Question 1

The U.S.dollar equivalent is .3897 for the Brazilian real and 1.5649 for the UK pound.Which one of the following statements is correct given this information?

Accepted Answer

A)  One U.S.dollar will buy .3897 Brazilian reals.
B)  If you have .3897 Brazilian reals, they are worth 1.5649 UK pounds.
C)  One UK pound will buy 1.5649 U.S.dollars.
D)  One Brazilian real will buy 1.5649 UK pounds.
E)  One U.S.dollar will buy 1.5649 UK pounds.F) None of the above
G) A) and B)

Question 2

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Accepted Answer

A)  Change in book value when the market value of an asset remains constant
B)  Daily fluctuations in the spot rate
C)  Increases in the forward rate as the time to settlement increases
D)  Changes in relative economic conditions between two countries
E)  Unrealized foreign exchange gainsF) C) and E)
G) None of the above

Question 3

Assume the spot rate for the pound is £.6390 = $1 and for the Canadian dollar is C$1.1417 = $1.What is the £/C$ cross-rate?

Accepted Answer

A)  £.5597/C$1
B)  £.6027/C$1
C)  £.7295/C$1
D)  £.7594/C$1
E)  £.7608/C$1F) C) and D)
G) None of the above

Question 4

A particular set of golf clubs in the U.S.costs $879.According to absolute purchasing power parity,what should the identical set of clubs cost in the UK if the spot rate is £.6421= $1?

Accepted Answer

A)  £1,368.95
B)  £1,428.08
C)  £533.80
D)  £547.50
E)  £564.41F) C) and E)
G) A) and E)

Question 5

Assume a Big Mac sells for $4.39 in the United States and Ps62.5 in Mexico,what is the Ps/$ exchange rate according to the purchasing power parity theory?

Accepted Answer

A)  Ps.0702/$1
B)  Ps.0752/$1
C)  Ps13.29/$1
D)  Ps14.24/$1
E)  Ps14.32/$1F) A) and E)
G) C) and D)

Question 6

You are given the exchange rate between the U.S.dollar and the Canadian dollar.You are also given the exchange rate between the U.S.dollar and the Mexican peso.What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Accepted Answer

A)  Swap rate
B)  Depositary rate
C)  Forward rate
D)  London Interbank rate
E)  Cross-rateF) C) and D)
G) None of the above

Question 7

Which one of the following terms is used to describe international bonds issued in a single country and generally denominated in that country's currency?

Accepted Answer

A)  Eurobonds
B)  American Depositary Receipts
C)  Foreign bonds
D)  Swaps
E)  GiltsF) A) and D)
G) D) and E)

Question 8

Assume that in New York,you can exchange $1 for ? .8026 or £.6400 In Berlin,£1 costs ?
1) 2539.How much profit can you earn on $1,000 using triangle arbitrage?

Accepted Answer

A)  $.59
B)  $1.17
C)  $.13
D)  $1.08
E)  $.42F) A) and B)
G) A) and C)

Question 9

Assume that PE is the euro price of a product,PUS is the U.S.price of the identical product,and S0 is the spot exchange rate,quoted as the amount of foreign currency per dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

Accepted Answer

A)  PUS = S0/PE
B)  PUS = S0 ×PE
C)  PUS = S0 + PE
D)  PE = S0/PUS
E)  PE = S0 ×PUSF) A) and D)
G) A) and B)

Question 10

A U.S.firm has total assets valued at £318,000 located in London.This valuation did not change from last year.Last year,the exchange rate was £.61 = $1.Today,the exchange rate is £.63 = $1.By what amount did these assets change in value on the firm's U.S.financial statements?

Accepted Answer

A)  -$16,549.57
B)  -$13,511.03
C)  -$12,248.91
D)  $13,511.03
E)  $0F) A) and D)
G) A) and E) A

Question 11

Assume you can exchange $1 for either C$1.1417 or ¥118.62.What is the cross-rate between the Canadian dollar and the Japanese yen?

Accepted Answer

A)  C$.009625/¥1
B)  C$.003723/¥1
C)  C$.004582/¥1
D)  C$138.2191/¥1
E)  C$135.43/¥1F) B) and D)
G) C) and D)

Question 12

Assume you can currently exchange $100 for ? 80.25.The inflation rate in Europe is expected to be 1.8 percent as compared to 2.4 percent in the U.S.Based on relative purchasing power parity,what should the exchange rate be four years from now?

Accepted Answer

A)  €.8219/$1
B)  €.8014/$1
C)  €.7970/$1
D)  €.8073/$1
E)  €.7834/$1F) All of the above
G) C) and D)

Question 13

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 2.8 percent.The expected inflation rate in the UK is 2.4 percent.If relative purchasing power parity exists,what will the exchange rate be two years from now?

Accepted Answer

A)  £.6549/$1
B)  £.6432/$1
C)  £.6351/$1
D)  £.6382/$1
E)  £.6453/$1F) C) and D)
G) B) and E)

Question 14

Assume you can currently exchange $1 for ¥100.Also assume the inflation rate will be 2.5 percent annually in the U.S.and 2 percent in Japan.Given these assumptions,how many yen should you expect in exchange for $1 next year?

Accepted Answer

A)  More than 100
B)  Either 100 or more than 100
C)  Exactly 100
D)  Either 100 or less than 100
E)  Less than 100F) B) and C)
G) A) and E)

Question 15

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Accepted Answer

A)  Difference in the risk-free interest rates in the two countries
B)  Average interest rate in the two countries
C)  Average inflation rate of the two countries
D)  Difference in the inflation rates of the two countries
E)  Difference between the two countries' average inflation and interest ratesF) B) and C)
G) C) and E) D

Question 16

Assume the exchange rates for the Canadian dollar versus the U.S.dollar are   USD equiv  Currency per USD  Last week .87591.1417 This week .87611.1414\begin{array} { | l | r | r | } \hline & 	ext { USD equiv } & 	ext { Currency per USD } \\hline 	ext { Last week } & .8759 & 1.1417 \\hline 	ext { This week } & .8761 & 1.1414 \\hline\end{array} Last week  This week ​ USD equiv .8759.8761​ Currency per USD 1.14171.1414​​  Which statement is correct given this information?

Accepted Answer

A)  Last week, it took C$.8759 to purchase $1.
B)  This week you can exchange C$1 for $1.1414.
C)  It is cheaper for an American to travel in Canada this week than it was last week.
D)  The Canadian dollar depreciated from last week to this week.
E)  You would have made a profit if you had invested $100 in Canadian dollars last week and then converted your money back to U.S.dollars this week.Ignore any interest earnings. F) A) and B)
G) B) and C)

Question 17

Given the following exchange rates,which of the following currencies are selling at a premium against the dollar?   USD equiv  Currency per USD  Australia dollar .85071.1755 1-mo forward .84891.1780 Japanyen .00843118.62 1-mo forward .00844118.49 Switzerland franc 1.0357.9655 1-mo forward 1.0362.9651 UK pound 1.5649.6390 1-mo forward 1.5646.6391\begin{array} { | c | r | r | } \hline & 	ext { USD equiv } & 	ext { Currency per USD } \\hline 	ext { Australia dollar } & .8507 & 1.1755 \\hline 	ext { 1-mo forward } & .8489 & 1.1780 \\hline 	ext { Japanyen } & .00843 & 118.62 \\hline 	ext { 1-mo forward } & .00844 & 118.49 \\hline 	ext { Switzerland franc } & 1.0357 & .9655 \\hline 	ext { 1-mo forward } & 1.0362 & .9651 \\hline 	ext { UK pound } & 1.5649 & .6390 \\hline 	ext { 1-mo forward } & 1.5646 & .6391 \\hline\end{array} Australia dollar  1-mo forward  Japanyen  1-mo forward  Switzerland franc  1-mo forward  UK pound  1-mo forward ​ USD equiv .8507.8489.00843.008441.03571.03621.56491.5646​ Currency per USD 1.17551.1780118.62118.49.9655.9651.6390.6391​​

Accepted Answer

A)  Japanese yen only
B)  Swiss franc and Australian dollar only
C)  UK pound only
D)  Australian dollar, Swiss franc, and UK pound only
E)  Japanese yen and Swiss franc only F) A) and D)
G) C) and D) E

Question 18

Which statement is correct?

Accepted Answer

A)  Exchange rates are adjusted each morning and held constant until the following morning.
B)  The four most commonly traded currencies in the foreign exchange markets are the U.S.dollar, French franc, European euro, and Brazilian real.
C)  All South American countries use the peso as their currency.
D)  New Zealand uses the same currency as Australia and that is the A$.
E)  The foreign exchange market is the largest financial market in the world.F) A) and B)
G) D) and E)

Question 19

Assume you can exchange $1 for ¥119.39 or €.7989 in New York.In Tokyo,the exchange rate is ¥1 = €.0068.If you have $1,200,how much profit can you earn using triangle arbitrage?

Accepted Answer

A)  $18.08
B)  $18.27
C)  $19.45
D)  $20.11
E)  $23.14F) B) and D)
G) A) and C)

Question 20

You are debating between spending a week in Brazil or a week in Chile.You've estimated the cost of the Brazilian trip at 56,300 reals and the Chilean trip at 13.6 million pesos.The currency per U.S.dollar is 2.5658 reals and 609.10 pesos.If you prefer the less expensive trip,as measured in U.S.dollars,you should travel to _____ because you can save ____.

Accepted Answer

A)  Brazil; you can save $460.45
B)  Brazil; you can save $518.74
C)  Chile; you can save $384.29
D)  Chile; you can save $613.33
E)  Brazil; you can save $385.55F) B) and C)
G) A) and B)

Exam 18: International Aspects of Financial Management

The U.S.dollar equivalent is .3897 for the Brazilian real and 1.5649 for the UK pound.Which one of the following statements is correct given this information?

Correct Answer
verified

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Correct Answer
verified

Assume the spot rate for the pound is £.6390 = $1 and for the Canadian dollar is C$1.1417 = $1.What is the £/C$ cross-rate?

Correct Answer
verified

A particular set of golf clubs in the U.S.costs $879.According to absolute purchasing power parity,what should the identical set of clubs cost in the UK if the spot rate is £.6421= $1?

Correct Answer
verified

Assume a Big Mac sells for $4.39 in the United States and Ps62.5 in Mexico,what is the Ps/$ exchange rate according to the purchasing power parity theory?

Correct Answer
verified

You are given the exchange rate between the U.S.dollar and the Canadian dollar.You are also given the exchange rate between the U.S.dollar and the Mexican peso.What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Correct Answer
verified

Which one of the following terms is used to describe international bonds issued in a single country and generally denominated in that country's currency?

Correct Answer
verified

Assume that in New York,you can exchange $1 for ? .8026 or £.6400 In Berlin,£1 costs ? 1) 2539.How much profit can you earn on $1,000 using triangle arbitrage?

Correct Answer
verified

Assume that PE is the euro price of a product,PUS is the U.S.price of the identical product,and S0 is the spot exchange rate,quoted as the amount of foreign currency per dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

Correct Answer
verified

A U.S.firm has total assets valued at £318,000 located in London.This valuation did not change from last year.Last year,the exchange rate was £.61 = $1.Today,the exchange rate is £.63 = $1.By what amount did these assets change in value on the firm's U.S.financial statements?

Correct Answer
verified
A

Assume you can exchange $1 for either C$1.1417 or ¥118.62.What is the cross-rate between the Canadian dollar and the Japanese yen?

Correct Answer
verified

Assume you can currently exchange $100 for ? 80.25.The inflation rate in Europe is expected to be 1.8 percent as compared to 2.4 percent in the U.S.Based on relative purchasing power parity,what should the exchange rate be four years from now?

Correct Answer
verified

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 2.8 percent.The expected inflation rate in the UK is 2.4 percent.If relative purchasing power parity exists,what will the exchange rate be two years from now?

Correct Answer
verified

Assume you can currently exchange $1 for ¥100.Also assume the inflation rate will be 2.5 percent annually in the U.S.and 2 percent in Japan.Given these assumptions,how many yen should you expect in exchange for $1 next year?

Correct Answer
verified

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified
E

Which statement is correct?

Correct Answer
verified

Assume you can exchange $1 for ¥119.39 or €.7989 in New York.In Tokyo,the exchange rate is ¥1 = €.0068.If you have $1,200,how much profit can you earn using triangle arbitrage?

Correct Answer
verified

Correct Answer
verified

Exam 18: International Aspects of Financial Management

The U.S.dollar equivalent is .3897 for the Brazilian real and 1.5649 for the UK pound.Which one of the following statements is correct given this information?

Correct AnswerverifiedShow Answer

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Correct AnswerverifiedShow Answer

Assume the spot rate for the pound is £.6390 = $1 and for the Canadian dollar is C$1.1417 = $1.What is the £/C$ cross-rate?

Correct AnswerverifiedShow Answer

A particular set of golf clubs in the U.S.costs $879.According to absolute purchasing power parity,what should the identical set of clubs cost in the UK if the spot rate is £.6421= $1?

Correct AnswerverifiedShow Answer

Assume a Big Mac sells for $4.39 in the United States and Ps62.5 in Mexico,what is the Ps/$ exchange rate according to the purchasing power parity theory?

Correct AnswerverifiedShow Answer

You are given the exchange rate between the U.S.dollar and the Canadian dollar.You are also given the exchange rate between the U.S.dollar and the Mexican peso.What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Correct AnswerverifiedShow Answer

Which one of the following terms is used to describe international bonds issued in a single country and generally denominated in that country's currency?

Correct AnswerverifiedShow Answer

Assume that in New York,you can exchange $1 for ? .8026 or £.6400 In Berlin,£1 costs ? 1) 2539.How much profit can you earn on $1,000 using triangle arbitrage?

Correct AnswerverifiedShow Answer

Assume that PE is the euro price of a product,PUS is the U.S.price of the identical product,and S0 is the spot exchange rate,quoted as the amount of foreign currency per dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

Correct AnswerverifiedShow Answer

A U.S.firm has total assets valued at £318,000 located in London.This valuation did not change from last year.Last year,the exchange rate was £.61 = $1.Today,the exchange rate is £.63 = $1.By what amount did these assets change in value on the firm's U.S.financial statements?

Correct AnswerverifiedA

Assume you can exchange $1 for either C$1.1417 or ¥118.62.What is the cross-rate between the Canadian dollar and the Japanese yen?

Correct AnswerverifiedShow Answer

Assume you can currently exchange $100 for ? 80.25.The inflation rate in Europe is expected to be 1.8 percent as compared to 2.4 percent in the U.S.Based on relative purchasing power parity,what should the exchange rate be four years from now?

Correct AnswerverifiedShow Answer

Assume the current spot rate between the UK and the U.S.is £.6402 per $1.The expected inflation rate in the U.S.is 2.8 percent.The expected inflation rate in the UK is 2.4 percent.If relative purchasing power parity exists,what will the exchange rate be two years from now?

Correct AnswerverifiedShow Answer

Assume you can currently exchange $1 for ¥100.Also assume the inflation rate will be 2.5 percent annually in the U.S.and 2 percent in Japan.Given these assumptions,how many yen should you expect in exchange for $1 next year?

Correct AnswerverifiedShow Answer

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Correct AnswerverifiedD

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

Which statement is correct?

Correct AnswerverifiedShow Answer

Assume you can exchange $1 for ¥119.39 or €.7989 in New York.In Tokyo,the exchange rate is ¥1 = €.0068.If you have $1,200,how much profit can you earn using triangle arbitrage?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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A

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D

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E

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