Question 1

You are considering a project in Poland which has an initial cost of 275,000PLN.The project is expected to return a one-time payment of 390,000PLN four years from now.The risk-free rate of return is 4.5 percent in the U.S.and 3 percent in Poland.The inflation rate is 4 percent in the U.S.and 2 percent in Poland.Currently,you can buy 277PLN for 100USD.How much will the payment of 390,000PLN be worth in U.S.dollars four years from now?

Accepted Answer

A)   $149,568
B)   $180,560
C)   $987,251
D)   $1,016,926
E)   $1,304,357F) A) and E)
G) A) and D)

Question 2

Spot trades must be settled:

Accepted Answer

A)   at the time of the trade.
B)   on the day following the trade date.
C)   within two business days.
D)   within three business days.
E)   within one week of the trade date.F) B) and D)
G) A) and B)

Question 3

The type of exchange rate risk known as translation exposure is best described as:

Accepted Answer

A)   the risk that a positive net present value (NPV) project could turn into a negative NPV project because of changes in the exchange rate between two countries.
B)   the problem encountered by an accountant of an international firm who is trying to record balance sheet account values.
C)   the fluctuation in prices faced by importers of foreign goods.
D)   the variance in relative pay rates based on the currency used to pay an employee.
E)   the variance between the revenue of an exporter who uses forward rates and an equivalent exporter who does not use forward rates.F) B) and E)
G) A) and B) B

Question 4

Which one of the following is a suggested method of reducing a U.S.importer's short-run exposure to exchange rate risk?

Accepted Answer

A)   entering a forward exchange agreement timed to match the invoice date
B)   investing U.S.dollars when an order is placed and using the investment proceeds to pay the invoice
C)   exchanging funds on the spot market at the time an order is placed with a foreign supplier
D)   exchanging funds on the spot market at the time an order is received
E)   exchanging funds on the spot market at the time an invoice is payableF) C) and E)
G) C) and D)

Question 5

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

Question 6

Which of the following statements are correct?
I.The usage of forward rates increases the short-run exposure to exchange rate risk.
II.Accounting translation gains and losses are recorded in the equity section of the balance sheet.
III.The long-run exchange rate risk faced by an international firm can be reduced if a firm borrows money in the foreign country where the firm has operations.
IV.Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk.

Accepted Answer

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

Question 7

Which one of the following statements is correct concerning the foreign exchange market?

Accepted Answer

A)   The trading floor of the foreign exchange market is located in London,England.
B)   The foreign exchange market is the world's second largest financial market.
C)   The four primary currencies that are traded in the foreign exchange market are the U.S.dollar,the British pound,the French franc,and the euro.
D)   Importers,exporters,and speculators are key players in the foreign exchange market.
E)   The U.S.created a communications network called SWIFT to facilitate currency trading.F) All of the above
G) C) and D)

Question 8

You are expecting a payment of C$100,000 four 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 = $0.8273.How much will the payment four years from now be worth in U.S.dollars?

Accepted Answer

A)   $61,129
B)   $62,414
C)   $66,667
D)   $78,202
E)   $81,745F) B) and E)
G) None of the above

Question 9

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 B)
G) A) and C)

Question 10

The camera you want to buy costs $230 in the U.S.How much will the identical camera cost in Canada if the exchange rate is C$1 = $0.8262? Assume absolute purchasing power parity exists.

Accepted Answer

A)   $238.77
B)   $242.19
C)   $243.52
D)   $248.60
E)   $278.38F) A) and B)
G) B) and D)

Question 11

A basic interest rate swap generally involves trading a:

Accepted Answer

A)   short-term rate for a long-term rate.
B)   foreign rate for a domestic rate.
C)   government rate for a corporate rate.
D)   fixed rate for a variable rate.
E)   taxable rate for a tax-exempt rate.F) C) and D)
G) D) and E) D

Question 12

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Accepted Answer

A)   accounting and payroll functions
B)   partial assembly of components manufactured in the firm's home country
C)   military weapons manufacturing
D)   packing materials manufacturing for use by the home country firm
E)   production of minor parts,such as nuts and bolts,for use by the home country firmF) A) and B)
G) A) and E)

Question 13

Today,you can exchange $1 for £0.6522.Last week,£1 was worth $1.6104.How much profit or loss would you now have if you had converted £100 into dollars last week?

Accepted Answer

A)   loss of ₤1.57
B)   loss of ₤0.39
C)   loss of ₤0.07
D)   profit of ₤5.03
E)   profit of ₤5.59F) C) and E)
G) C) and D)

Question 14

You are expecting a payment of 450,000PLN three years from now.The risk-free rate of return is 3 percent in the U.S.and 4 percent in Poland.The inflation rate is 2.5percent in the U.S.and 3 percent in Poland.Currently,you can buy 277PLN for 100USD.How much will the payment three years from now be worth in U.S.dollars?

Accepted Answer

A)   $154,751
B)   $157,677
C)   $219,511
D)   $1,317,269
E)   $1,369,888F) A) and D)
G) All of the above

Question 15

What is the relationship between the value of the dollar and the value of the euro in relation to the rate of inflation in the United States?

Accepted Answer

The question asks the student to define ...

Question 16

You want to invest in a project in Canada.The project has an initial cost of C$2.2 million and is expected to produce cash inflows of C$900,000 a year for 3 years.The project will be worthless after the first 3 years.The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S.The applicable interest rate for the project in Canada is 13 percent.The current spot rate is C$1 = $0.8158.What is the net present value of this project in Canadian dollars?

Accepted Answer

A)   -C$91,889
B)   -C$87,924
C)   -C$74,963
D)   C$165,139
E)   C$167,528F) B) and D)
G) B) and C)

Question 17

Assume that an item costs $100 in the U.S.and the exchange rate between the U.S.and Canada is: $1 = C$1.27.Which one of the following concepts supports the idea that the item that sells for $100 in the U.S.is currently selling in Canada for $127?

Accepted Answer

A)   unbiased forward rates condition
B)   uncovered interest rate parity
C)   international Fisher effect
D)   purchasing power parity
E)   interest rate parityF) B) and E)
G) B) and D) D

Question 18

Assume you can buy 52 British pounds with 100 Canadian dollars.How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S.dollars?

Accepted Answer

A)   $0.78
B)   $1.04
C)   $1.33
D)   $1.56
E)   $1.64F) B) and C)
G) A) and B)

Question 19

-You want to invest in a riskless project in Sweden.The project has an initial cost of SKr3.8million and is expected to produce cash inflows of SKr1.75 million a year for three years.The project will be worthless after three years.The expected inflation rate in Sweden is 3.2 percent while it is 4.3 percent in the U.S.A risk-free security is paying 5.5 percent in the U.S.The current spot rate is $1 = SKr7.7274.What is the net present value of this project in Swedish kroner? Assume the international Fisher effect applies.

Accepted Answer

A)   SKr587,561
B)   SKr701,458
C)   SKr823,333
D)   SKr958,029
E)   SKr1,019,774F) B) and E)
G) A) and B)

Question 20

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?

Accepted Answer

A)   ADR
B)   national registry
C)   national discount window
D)   foreign exchange market
E)   Eurobond marketF) B) and C)
G) A) and E)

Exam 21: International Corporate Finance

Correct Answer
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Spot trades must be settled:

Correct Answer
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The type of exchange rate risk known as translation exposure is best described as:

Correct Answer
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B

Which one of the following is a suggested method of reducing a U.S.importer's short-run exposure to exchange rate risk?

Correct Answer
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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
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Which one of the following statements is correct concerning the foreign exchange market?

Correct Answer
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Correct Answer
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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
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The camera you want to buy costs $230 in the U.S.How much will the identical camera cost in Canada if the exchange rate is C$1 = $0.8262? Assume absolute purchasing power parity exists.

Correct Answer
verified

A basic interest rate swap generally involves trading a:

Correct Answer
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D

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Correct Answer
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Today,you can exchange $1 for £0.6522.Last week,£1 was worth $1.6104.How much profit or loss would you now have if you had converted £100 into dollars last week?

Correct Answer
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Correct Answer
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What is the relationship between the value of the dollar and the value of the euro in relation to the rate of inflation in the United States?

Correct Answer
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The question asks the student to define ...
View Answer

Correct Answer
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Assume that an item costs $100 in the U.S.and the exchange rate between the U.S.and Canada is: $1 = C$1.27.Which one of the following concepts supports the idea that the item that sells for $100 in the U.S.is currently selling in Canada for $127?

Correct Answer
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D

Assume you can buy 52 British pounds with 100 Canadian dollars.How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S.dollars?

Correct Answer
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Correct Answer
verified

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?

Correct Answer
verified

Exam 21: International Corporate Finance

Correct AnswerverifiedShow Answer

Spot trades must be settled:

Correct AnswerverifiedShow Answer

The type of exchange rate risk known as translation exposure is best described as:

Correct AnswerverifiedB

Which one of the following is a suggested method of reducing a U.S.importer's short-run exposure to exchange rate risk?

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

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning the foreign exchange market?

Correct AnswerverifiedShow Answer

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

The camera you want to buy costs $230 in the U.S.How much will the identical camera cost in Canada if the exchange rate is C$1 = $0.8262? Assume absolute purchasing power parity exists.

Correct AnswerverifiedShow Answer

A basic interest rate swap generally involves trading a:

Correct AnswerverifiedD

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Correct AnswerverifiedShow Answer

Today,you can exchange $1 for £0.6522.Last week,£1 was worth $1.6104.How much profit or loss would you now have if you had converted £100 into dollars last week?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the relationship between the value of the dollar and the value of the euro in relation to the rate of inflation in the United States?

Correct AnswerverifiedThe question asks the student to define ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Assume that an item costs $100 in the U.S.and the exchange rate between the U.S.and Canada is: $1 = C$1.27.Which one of the following concepts supports the idea that the item that sells for $100 in the U.S.is currently selling in Canada for $127?

Correct AnswerverifiedD

Assume you can buy 52 British pounds with 100 Canadian dollars.How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S.dollars?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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B

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D

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The question asks the student to define ...
View Answer

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D

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