Question 1

Which one of the following best describes an agreement you make today to exchange U.S.dollars for British pounds three months from now?

Accepted Answer

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

Question 2

Assume the exchange rates in New York for $1 are C$1.1382 and £.6387 while in Toronto,C$1 will buy £.5612.How much profit can you earn on $10,000 using triangle arbitrage?

Accepted Answer

A)  $.91
B)  $1.08
C)  $.97
D)  $1.03
E)  $1.11F) A) and E)
G) C) and D)

Question 3

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) A) and D)
G) C) and D)

Question 4

Rembrandt,Samurai,Yankee,and Bulldog are all names associated with which one of the following?

Accepted Answer

A)  Eurobonds
B)  Currencies
C)  Cross-rate
D)  Foreign bonds
E)  Foreign interest ratesF) A) and C)
G) All of the above

Question 5

Which country is correctly matched with its currency?

Accepted Answer

A)  Canada-pound
B)  China-yuan
C)  Mexico-real
D)  Japan-lira
E)  United Kingdom-euroF) A) and B)
G) B) and E)

Question 6

An agreement to exchange currencies sometime 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) C) and E)
G) A) and B)

Question 7

The foreign subsidiary of a U.S.firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S.dollars.This is an example of which one of the following?

Accepted Answer

A)  Interest rate disparities
B)  Short-run exposure to exchange rate risk
C)  Long-run exposure to exchange rate risk
D)  Political risk associated with the foreign operations
E)  Translation exposure to exchange rate riskF) A) and B)
G) A) and C)

Question 8

Currently,you can exchange €100 for $125.The inflation rate in Europe is expected to be 2.5 percent.In one year,it is expected that €100 can be exchanged for $125.88.Assume relative purchasing power parity exists.What is the expected inflation rate in the U.S.?

Accepted Answer

A)  3.84 percent
B)  4.26 percent
C)  3.20 percent
D)  5.21 percent
E)  5.68 percentF) B) and D)
G) A) and B)

Question 9

Your German friend has decided to come and visit you in the U.S.You estimate the cost of her trip at $2,200.What is the cost to her in euros if the U.S.dollar equivalent of the euro is 1.2452?

Accepted Answer

A)  €1,566.67
B)  €1,766.78
C)  €908.50
D)  €2,739.44
E)  €2,806.16F) A) and D)
G) C) and E)

Question 10

Assume the current spot rate between the UK and the U.S.is £.6379 per $1,the expected inflation rate in the U.S.is 1.9 percent,and the expected inflation rate in the UK is 2.8 percent.If relative purchasing power parity exists,what will the exchange rate be next year?

Accepted Answer

A)  £.6389/$1
B)  £.6436/$1
C)  £.6823/$1
D)  £.6322/$1
E)  £.6336/$1F) All of the above
G) B) and D)

Question 11

Assume your favorite running shoes cost $119 in the U.S.while the identical shoes cost C$139.50 in Canada.According to purchasing power parity,what is the C$/$ exchange rate?

Accepted Answer

A)  C$.8530/$1
B)  C$.8426/$1
C)  C$1.0918/$1
D)  C$1.1723/$1
E)  C$1.2305/$1F) D) and E)
G) None of the above

Question 12

Suppose you could buy 1,115 South Korean won or 100 Pakistani rupees last year for $1.Today,$1 will buy you 1,113 won or 102 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) A) and C)
G) A) and E)

Question 13

Suppose the spot exchange rate for the Hungarian forint is HUF246.Interest rates in the United States are 4.3 percent per year.They are 3.4 percent in Hungary.What do you predict the exchange rate will be in four years?

Accepted Answer

A)  HUF237.26
B)  HUF236.90
C)  HUF241.59
D)  HUF254.98
E)  HUF261.19F) A) and E)
G) All of the above

Question 14

Suppose the spot exchange rate for the Canadian dollar is C$1.09 and the six-month forward rate is C$1.12.Assuming absolute PPP holds,what is the current cost in the United States of a hamburger if the price in Canada of an equivalent burgerin Canada is C$4.75?

Accepted Answer

A)  $5.39
B)  $5.18
C)  $4.36
D)  $5.02
E)  $4.51F) A) and E)
G) B) and D)

Question 15

The spot rate on the Norwegian kroner is 7.0305.The exchange rate one year from now is expected to be 7.0614 assuming that relative interest rate parity exists.Interest rates in Norway are 3.3 percent.What is the interest rate in the U.S.?

Accepted Answer

A)  2.86 percent
B)  3.02 percent
C)  3.59 percent
D)  4.54 percent
E)  4.68 percentF) A) and C)
G) A) and B)

Question 16

The spot rate on the Hong Kong dollar is 7.75.Interest rates in Hong Kong are expected to be 6 percent while they are anticipated to be 3 percent in the U.S.What is the expected exchange rate two years from now?

Accepted Answer

A)  HK$7.9825
B)  HK$8.1808
C)  HK$8.2220
D)  HK$8.3778
E)  HK$8.4141F) C) and D)
G) A) and B)

Question 17

You are going to London and plan on spending £4,500.How many dollars will this trip cost you if the currency per $1 is £.6391?

Accepted Answer

A)  $2,875.95
B)  $2,892.16
C)  $7,041.15
D)  $6,890.01
E)  $3,044.04F) A) and E)
G) B) and C)

Question 18

Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the $1 is borrowed and S0 = spot rate; F1 = one-year forward rate; RF = foreign country risk-free rate; and RUS = U.S.risk-free rate.

Accepted Answer

A)  $1 × F1 × (1 + RF) /S0- $1 × (1 + RUS) 
B)  $1 × S0 × (1 + RF) /F1- $1 × (1 + RUS) 
C)  $1 × F1 × (1 + RF) /S0 + $1 × (1 + RUS) 
D)  $1 × S0 × (1 + RF)  - $1 × (1 + RUS) /F1
E)  $1 × S0 × (1 + RF) /F1 + $1 × (1 + RUS) F) B) and C)
G) B) and D)

Question 19

Assume $1 = €.8036 = A$1.1757.What is the cross-rate for Australian dollars in terms of euros?

Accepted Answer

A)  A$1.1066/€1
B)  A$1.2908/€1
C)  A$1.3929/€1
D)  A$1.4630/€1
E)  A$1.5042/€1F) B) and D)
G) All of the above

Question 20

You have just agreed to a forward trade that will be settled six months from now.When is the exchange rate for this transaction determined?

Accepted Answer

A)  Today
B)  Three months from today because that is the halfway point
C)  Anytime you prefer within the next six months
D)  Whenever the spot rate six months from today is known
E)  Six months from nowF) B) and D)
G) A) and B)

Exam 18: International Aspects of Financial Management

Rembrandt,Samurai,Yankee,and Bulldog are all names associated with which one of the following?

Correct AnswerverifiedShow Answer

The foreign subsidiary of a U.S.firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S.dollars.This is an example of which one of the following?

Correct AnswerverifiedShow Answer

Suppose the spot exchange rate for the Canadian dollar is C$1.09 and the six-month forward rate is C$1.12.Assuming absolute PPP holds,what is the current cost in the United States of a hamburger if the price in Canada of an equivalent burgerin Canada is C$4.75?

Correct AnswerverifiedShow Answer

Which one of the following formulas illustrates the mechanics of covered interest arbitrage? Assume the $1 is borrowed and S0 = spot rate; F1 = one-year forward rate; RF = foreign country risk-free rate; and RUS = U.S.risk-free rate.

Correct AnswerverifiedShow Answer

The spot rate on the Norwegian kroner is 7.0305.The exchange rate one year from now is expected to be 7.0614 assuming that relative interest rate parity exists.Interest rates in Norway are 3.3 percent.What is the interest rate in the U.S.?

Correct AnswerverifiedShow Answer

Assume the current spot rate between the UK and the U.S.is £.6379 per $1,the expected inflation rate in the U.S.is 1.9 percent,and the expected inflation rate in the UK is 2.8 percent.If relative purchasing power parity exists,what will the exchange rate be next year?

Correct AnswerverifiedShow Answer

Assume your favorite running shoes cost $119 in the U.S.while the identical shoes cost C$139.50 in Canada.According to purchasing power parity,what is the C$/$ exchange rate?

Correct AnswerverifiedShow Answer

Which country is correctly matched with its currency?

Correct AnswerverifiedShow Answer

Assume the exchange rates in New York for $1 are C$1.1382 and £.6387 while in Toronto,C$1 will buy £.5612.How much profit can you earn on $10,000 using triangle arbitrage?

Correct AnswerverifiedShow Answer

Suppose the spot exchange rate for the Hungarian forint is HUF246.Interest rates in the United States are 4.3 percent per year.They are 3.4 percent in Hungary.What do you predict the exchange rate will be in four years?

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

You are going to London and plan on spending £4,500.How many dollars will this trip cost you if the currency per $1 is £.6391?

Correct AnswerverifiedShow Answer

Currently,you can exchange €100 for $125.The inflation rate in Europe is expected to be 2.5 percent.In one year,it is expected that €100 can be exchanged for $125.88.Assume relative purchasing power parity exists.What is the expected inflation rate in the U.S.?

Correct AnswerverifiedShow Answer

Assume $1 = €.8036 = A$1.1757.What is the cross-rate for Australian dollars in terms of euros?

Correct AnswerverifiedShow Answer

The spot rate on the Hong Kong dollar is 7.75.Interest rates in Hong Kong are expected to be 6 percent while they are anticipated to be 3 percent in the U.S.What is the expected exchange rate two years from now?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You have just agreed to a forward trade that will be settled six months from now.When is the exchange rate for this transaction determined?

Correct AnswerverifiedShow Answer

Your German friend has decided to come and visit you in the U.S.You estimate the cost of her trip at $2,200.What is the cost to her in euros if the U.S.dollar equivalent of the euro is 1.2452?

Correct AnswerverifiedShow Answer

Which one of the following best describes an agreement you make today to exchange U.S.dollars for British pounds three months from now?

Correct AnswerverifiedShow Answer

Suppose you could buy 1,115 South Korean won or 100 Pakistani rupees last year for $1.Today,$1 will buy you 1,113 won or 102 rupees.Which one of the following occurred over the past year?

Correct AnswerverifiedShow Answer

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