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Exam 19: Multinational Financial Management

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Question 21

True/False

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

A) True
B) False

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Question 22

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The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.

A) True
B) False

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Question 23

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A box of candy costs 28.80 Swiss francs in Switzerland and $21.80 in the United States.Assuming that purchasing power parity (PPP) holds,how many Swiss francs are required to purchase one U.S.dollar? Do not round the intermediate calculations and round the final answer to four decimal places.

A foreign currency will,on average,depreciate against the U.S.dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Suppose hockey skates sell in Canada for 113 Canadian dollars,and 1 Canadian dollar equals 0.71 U.S.dollar.If purchasing power parity (PPP) holds,what is the price of hockey skates in the United States?

Suppose 90-day investments in Britain have a 6.00% annualized return and a 1.50% quarterly (90-day) return.In the U.S. ,90-day investments of similar risk have a 4.00% annualized return and a 1.00% quarterly (90-day) return.In the 90-day forward market,1 British pound equals $1.70.If interest rate parity holds,what is the spot exchange rate ($/£) ? Do not round the intermediate calculations and round the final answer to four decimal places.

One year ago,a U.S.investor converted dollars to yen and purchased 100 shares of stock in a Japanese company at a price of 3,150 yen per share.The stock's total purchase cost was 315,000 yen.At the time of purchase,in the currency market 1 yen equaled $0.00952.Today,the stock is selling at a price of 3,465 yen per share,and in the currency market $1 equals 145 yen.The stock does not pay a dividend.If the investor were to sell the stock today and convert the proceeds back to dollars,what would be his realized return on his initial dollar investment from holding the stock?

If one U.S.dollar sells for 0.53 British pound,how many dollars should one British pound sell for?

Suppose in the spot market 1 U.S.dollar equals 1.3750 Canadian dollars.6-month Canadian securities have an annualized return of 6.00% (and thus a 6-month periodic return of 3.00%) .6-month U.S.securities have an annualized return of 6.50% and a periodic return of 3.25%.If interest rate parity holds,what is the U.S.dollar-Canadian dollar exchange rate in the 180-day forward market? In other words,how many Canadian dollars are required to purchase one U.S.dollar in the 180-day forward market? Do not round the intermediate calculations and round the final answer to four decimal places.

If one U.S.dollar sells for 0.53 British pound,how many dollars should one British pound sell for?

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

The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.

A currency trader observes the following quotes in the spot market: $\begin{array} { l l l } 1 \text { U.S. dollar } = & 10.875 & \text { Mexican pesos } \\1 \text { British pound } = & 7.500 & \text { Danish krone } \\1 \text { British pound } = & 1.65 & \text { U.S. dollars }\end{array}$ Given this information,how many Mexican pesos can be purchased for 1 Danish krone?

If the inflation rate in the United States is greater than the inflation rate in Britain,other things held constant,the British pound will

Currently,a U.S.trader notes that in the 6-month forward market,the Japanese yen is selling at a premium (that is,you receive more dollars per yen in the forward market than you do in the spot market) ,while the British pound is selling at a discount.Which of the following statements is CORRECT?

Suppose 6 months ago a Swiss investor bought a 6-month U.S.Treasury bill at a price of $9,708.74,with a maturity value of $10,000.00.The exchange rate at that time was 1.441 Swiss francs per dollar.Today,at maturity,the exchange rate is 1.324 Swiss francs per dollar.What is the annualized rate of return to the Swiss investor? Do not round the intermediate calculations and round the final answer to two decimal places.

Suppose the exchange rate between U.S.dollars and Swiss francs is SF 1.41 = $1.00,and the exchange rate between the U.S.dollar and the euro is $1.00 = 0.70 euro.What is the cross rate of Swiss francs to euros? (In other words,how many Swiss francs are needed to purchase one euro?) Do not round the intermediate calculations and round the final answer to four decimal places. ​

A foreign currency will,on average,depreciate against the U.S.dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

If one U.S.dollar buys 0.61 euro,how many dollars can you purchase for one euro?

Suppose a foreign investor who holds tax-exempt Eurobonds paying 10.50% is considering investing in an equivalent-risk domestic bond in a country with a 28.00% withholding tax on interest paid to foreigners.If 10.50% after-tax is the investor's required return,what before-tax rate would the domestic bond need to pay to provide the required after-tax return?