Question 1

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

Accepted Answer

A)   $1.4860
B)   $1.6511
C)   $1.8346
D)   $2.0384
E)   $2.2422F) A) and D)
G) A) and C)

Question 2

When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 3

If one British pound can purchase $1.98 U.S. dollars, how many British pounds can one U.S. dollar buy?

Accepted Answer

A)   0.5051
B)   0.5556
C)   0.6111
D)   0.6722
E)   0.7394F) C) and D)
G) A) and C)

Question 4

Which of the following statements is NOT CORRECT?

Accepted Answer

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) D) and E)
G) B) and E) D

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company's currency, will be worth less than was originally projected because of exchange rate changes.

Accepted Answer

A) True 
 B)False  True

Question 7

Which of the following are reasons why companies move into international operations?

Accepted Answer

A)   To take advantage of lower production costs in regions where labor costs are relatively low.
B)   To develop new markets for the firm's products.
C)   To better serve their primary customers.
D)   Because important raw materials are located abroad.
E)   All of the above.F) B) and C)
G) A) and E)

Question 8

A box of candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP)  holds, how many Swiss francs are required to purchase one U.S. dollar?

Accepted Answer

A)   0.9448
B)   1.0498
C)   1.1664
D)   1.2960
E)   1.4400F) None of the above
G) A) and C)

Question 9

Suppose a U.S. firm buys $200,000 worth of television tubes from a Mexican manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received) . The rising U.S. deficit has caused the dollar to depreciate against the peso recently. The current exchange rate is 5.50 pesos per U.S. dollar. The 90-day forward rate is 5.45 pesos/dollar. The firm goes into the forward market today and buys enough Mexican pesos at the 90-day forward rate to completely cover its trade obligation. Assume the spot rate in 90 days is 5.30 Mexican pesos per U.S. dollar. How much in U.S. dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge?

Accepted Answer

A)   $4,897.59
B)   $5,155.36
C)   $5,426.69
D)   $5,712.31
E)   $5,997.92F) B) and D)
G) B) and E)

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that currently, 1 British pound equals 1.98 U.S. dollars and 1 U.S. dollar equals 1.02 Swiss francs. How many Swiss francs are needed to purchase 1 pound?

Accepted Answer

A)   1.9691
B)   2.0196
C)   2.0701
D)   2.1218
E)   2.1749F) B) and E)
G) A) and D)

Question 12

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 = 0.64 euro. What is the cross rate of Swiss francs to euros? (In other words, how many Swiss francs are needed to purchase one euro?)

Accepted Answer

A)   1.9828
B)   2.2031
C)   2.4234
D)   2.6658
E)   2.9324F) B) and C)
G) B) and D)

Question 13

Exchange rate quotations consist solely of direct quotations.

Accepted Answer

A) True 
 B)False

Question 14

If one U.S. dollar sells for 0.60 British pound, how many dollars should one British pound sell for?

Accepted Answer

A)   1.0935
B)   1.2150
C)   1.3500
D)   1.5000
E)   1.6667F) A) and E)
G) None of the above E

Question 15

A product sells for $750 in the United States. The spot exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP)  holds, what is the price of the product in Switzerland?

Accepted Answer

A)   902.14
B)   1,002.38
C)   1,113.75
D)   1,237.50
E)   1,361.25F) A) and E)
G) B) and E)

Question 16

Suppose a foreign investor who holds tax-exempt Eurobonds paying 9% is considering investing in an equivalent-risk domestic bond in a country with a 28% withholding tax on interest paid to foreigners. If 9% 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?

Accepted Answer

A)   9.11%
B)   10.13%
C)   11.25%
D)   12.50%
E)   13.75%F) A) and B)
G) None of the above

Question 17

A Eurodollar is a U.S. dollar deposited in a bank outside the United States.

Accepted Answer

A) True 
 B)False

Question 18

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?

Accepted Answer

A)   If interest rate parity holds, 6-month interest rates should be the same in the U.S., Britain, and Japan.
B)   If interest rate parity holds among the three countries, the United States should have the highest 6-month interest rates and Japan should have the lowest rates.
C)   If interest rate parity holds among the three countries, Britain should have the highest 6-month interest rates and Japan should have the lowest rates.
D)   If interest rate parity holds among the three countries, Japan should have the highest 6-month interest rates and Britain should have the lowest rates.
E)   If interest rate parity holds among the three countries, the United States should have the highest 6-month interest rates and Britain should have the lowest rates.F) A) and C)
G) D) and E)

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 17: Multinational Financial Management

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

Correct Answer
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When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with the U.S. dollar.

Correct Answer
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If one British pound can purchase $1.98 U.S. dollars, how many British pounds can one U.S. dollar buy?

Correct Answer
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Which of the following statements is NOT CORRECT?

Correct Answer
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D

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

Correct Answer
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Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company's currency, will be worth less than was originally projected because of exchange rate changes.

Correct Answer
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True

Which of the following are reasons why companies move into international operations?

Correct Answer
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A box of candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP) holds, how many Swiss francs are required to purchase one U.S. dollar?

Correct Answer
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Correct Answer
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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.

Correct Answer
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Suppose that currently, 1 British pound equals 1.98 U.S. dollars and 1 U.S. dollar equals 1.02 Swiss francs. How many Swiss francs are needed to purchase 1 pound?

Correct Answer
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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 = 0.64 euro. What is the cross rate of Swiss francs to euros? (In other words, how many Swiss francs are needed to purchase one euro?)

Correct Answer
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Exchange rate quotations consist solely of direct quotations.

Correct Answer
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If one U.S. dollar sells for 0.60 British pound, how many dollars should one British pound sell for?

Correct Answer
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E

A product sells for $750 in the United States. The spot exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland?

Correct Answer
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A Eurodollar is a U.S. dollar deposited in a bank outside the United States.

Correct Answer
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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.

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

Correct Answer
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Exam 17: Multinational Financial Management

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

Correct AnswerverifiedShow Answer

When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with the U.S. dollar.

Correct AnswerverifiedShow Answer

If one British pound can purchase $1.98 U.S. dollars, how many British pounds can one U.S. dollar buy?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company's currency, will be worth less than was originally projected because of exchange rate changes.

Correct AnswerverifiedTrue

Which of the following are reasons why companies move into international operations?

Correct AnswerverifiedShow Answer

A box of candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP) holds, how many Swiss francs are required to purchase one U.S. dollar?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Suppose that currently, 1 British pound equals 1.98 U.S. dollars and 1 U.S. dollar equals 1.02 Swiss francs. How many Swiss francs are needed to purchase 1 pound?

Correct AnswerverifiedShow Answer

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 = 0.64 euro. What is the cross rate of Swiss francs to euros? (In other words, how many Swiss francs are needed to purchase one euro?)

Correct AnswerverifiedShow Answer

Exchange rate quotations consist solely of direct quotations.

Correct AnswerverifiedShow Answer

If one U.S. dollar sells for 0.60 British pound, how many dollars should one British pound sell for?

Correct AnswerverifiedE

A product sells for $750 in the United States. The spot exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A Eurodollar is a U.S. dollar deposited in a bank outside the United States.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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D

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True

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E

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