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Exam 19: Multinational Financial Management

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Question 41

True/False

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If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market,then the forward currency is said to be selling at a discount to the spot rate.

A) True
B) False

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Question 42

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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 U.S.currency.
E) A Eurodollar is a U.S.dollar deposited in a bank outside the U.S.

F) C) and E)
G) B) and D)

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Question 43

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

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 141 yen per dollar,what would the car be selling for today in U.S.dollars?

In Japan,90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return.In the United States,90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%.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 of the following statements is most CORRECT?

Suppose one British pound can purchase 1.86 U.S.dollars today in the foreign exchange market,and currency forecasters predict that the U.S.dollar will depreciate by 12.00% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

If one U.S.dollar buys 1.59 Canadian dollars,how many U.S.dollars can you purchase for one Canadian dollar?

LIBOR is an acronym for London Interbank Offered Rate,which is an average of interest rates offered by London banks to smaller U.S.corporations on all deposits.

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.

Multinational financial management requires that

Suppose DeGraw Corporation,a U.S.exporter,sold a solar heating station to a Japanese customer at a price of 130.5 million yen,when the exchange rate was 140.0 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 154.4 yen when the invoice was paid,what dollar amount would DeGraw actually receive after it exchanged yen for U.S.dollars?

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.

When considering the risk of a foreign investment,a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.76 shekels per dollar,then the forward rate for the Israeli shekel is selling at a(n) ______________ to the spot rate.

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

A currency trader observes the following quotes in the spot market: $\begin{array} { l l l } 1 \text { U.S. dollar } = & 1.34 & \text { Japanese yen } \\1 \text { British pound } = & 2.25 & \text { Swiss francs } \\1 \text { British pound } = & 1.65 & \text { U.S. dollars }\end{array}$ Given this information,how many yen can be purchased for 1 Swiss franc? Do not round the intermediate calculations and round the final answer to four decimal places.

Blenman Corporation,based in the United States,arranged a 2-year,$1,000,000 loan to fund a project in Mexico.The loan is denominated in Mexican pesos,carries a 6.5% nominal rate,and requires equal semiannual payments.The exchange rate at the time of the loan was 5.75 pesos per dollar,but it dropped to 5.10 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus,Blenman must convert U.S.funds to Mexican pesos to make its payments.If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period,what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places.

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 141 yen per dollar,what would the car be selling for today in U.S.dollars?