Question 1

In the spot market,$1 is currently equal to A$1.42.The expected inflation rate is 3 percent in Australia and 2 percent in the U.S..What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

A)  A$1.4058
B)  A$1.4062
C)  A$1.4286
D)  A$1.4342
E)  A$1.4484F) B) and D)
G) B) and E)

Question 2

The expected inflation rate in Switzerland is 2 percent while it is 3 percent in the U.S.A risk-free asset in the U.S.is yielding 3.5 percent.What real rate of return should you expect on a risk-free Swiss security?

Accepted Answer

A)  2.0%
B)  2.5%
C)  3.0%
D)  3.5%
E)  4.0%F) A) and E)
G) B) and C)

Question 3

The idea that commodities have the same value no matter where they are purchased or what currency is used is known as _____ parity.

Accepted Answer

A)  forward exchange rates
B)  absolute purchasing power
C)  interest rate
D)  relative purchasing power
E)  uncovered interest rateF) B) and E)
G) D) and E)

Question 4

Relative purchasing power parity:

Accepted Answer

A)  states that identical items should cost the same regardless of the currency used to make the purchase.
B)  relates differences in inflation rates to changes in exchange rates.
C)  compares the real rate of return to the nominal rate of return.
D)  looks at the factors that determine the changes in interest rates.
E)  analyzes the changes in inflation rates to determine the cause.F) B) and D)
G) A) and D)

Question 5

Describe the foreign currency and home currency approaches to capital budgeting.Which is better? Which approach would you recommend a U.S.firm use? Justify your answer.

Accepted Answer

In the home currency approach,you must f...

Question 6

Which of the following conditions must exist for absolute purchasing power parity to hold?
I.the goods are identical
II.the goods have equal economic values
III.transaction costs are equal to zero
IV.there are no trade barriers

Accepted Answer

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

Question 7

An agreement to trade currencies based on the exchange rate today for settlement within two business days is called a(n) _____ trade.

Accepted Answer

A)  swap
B)  option
C)  futures
D)  forward
E)  spotF) A) and D)
G) B) and D)

Question 8

When the German mark is quoted as $.52,this quote is a(n) :

Accepted Answer

A)  triangular rate.
B)  indirect rate.
C)  direct rate.
D)  cross rate.
E)  None of the above.F) B) and E)
G) A) and D) C

Question 9

Are exchange rate changes between the U.S.dollar and the Japanese yen necessarily good or bad for Japanese automakers? Explain your reasoning.

Accepted Answer

On the plus side,a strengthened dollar m...

Question 10

The cross rate is the:

Accepted Answer

A)  exchange rate between the U.S.dollar and another currency.
B)  exchange rate between two currencies,neither of which is generally the U.S.dollar.
C)  rate converting the direct rate into the indirect rate.
D)  estimated based on the weighted average cost of capital by the agent at the exchange kiosk.
E)  None of the above.F) All of the above
G) C) and E)

Question 11

The camera you want to buy costs $399 in the U.S.If absolute purchasing power parity exists,the identical camera will cost _____ in Canada if the exchange rate is C$1 = $.7349.

Accepted Answer

A)  $266.67
B)  $293.23
C)  $505.09
D)  $542.93
E)  $566.67F) C) and D)
G) B) and E)

Question 12

You are analyzing a project with an initial cost of £80,000.The project is expected to return £10,000 the first year,£40,000 the second year and £50,000 the third and final year.The current spot rate is £.56.The nominal risk-free return is 5 percent in the U.K.and 7 percent in the U.S.The return relevant to the project is 8 percent in the U.K.and 9.25 percent in the U.S.Assume that uncovered interest rate parity exists.What is the net present value of this project in U.S.dollars?

Accepted Answer

A)  $7,787
B)  $8,002
C)  $8,312
D)  $8,511
E)  $8,885F) All of the above
G) A) and D) E

Question 13

Which one of following statements is not correct?

Accepted Answer

A)  Importers are participants in the foreign exchange market.
B)  The foreign exchange market is an over-the-counter market.
C)  There are no speculators in the foreign exchange market.
D)  Exporters are participants in the foreign exchange market.
E)  Portfolio managers are participants in the foreign exchange market.F) A) and B)
G) A) and D)

Question 14

Assume that you can buy 250 Canadian dollars with 100 British pounds.Which one of the following statements is correct given the following exchange rates? Assume that you start out with British pounds.

Accepted Answer

A)  You can earn a profit of C$2.47 by using triangle arbitrage.
B)  You can earn a profit of £1.17 by using triangle arbitrage.
C)  You can earn a profit of C$1.17 by using triangle arbitrage.
D)  You can earn a profit of £2.47 by using triangle arbitrage.
E)  You cannot earn a profit given the current exchange rates.F) A) and C)
G) A) and E)

Question 15

Suppose that the one-year forward rate on pounds is $1.75£.Given no arbitrage opportunities,this implies that traders expect:

Accepted Answer

A)  the spot rate to be $1.75£ in one year.
B)  the spot rate to be greater than $1.75£ in one year.
C)  the spot rate to be less than $1.75£ in one year.
D)  the spot rate to be greater than or equal to $1.75£ in one year.
E)  the spot rate to be less than or equal to $1.75£ in one year.F) C) and D)
G) A) and B) A

Question 16

The price of one country's currency expressed in terms of another country's currency is:

Accepted Answer

A)  by definition,one unit of currency.
B)  the cross inflation rate.
C)  the depository rate.
D)  the exchange rate.
E)  the foreign interest rate.F) A) and E)
G) B) and D)

Question 17

What kind of trade involves agreeing today on an exchange rate for settlement in 90 days?

Accepted Answer

A)  Spot trade
B)  Futures trade
C)  Forward trade
D)  Triangle trade
E)  None of the aboveF) A) and B)
G) A) and D)

Question 18

The home currency approach:

Accepted Answer

A)  generally produces more reliable results than those found using the foreign currency approach.
B)  requires an applicable exchange rate for every time period for which there is a cash flow.
C)  uses the current risk-free nominal rate to discount all of the cash flows related to a project.
D)  stresses the use of the real rate of return to compute the net present value (NPV) of a project.
E)  converts a foreign denominated NPV into a dollar denominated NPV.F) A) and B)
G) A) and C)

Question 19

You want to import $45,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.0218?

Accepted Answer

A)  1,843,010Rs
B)  2,032,018Rs
C)  2,064,220Rs
D)  2,075,002Rs
E)  2,076,289RsF) B) and D)
G) A) and B)

Question 20

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n) :

Accepted Answer

A)  open exchange rate.
B)  cross-rate.
C)  backward rate.
D)  forward rate.
E)  interest rate.F) B) and C)
G) A) and D)

Exam 31: International Corporate Finance

In the spot market,$1 is currently equal to A$1.42.The expected inflation rate is 3 percent in Australia and 2 percent in the U.S..What is the expected exchange rate one year from now if relative purchasing power parity exists?

Correct Answer
verified

The expected inflation rate in Switzerland is 2 percent while it is 3 percent in the U.S.A risk-free asset in the U.S.is yielding 3.5 percent.What real rate of return should you expect on a risk-free Swiss security?

Correct Answer
verified

The idea that commodities have the same value no matter where they are purchased or what currency is used is known as _____ parity.

Correct Answer
verified

Relative purchasing power parity:

Correct Answer
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Describe the foreign currency and home currency approaches to capital budgeting.Which is better? Which approach would you recommend a U.S.firm use? Justify your answer.

Correct Answer
verified
In the home currency approach,you must f...
View Answer

Which of the following conditions must exist for absolute purchasing power parity to hold? I.the goods are identical II.the goods have equal economic values III.transaction costs are equal to zero IV.there are no trade barriers

Correct Answer
verified

An agreement to trade currencies based on the exchange rate today for settlement within two business days is called a(n) _____ trade.

Correct Answer
verified

When the German mark is quoted as $.52,this quote is a(n) :

Correct Answer
verified
C

Are exchange rate changes between the U.S.dollar and the Japanese yen necessarily good or bad for Japanese automakers? Explain your reasoning.

Correct Answer
verified
On the plus side,a strengthened dollar m...
View Answer

The cross rate is the:

Correct Answer
verified

The camera you want to buy costs $399 in the U.S.If absolute purchasing power parity exists,the identical camera will cost _____ in Canada if the exchange rate is C$1 = $.7349.

Correct Answer
verified

Correct Answer
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E

Which one of following statements is not correct?

Correct Answer
verified

Assume that you can buy 250 Canadian dollars with 100 British pounds.Which one of the following statements is correct given the following exchange rates? Assume that you start out with British pounds.

Correct Answer
verified

Suppose that the one-year forward rate on pounds is $1.75£.Given no arbitrage opportunities,this implies that traders expect:

Correct Answer
verified
A

The price of one country's currency expressed in terms of another country's currency is:

Correct Answer
verified

What kind of trade involves agreeing today on an exchange rate for settlement in 90 days?

Correct Answer
verified

The home currency approach:

Correct Answer
verified

You want to import $45,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.0218?

Correct Answer
verified

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n) :

Correct Answer
verified

Exam 31: International Corporate Finance

In the spot market,$1 is currently equal to A$1.42.The expected inflation rate is 3 percent in Australia and 2 percent in the U.S..What is the expected exchange rate one year from now if relative purchasing power parity exists?

Correct AnswerverifiedShow Answer

The expected inflation rate in Switzerland is 2 percent while it is 3 percent in the U.S.A risk-free asset in the U.S.is yielding 3.5 percent.What real rate of return should you expect on a risk-free Swiss security?

Correct AnswerverifiedShow Answer

The idea that commodities have the same value no matter where they are purchased or what currency is used is known as _____ parity.

Correct AnswerverifiedShow Answer

Relative purchasing power parity:

Correct AnswerverifiedShow Answer

Describe the foreign currency and home currency approaches to capital budgeting.Which is better? Which approach would you recommend a U.S.firm use? Justify your answer.

Correct AnswerverifiedIn the home currency approach,you must f...View AnswerShow Answer

Which of the following conditions must exist for absolute purchasing power parity to hold? I.the goods are identical II.the goods have equal economic values III.transaction costs are equal to zero IV.there are no trade barriers

Correct AnswerverifiedShow Answer

An agreement to trade currencies based on the exchange rate today for settlement within two business days is called a(n) _____ trade.

Correct AnswerverifiedShow Answer

When the German mark is quoted as $.52,this quote is a(n) :

Correct AnswerverifiedC

Are exchange rate changes between the U.S.dollar and the Japanese yen necessarily good or bad for Japanese automakers? Explain your reasoning.

Correct AnswerverifiedOn the plus side,a strengthened dollar m...View AnswerShow Answer

The cross rate is the:

Correct AnswerverifiedShow Answer

The camera you want to buy costs $399 in the U.S.If absolute purchasing power parity exists,the identical camera will cost _____ in Canada if the exchange rate is C$1 = $.7349.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

Which one of following statements is not correct?

Correct AnswerverifiedShow Answer

Assume that you can buy 250 Canadian dollars with 100 British pounds.Which one of the following statements is correct given the following exchange rates? Assume that you start out with British pounds.

Correct AnswerverifiedShow Answer

Suppose that the one-year forward rate on pounds is $1.75£.Given no arbitrage opportunities,this implies that traders expect:

Correct AnswerverifiedA

The price of one country's currency expressed in terms of another country's currency is:

Correct AnswerverifiedShow Answer

What kind of trade involves agreeing today on an exchange rate for settlement in 90 days?

Correct AnswerverifiedShow Answer

The home currency approach:

Correct AnswerverifiedShow Answer

You want to import $45,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.0218?

Correct AnswerverifiedShow Answer

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n) :

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
In the home currency approach,you must f...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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On the plus side,a strengthened dollar m...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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