Question 1

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

Accepted Answer

A)  the unbiased forward rates condition.
B)  uncovered interest rate parity.
C)  the international Fisher effect.
D)  purchasing power parity.
E)  interest rate parity.F) A) and B)
G) B) and C)

Question 2

Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1952. The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

Accepted Answer

A)  $0.003
B)  $0.006
C)  $0.008
D)  $0.015
E)  $0.018F) A) and D)
G) A) and C)

Question 3

Which of the following statements are correct?
I. The usage of forward rates increases the short-run exposure to exchange rate risk.
II. Accounting translation gains and losses are recorded in the equity section of the balance sheet.
III. The long-run exchange rate risk faced by an international firm can be reduced if a firm borrows money in the foreign country where the firm has operations.
IV. Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk.

Accepted Answer

A)  I and III only
B)  II and III only
C)  I, II, and III only
D)  II, III, and IV only
E)  I, III, and IV onlyF) D) and E)
G) None of the above

Question 4

Which of the following variables used in the covered interest arbitrage formula are correctly defined?
I. RFC:
Foreign country nominal risk-free interest rate
II. RUS:
U.S. real risk-free interest rate
III. F1:
360-day forward rate
IV. S0:
Current spot rate expressed in units of foreign currency per one U.S. dollar

Accepted Answer

A)  I and II only
B)  III and IV only
C)  I, III, and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) D) and E)
G) All of the above

Question 5

Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?

Accepted Answer

A)  unbiased forward rates condition
B)  uncovered interest parity
C)  international Fisher effect
D)  purchasing power parity
E)  interest rate parityF) B) and E)
G) All of the above

Question 6

Today, you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S. dollars. Last year, 100 U.S. dollars was worth 115 Canadian dollars or 1,291 Mexican pesos. Which one of the following statements is correct given this information?

Accepted Answer

A)  $100 converted into Canadian dollars last year would now be worth $105.22.
B)  $100 converted into Mexican pesos last year would now be worth $99.77.
C)  $100 converted into Mexican pesos last year would now be worth $100.36.
D)  $100 converted into Canadian dollars last year would now be worth $95.05.
E)  $100 invested in Canadian dollars last year would now be worth $100.F) A) and B)
G) A) and C)

Question 7

Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S. dollar and the British pound?

Accepted Answer

A)  S0 = PUK *PUS
B)  PUS = Ft * PUK
C)  PUK = S0 * PUS
D)  Ft = PUS *PUK
E)  S0 * Ft = PUK *PUSF) C) and E)
G) C) and D)

Question 8

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Accepted Answer

A)  accounting and payroll functions
B)  partial assembly of components manufactured in the firm's home country
C)  military weapons manufacturing
D)  packing materials manufacturing for use by the home country firm
E)  production of minor parts, such as nuts and bolts, for use by the home country firmF) A) and E)
G) A) and B)

Question 9

Which one of the following statements is correct concerning the foreign exchange market?

Accepted Answer

A)  The trading floor of the foreign exchange market is located in London, England.
B)  The foreign exchange market is the world's second largest financial market.
C)  The four primary currencies that are traded in the foreign exchange market are the U.S.dollar, the British pound, the French franc, and the euro.
D)  Importers, exporters, and speculators are key players in the foreign exchange market.
E)  The U.S.created a communications network called SWIFT to facilitate currency trading.F) C) and D)
G) All of the above

Question 10

In the spot market, $1 is currently equal to A$1.4910. Assume the expected inflation rate in Australia is 3.5 percent and in the U.S. 4.0 percent. What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

A)  A$1.4810
B)  A$1.4835
C)  A$1.4875
D)  A$1.4985
E)  A$1.5005F) A) and E)
G) A) and B)

Question 11

The forward rate market is dependent upon:

Accepted Answer

A)  current forward rates exceeding current spot rates.
B)  current spot rates exceeding current forward rates over time.
C)  current spot rates equaling current forward rates, on average, over time.
D)  forward rates equaling the actual future spot rates on average over time.
E)  current spot rates equaling the actual future spot rates on average over time.F) B) and C)
G) None of the above

Question 12

How well do you think relative purchasing power parity (PPP) and uncovered interest parity (UIP) behave?
 That is, do you think it's possible to forecast the expected future spot exchange rate accurately?
 What complications might you run into?

Accepted Answer

Each of the variables in these equations...

Question 13

U.S. dollars deposited in a bank in Switzerland are called:

Accepted Answer

A)  foreign depository receipts.
B)  international exchange certificates.
C)  francs.
D)  Eurocurrency.
E)  U.S.Dollars.F) A) and B)
G) A) and C)

Question 14

Assume the spot rate on the Canadian dollar is C$0.9872. The risk-free nominal rate in the U.S. is 5.4 percent while it is only 3.8 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

Accepted Answer

A)  C$0.9255
B)  C$0.9308
C)  C$1.0267
D)  C$1.0519
E)  C$1.0597F) B) and C)
G) A) and E)

Question 15

Which one of the following supports the idea that real interest rates are equal across countries?

Accepted Answer

A)  unbiased forward rates condition
B)  uncovered interest rate parity
C)  international Fisher effect
D)  purchasing power parity
E)  interest rate parityF) B) and D)
G) B) and C)

Question 16

You want to import $147,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $0.0202?

Accepted Answer

A)  Rs 6,887,424
B)  Rs 7,238,911
C)  Rs 7,277,228
D)  Rs 8,367,594
E)  Rs 8,415,096F) B) and D)
G) B) and C)

Question 17

Party A has agreed to exchange $1 million U.S. dollars for $1.21 million Canadian dollars. What is this agreement called?

Accepted Answer

A)  gilt
B)  LIBOR
C)  SWIFT
D)  Yankee agreements
E)  swapF) A) and C)
G) None of the above

Question 18

Assume the euro is selling in the spot market for $1.33. Simultaneously, in the 3-month forward market the euro is selling for $1.35. Which one of the following statements correctly describes this situation?

Accepted Answer

A)  The spot market is out of equilibrium.
B)  The forward market is out of equilibrium.
C)  The dollar is selling at a premium relative to the euro.
D)  The euro is selling at a premium relative to the dollar.
E)  The euro is expected to depreciate in value.F) B) and C)
G) All of the above

Question 19

Which one of the following formulas correctly describes the relative purchasing power parity relationship?

Accepted Answer

A)  E(St)  = S0 * [1 + (hFC - hUS) ]t
B)  E(St)  = S0 * [1 - (hFC - hUS) ]t
C)  E(St)  = S0 * [1 + (hUS + hF
C)  ]t
D)  E(St)  = S0 * [1 - (hUS - hF
C)  ]t
E)  E(St)  = S0 * [1 + (hUS - hF
C)  ]tF) B) and E)
G) A) and C)

Question 20

Assume the spot rate for the Japanese yen currently is ¥98.48 per $1 and the one-year forward rate is ¥97.62 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?

Accepted Answer

A)  1.63 percent
B)  2.11 percent
C)  3.37 percent
D)  3.96 percent
E)  4.01 percentF) C) and E)
G) B) and E)

Exam 21: International Corporate Finance

Assume the spot rate for the Japanese yen currently is ¥98.48 per $1 and the one-year forward rate is ¥97.62 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?

Correct Answer
verified

Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S. dollar and the British pound?

Correct Answer
verified

Which one of the following statements is correct concerning the foreign exchange market?

Correct Answer
verified

Assume the spot rate on the Canadian dollar is C$0.9872. The risk-free nominal rate in the U.S. is 5.4 percent while it is only 3.8 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

Correct Answer
verified

In the spot market, $1 is currently equal to A$1.4910. Assume the expected inflation rate in Australia is 3.5 percent and in the U.S. 4.0 percent. What is the expected exchange rate one year from now if relative purchasing power parity exists?

Correct Answer
verified

Which one of the following supports the idea that real interest rates are equal across countries?

Correct Answer
verified

Today, you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S. dollars. Last year, 100 U.S. dollars was worth 115 Canadian dollars or 1,291 Mexican pesos. Which one of the following statements is correct given this information?

Correct Answer
verified

How well do you think relative purchasing power parity (PPP) and uncovered interest parity (UIP) behave? That is, do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?

Correct Answer
verified
Each of the variables in these equations...
View Answer

Correct Answer
verified

U.S. dollars deposited in a bank in Switzerland are called:

Correct Answer
verified

Which one of the following formulas correctly describes the relative purchasing power parity relationship?

Correct Answer
verified

The forward rate market is dependent upon:

Correct Answer
verified

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

Correct Answer
verified

Party A has agreed to exchange $1 million U.S. dollars for $1.21 million Canadian dollars. What is this agreement called?

Correct Answer
verified

Assume the euro is selling in the spot market for $1.33. Simultaneously, in the 3-month forward market the euro is selling for $1.35. Which one of the following statements correctly describes this situation?

Correct Answer
verified

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Correct Answer
verified

Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1952. The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

Correct Answer
verified

You want to import $147,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $0.0202?

Correct Answer
verified

Correct Answer
verified

Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?

Correct Answer
verified

Exam 21: International Corporate Finance

Assume the spot rate for the Japanese yen currently is ¥98.48 per $1 and the one-year forward rate is ¥97.62 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?

Correct AnswerverifiedShow Answer

Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S. dollar and the British pound?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning the foreign exchange market?

Correct AnswerverifiedShow Answer

Assume the spot rate on the Canadian dollar is C$0.9872. The risk-free nominal rate in the U.S. is 5.4 percent while it is only 3.8 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

Correct AnswerverifiedShow Answer

In the spot market, $1 is currently equal to A$1.4910. Assume the expected inflation rate in Australia is 3.5 percent and in the U.S. 4.0 percent. What is the expected exchange rate one year from now if relative purchasing power parity exists?

Correct AnswerverifiedShow Answer

Which one of the following supports the idea that real interest rates are equal across countries?

Correct AnswerverifiedShow Answer

Today, you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S. dollars. Last year, 100 U.S. dollars was worth 115 Canadian dollars or 1,291 Mexican pesos. Which one of the following statements is correct given this information?

Correct AnswerverifiedShow Answer

How well do you think relative purchasing power parity (PPP) and uncovered interest parity (UIP) behave? That is, do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?

Correct AnswerverifiedEach of the variables in these equations...View AnswerShow Answer

Correct AnswerverifiedShow Answer

U.S. dollars deposited in a bank in Switzerland are called:

Correct AnswerverifiedShow Answer

Which one of the following formulas correctly describes the relative purchasing power parity relationship?

Correct AnswerverifiedShow Answer

The forward rate market is dependent upon:

Correct AnswerverifiedShow Answer

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

Correct AnswerverifiedShow Answer

Party A has agreed to exchange $1 million U.S. dollars for $1.21 million Canadian dollars. What is this agreement called?

Correct AnswerverifiedShow Answer

Assume the euro is selling in the spot market for $1.33. Simultaneously, in the 3-month forward market the euro is selling for $1.35. Which one of the following statements correctly describes this situation?

Correct AnswerverifiedShow Answer

Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?

Correct AnswerverifiedShow Answer

Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1952. The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

Correct AnswerverifiedShow Answer

You want to import $147,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $0.0202?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?

Correct AnswerverifiedShow Answer

Correct Answer
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verified
Each of the variables in these equations...
View 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
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Correct Answer
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