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Exam 21: International Financial Management

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Question 1

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Exchange rates influence a multinational firm's inventory policy because changing currency values can affect the value of inventory.

A) True
B) False

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Question 2

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Which of the following statements is NOT correct?

A) Any bond sold outside the country of the borrower is called an international bond.
B) Foreign bonds and Eurobonds are two important types of international bonds.
C) Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold.
D) The term "Eurobond" applies only to foreign bonds denominated in US currency.

E) A) and D)
F) A) and B)

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Question 3

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Canada and most other major industrialized nations currently operate under a system of floating exchange rates.

Suppose 6 months ago a British investor bought a 6-month Canadian Treasury bill at a price of $9,708.74,with a maturity value of $10,000.The exchange rate at that time was 1.9516 dollars per pound.Today,at maturity,the exchange rate is 2.0751 dollars per pound.What is the annualized rate of return to the British investor?

Suppose 104 yen could be purchased in the foreign exchange market for one Canadian dollar today.If the yen depreciates by 8.0% tomorrow,how many yen could one Canadian dollar buy tomorrow?

Legal and economic differences among countries,although important,do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries.

The cash flows relevant for a foreign investment should,from the parent company's perspective,include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.

What is NOT one of the requirements of international financial management?

Stover Corporation,a Canadian importer,makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs,or $38,610,at the spot rate of 1.035 francs per dollar.The terms of the purchase are net 90 days,and the Canadian firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk.Suppose the firm completes a forward hedge at the 90-day forward rate of 1.099 francs.If the spot rate in 90 days is actually 1.062 francs,how much will the Canadian firm have saved or lost in Canadian dollars by hedging its exchange rate exposure?

Suppose one British pound can purchase 1.82 US dollars today in the foreign exchange market,and currency forecasters predict that the US dollar will depreciate by 12.0% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

Suppose DeGraw Corporation,a Canadian exporter,sold a solar heating station to a Japanese customer at a price of 106.0875 million yen,when the exchange rate was 103.5 yen per dollar.In order to close the sale,DeGraw agreed to make the bill payable in yen,thus agreeing to take some exchange rate risk for the transaction.The terms were net 6 months.If the yen fell against the dollar such that one dollar would buy 110.2 yen when the invoice was paid,what dollar amount would DeGraw actually receive after it exchanged yen for Canadian dollars?

A product sells for $7,500 in Canada.The exchange rate is $1USD:$1.33CAD.If the law of one price holds,what is the price of the product in United States?

Which of the following is NOT likely to be a reason that companies move into international operations?

Chen Transport,a Canadian company,is considering expanding its operations into a foreign country for 5 years.The required investment at Time = 0 is $10 million.The firm forecasts total cash inflows of $4 million per year for 2 years,$6 million for the next 2 years,and then a possible terminal value of $8 million.Due to political risk factors,Chen believes that there is a 50% chance that the gross terminal value will be only $2 million and a 50% chance that it will be $8 million.In addition,the government of the host country will block 20% of all cash flows.Thus,cash flows that can be repatriated are 80% of those projected.Chen's cost of capital is 15%,but it adds one percentage point to all foreign projects to account for exchange rate risk.Under these conditions,what is the project's NPV?

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar,then what is the forward rate for the Israeli shekel selling at?

A product sells for $750 in Canada.The exchange rate is $1 to 9.55 pesos.If the law of one price holds,what is the price of the product in Mexico?

Which of the following best describes the work of a financial analyst in a multinational context?

Which of the following best describes how one would determine a currency cross rate?

Because political risk is seldom negotiable,it cannot be explicitly addressed in international corporate financial analysis.

In Japan,90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return.In Canada,90-day securities have a 4% annualized return and 180-day securities have a 4.5% annualized return.All securities are of equal risk,and Japanese securities are denominated in terms of the Japanese yen.Assuming that interest rate parity holds in all markets,which statement about the exchange rate is true?