate for the British pound is £.6381 = $1.The spot rate is £.6392 = $1.The interest rate on a risk-free asset in the UK is 4.4 percent.If interest rate parity exists,what is the one-year risk-free rate in the U.S.?

Accepted Answer

A)  4.68 percent
B)  4.58 percent
C)  4.77 percent
D)  4.63 percent
E)  4.67 percentF) A) and B)
G) A) and C)

Question 20

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 D)
G) B) and C)

Exam 18: International Aspects of Financial Management

Assume the spot rate between Japan and the U.S.is ¥119.37 = $1,while the one-year forward rate is ¥119.07 = $1.A one-year risk-free security in the U.S.is yielding 4.2 percent.What is the rate of return on a one-year risk-free security in Japan assuming that interest rate parity exists?

Correct Answer
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Assume you can purchase either 114 Canadian dollars or 11,865 Japanese yen for $100.What is the ¥/C$ cross-rate?

Correct Answer
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You are planning an extended trip to India and have located some housing that you can lease for 37,250 rupees per month.What is the cost per month in U.S.dollars if the exchange rate is Rs1 = $.01606?

Correct Answer
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Correct Answer
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Which of the following parties are participants in the foreign exchange market? I.U.S.importers II.U.S.exporters III.U.S.travelers to Europe IV.Foreign portfolio managers who purchase American securities

Correct Answer
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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

Correct Answer
verified

Eurobonds are best defined as international bonds issued in _ and denominated in .

Correct Answer
verified

Assume the one-year forward rate for the British pound is £.6381 = $1.The spot rate is £.6392 = $1.The interest rate on a risk-free asset in the UK is 4.4 percent.If interest rate parity exists,what is the one-year risk-free rate in the U.S.?

Correct Answer
verified

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

Correct Answer
verified

Which one of the following is the agreed-upon exchange rate that is to be used when currencies are exchanged at some point in the future based on an agreement made today?

Correct Answer
verified

Later this week,you are traveling from the U.S.to Canada for a week's vacation.This morning,you exchanged some U.S.dollars for Canadian dollars in preparation for that trip.Which one of the following best describes this exchange?

Correct Answer
verified

Assume the USD equivalent of the Norwegian krone is .1425.If you have NKr5,500,how much do you have in US dollars?

Correct Answer
verified

Assume a canned soft drink costs $1 in the U.S.and $1.30 in Canada.At the same time,the currency per U.S.dollar is C$1.30.Which one of the following conditions exists in this situation?

Correct Answer
verified

An American Depositary Receipt is defined as a security:

Correct Answer
verified

A trader in Switzerland just agreed to trade Swiss francs for British pounds based on today's exchange rate.The trade is expected to settle tomorrow.What term best describes this exchange?

Correct Answer
verified

Suppose the Swiss franc exchange rate is SF.9703 = $1,and the euro exchange rate is €.8024 = $1.What is the cross-rate in terms of Swiss francs per euro?

Correct Answer
verified

Which one of the following is an example of long-run exposure to exchange rate risk? Ignore all fees and transaction costs.

Correct Answer
verified

Which of these states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Correct Answer
verified

Which of these must be significantly eliminated if interest rate parity is to exist?

Correct Answer
verified

Exam 18: International Aspects of Financial Management

Assume the spot rate between Japan and the U.S.is ¥119.37 = $1,while the one-year forward rate is ¥119.07 = $1.A one-year risk-free security in the U.S.is yielding 4.2 percent.What is the rate of return on a one-year risk-free security in Japan assuming that interest rate parity exists?

Correct AnswerverifiedShow Answer

Assume you can purchase either 114 Canadian dollars or 11,865 Japanese yen for $100.What is the ¥/C$ cross-rate?

Correct AnswerverifiedShow Answer

You are planning an extended trip to India and have located some housing that you can lease for 37,250 rupees per month.What is the cost per month in U.S.dollars if the exchange rate is Rs1 = $.01606?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following parties are participants in the foreign exchange market? I.U.S.importers II.U.S.exporters III.U.S.travelers to Europe IV.Foreign portfolio managers who purchase American securities

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

Correct AnswerverifiedShow Answer

Eurobonds are best defined as international bonds issued in _____ and denominated in ____.

Correct AnswerverifiedShow Answer

Assume the one-year forward rate for the British pound is £.6381 = $1.The spot rate is £.6392 = $1.The interest rate on a risk-free asset in the UK is 4.4 percent.If interest rate parity exists,what is the one-year risk-free rate in the U.S.?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following is the agreed-upon exchange rate that is to be used when currencies are exchanged at some point in the future based on an agreement made today?

Correct AnswerverifiedShow Answer

Later this week,you are traveling from the U.S.to Canada for a week's vacation.This morning,you exchanged some U.S.dollars for Canadian dollars in preparation for that trip.Which one of the following best describes this exchange?

Correct AnswerverifiedShow Answer

Assume the USD equivalent of the Norwegian krone is .1425.If you have NKr5,500,how much do you have in US dollars?

Correct AnswerverifiedShow Answer

Assume a canned soft drink costs $1 in the U.S.and $1.30 in Canada.At the same time,the currency per U.S.dollar is C$1.30.Which one of the following conditions exists in this situation?

Correct AnswerverifiedShow Answer

An American Depositary Receipt is defined as a security:

Correct AnswerverifiedShow Answer

A trader in Switzerland just agreed to trade Swiss francs for British pounds based on today's exchange rate.The trade is expected to settle tomorrow.What term best describes this exchange?

Correct AnswerverifiedShow Answer

Suppose the Swiss franc exchange rate is SF.9703 = $1,and the euro exchange rate is €.8024 = $1.What is the cross-rate in terms of Swiss francs per euro?

Correct AnswerverifiedShow Answer

Which one of the following is an example of long-run exposure to exchange rate risk? Ignore all fees and transaction costs.

Correct AnswerverifiedShow Answer

Which of these states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Correct AnswerverifiedShow Answer

Which of these must be significantly eliminated if interest rate parity is to exist?

Correct AnswerverifiedShow Answer

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Eurobonds are best defined as international bonds issued in _ and denominated in .

Correct Answer
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