Question 1

You are expecting a payment of 350,000PLN six years from now. The risk-free rate of return is four percent in the U.S. and three percent in Poland. The inﬂation rate is three percent in the U.S. and
Two percent in Poland. Currently, you can buy 291PLN for 100USD. How much will the payment six
Years from now be worth in U.S. dollars?

Accepted Answer

A)   $127,751
B)   $138,525
C)   $749,511
D)   $1,057,269
E)   $1,081,158F) C) and D)
G) A) and B)

Question 2

Taber Mills is a Canadian ﬁrm operating a subsidiary manufacturing plant in Mexico. To offset the ﬁrm's long-run exchange rate risk, Taber Mills should:

Accepted Answer

A)   Invest in another Canadian ﬁrm.
B)   Convert some pesos to dollars and invest those dollars in a Canadian bank.
C)   Convert dollars to pesos and deposit them in a savings account in Mexico.
D)   Borrow pesos from a Mexican lender.
E)   Borrow dollars and deposit those dollars in a Mexican bank.F) None of the above
G) C) and E)

Question 3

A(n)  ____________ is a bond issued in Japan and denominated in yen for sale in other countries.

Accepted Answer

A)   American Depository Receipt.
B)   Samurai bond.
C)   European Currency Unit.
D)   Swap bond.
E)   Eurobond.F) A) and C)
G) B) and D)

Question 4

Provide a deﬁnition for London Interbank Offer Rate (LIBOR).

Accepted Answer

The rate most intern...

Question 5

You want to invest in a project in Canada. The project has an initial cost of C$1.6 million and is expected to produce cash inﬂows of C$750,000 a year for 3 years. The project will be worthless
After the ﬁrst 3 years. The expected inﬂation rate in Canada is 5 percent while it is only 3.5 percent
In the U.S. The applicable interest rate for the project in Canada is 12 percent. The current spot rate
Is C$1 = $0.8637. What is the net present value of this project in Canadian dollars using the foreign
Currency approach?

Accepted Answer

A)   C$187,924
B)   C$201,373
C)   C$246,460
D)   C$265,139
E)   C$267,528F) A) and D)
G) A) and C) B

Question 6

The foreign currency approach to capital budgeting analysis is computationally easier to use than
the home currency approach.

Accepted Answer

A) True 
 B)False

Question 7

The agreed-upon exchange rate used in a forward trade is called the _______________ exchange rate.

Accepted Answer

A)   Spot.
B)   Swap.
C)   Forward.
D)   Parity.
E)   Triangle.F) B) and C)
G) None of the above

Question 8

You are analyzing a project with an initial cost of £150,000. The project is expected to return
£25,000 the first year, £55,000 the second year and £110,000 the third and final year. The current
spot rate is £0.5086. The nominal risk-free return is six percent in the U.K. and 6.5 percent in the U.S. The return relevant to the project is 12 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)   -$8,211
B)   -$7,465
C)   $8,505
D)   $8,730
E)   $8,947F) D) and E)
G) C) and D)

Question 9

[LINE][LINE]A pair of K's woolen gloves sells for C$38.50 in Toronto. If purchasing power parity exists, what is the price of the gloves in Sydney?

Accepted Answer

A)   A$11.55
B)   A$12.84
C)   A$47.47
D)   A$82.84
E)   A$115.47F) A) and B)
G) All of the above

Question 10

Triangle arbitrage helps keep the currency market in equilibrium.

Accepted Answer

A) True 
 B)False  True

Question 11

The foreign exchange market is where:

Accepted Answer

A)   One country's stocks are exchanged for another's.
B)   One country's bonds are exchanged for another's.
C)   One country's currency is traded for another's.
D)   International banks make loans to one another.
E)   International businesses ﬁnalize import/export relationships with one another.F) A) and E)
G) D) and E)

Question 12

Spot exchange rate can best be deﬁned as:

Accepted Answer

A)   An agreement to trade currencies based on the exchange rate today for settlement in two days.
B)   The exchange rate used on trading currencies.
C)   An agreement to exchange currency at some time in the future.
D)   The agreed upon exchange rate to be used in a forward trade.
E)   The idea that the exchange rate adjusts to keep purchasing power constant among currencies.F) B) and D)
G) A) and D)

Question 13

In the spot market, $1 is currently equal to £.5725. The expected inﬂation rate in the U.K. is 3 percent and in Canada 4 percent. What is the expected exchange rate 3 years from now if relative
Purchasing power parity exists?

Accepted Answer

A)   £.55550
B)   £.56678
C)   £.57701
D)   £.57823
E)   £.58401F) A) and E)
G) A) and D)

Question 14

If interest rate parity holds between two countries then it must be true that:

Accepted Answer

A)   The interest rates between the two countries are equal.
B)   Signiﬁcant covered interest arbitrage opportunities exist between the two currencies.
C)   The interest rate differential between the two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate.
D)   The current forward rate is an unbiased predictor of the future exchange rate.
E)   The exchange rate adjusts to keep purchasing power constant across the two currencies.F) D) and E)
G) B) and C)

Question 15

Foreign bonds often have more stringent disclosure rules than domestic bonds.

Accepted Answer

A) True 
 B)False  True

Question 16

Which of the following is the best deﬁnition of foreign exchange market.

Accepted Answer

A)   The market where one country's currency is traded for another's.
B)   International bonds issued in a single country, usually denominated in that country's currency.
C)   Federal Crown corporation that promotes Canadian exports by making loans to foreign purchasers.
D)   The idea that the exchange rate adjusts to keep purchasing power constant among currencies.
E)   The price of one country's currency expressed in another country's currency.F) A) and D)
G) B) and C)

Question 17

The current spot rate for the Norwegian krone is $1 = 6.5483NKR. The expected inﬂation rate in Norway is 2.4 percent and in Canada 3.7 percent. A risk-free asset in Canada is yielding 4.3
Percent. What real rate of return should you expect on a risk-free Norwegian security?

Accepted Answer

A)   3.0 percent
B)   3.3 percent
C)   5.0 percent
D)   5.2 percent
E)   5.6 percentF) C) and D)
G) A) and B)

Question 18

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 rate.F) A) and C)
G) A) and B)

Question 19

Unbiased Forward Rates (UFR)  can best be deﬁned as:

Accepted Answer

A)   The condition stating that the interest rate differential between two countries is equal to the difference between the forward exchange rate and the spot exchange rate.
B)   The condition stating that the current forward rate is an unbiased predictor of the future exchange rate.
C)   The condition stating that the expected percentage change in the exchange rate is equal to the difference in interest rates.
D)   The theory that real interest rates are equal across countries.
E)   The risk related to having international operations in a region where currency values vary.F) C) and D)
G) A) and B)

Question 20

________________ will tell you the price of agreeing today to take delivery of $1US 60 days from now.

Accepted Answer

A)   The cross-rate.
B)   The spot exchange rate.
C)   The forward exchange rate.
D)   The London Interbank Offer Rate.
E)   The swap rate.F) A) and C)
G) C) and D)

Exam 21: International Corporate Finance

Correct Answer
verified

Taber Mills is a Canadian ﬁrm operating a subsidiary manufacturing plant in Mexico. To offset the ﬁrm's long-run exchange rate risk, Taber Mills should:

Correct Answer
verified

A(n) ____________ is a bond issued in Japan and denominated in yen for sale in other countries.

Correct Answer
verified

Provide a deﬁnition for London Interbank Offer Rate (LIBOR).

Correct Answer
verified
The rate most intern...
View Answer

Correct Answer
verified
B

The foreign currency approach to capital budgeting analysis is computationally easier to use than the home currency approach.

Correct Answer
verified

The agreed-upon exchange rate used in a forward trade is called the _______________ exchange rate.

Correct Answer
verified

Correct Answer
verified

[LINE][LINE]A pair of K's woolen gloves sells for C$38.50 in Toronto. If purchasing power parity exists, what is the price of the gloves in Sydney?

Correct Answer
verified

Triangle arbitrage helps keep the currency market in equilibrium.

Correct Answer
verified
True

The foreign exchange market is where:

Correct Answer
verified

Spot exchange rate can best be deﬁned as:

Correct Answer
verified

In the spot market, $1 is currently equal to £.5725. The expected inﬂation rate in the U.K. is 3 percent and in Canada 4 percent. What is the expected exchange rate 3 years from now if relative Purchasing power parity exists?

Correct Answer
verified

If interest rate parity holds between two countries then it must be true that:

Correct Answer
verified

Foreign bonds often have more stringent disclosure rules than domestic bonds.

Correct Answer
verified
True

Which of the following is the best deﬁnition of foreign exchange market.

Correct Answer
verified

The current spot rate for the Norwegian krone is $1 = 6.5483NKR. The expected inﬂation rate in Norway is 2.4 percent and in Canada 3.7 percent. A risk-free asset in Canada is yielding 4.3 Percent. What real rate of return should you expect on a risk-free Norwegian 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

Unbiased Forward Rates (UFR) can best be deﬁned as:

Correct Answer
verified

________________ will tell you the price of agreeing today to take delivery of $1US 60 days from now.

Correct Answer
verified

Exam 21: International Corporate Finance

Correct AnswerverifiedShow Answer

Taber Mills is a Canadian ﬁrm operating a subsidiary manufacturing plant in Mexico. To offset the ﬁrm's long-run exchange rate risk, Taber Mills should:

Correct AnswerverifiedShow Answer

A(n) ____________ is a bond issued in Japan and denominated in yen for sale in other countries.

Correct AnswerverifiedShow Answer

Provide a deﬁnition for London Interbank Offer Rate (LIBOR).

Correct AnswerverifiedThe rate most intern...View AnswerShow Answer

Correct AnswerverifiedB

The foreign currency approach to capital budgeting analysis is computationally easier to use than the home currency approach.

Correct AnswerverifiedShow Answer

The agreed-upon exchange rate used in a forward trade is called the _______________ exchange rate.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

[LINE][LINE]A pair of K's woolen gloves sells for C$38.50 in Toronto. If purchasing power parity exists, what is the price of the gloves in Sydney?

Correct AnswerverifiedShow Answer

Triangle arbitrage helps keep the currency market in equilibrium.

Correct AnswerverifiedTrue

The foreign exchange market is where:

Correct AnswerverifiedShow Answer

Spot exchange rate can best be deﬁned as:

Correct AnswerverifiedShow Answer

In the spot market, $1 is currently equal to £.5725. The expected inﬂation rate in the U.K. is 3 percent and in Canada 4 percent. What is the expected exchange rate 3 years from now if relative Purchasing power parity exists?

Correct AnswerverifiedShow Answer

If interest rate parity holds between two countries then it must be true that:

Correct AnswerverifiedShow Answer

Foreign bonds often have more stringent disclosure rules than domestic bonds.

Correct AnswerverifiedTrue

Which of the following is the best deﬁnition of foreign exchange market.

Correct AnswerverifiedShow Answer

The current spot rate for the Norwegian krone is $1 = 6.5483NKR. The expected inﬂation rate in Norway is 2.4 percent and in Canada 3.7 percent. A risk-free asset in Canada is yielding 4.3 Percent. What real rate of return should you expect on a risk-free Norwegian 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

Unbiased Forward Rates (UFR) can best be deﬁned as:

Correct AnswerverifiedShow Answer

________________ will tell you the price of agreeing today to take delivery of $1US 60 days from now.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
verified
The rate most intern...
View Answer

Correct Answer
verified
B

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True

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True

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