Question 1

A ________ exchange rate is the rate that a firm can tie in for a future transaction date.

Accepted Answer

A)   fixed
B)   forward
C)   floating
D)   none of the aboveE) A) and B)
F) A) and C)

Question 2

What is cash-and-carry strategy?

Accepted Answer

A strategy used to lock in the...

Question 3

The spot exchange rate for Indian Rupees is Rs 41/$. The one-year forward exchange rate is Rs 42/$ and the one-year U.S. interest rate is 4%. What is the implied one year interest rate in India?

Accepted Answer

A)   6.54%
B)   6.24%
C)   6.77%
D)   6.75%E) All of the above
F) A) and C)

Question 4

The importer-exporter dilemma is caused by ________.

Accepted Answer

A)   changing interest rates
B)   increases in inflation
C)   fluctuating exchange rates
D)   deflationE) C) and D)
F) B) and D)

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)   The rate of interest paid on government bonds or other securities in a country with a tradition of weak enforcement of property rights is likely not really a risk-free rate. Instead, interest rates in the country will reflect a risk premium for the possibility of default, so relations such as covered interest rate parity will likely not hold exactly.
B)   If the return difference in a segmented financial market results from a market friction such as capital controls, corporations can exploit this friction by setting up projects and raising capital in the high-return country/currency.
C)   Important macroeconomic reasons for segmented capital markets include capital controls and foreign exchange controls that create barriers to international capital flows and thus segment national markets.
D)   A segmented financial market has an important implication for international corporate finance: One country or currency has a higher rate of return than another country or currency, when the two rates are compared in the same currency.E) All of the above
F) A) and B)

Question 6

One British pound can be purchased for $1.65. What is the exchange rate in terms of pounds per dollar?

Accepted Answer

A)   £0.551
B)   £0.606
C)   £0.626
D)   £0.645E) B) and C)
F) B) and D)

Question 7

Consider the following equation: Spot Rate × [(Foreign Cash Flow)  / (1 + rFC] = (F × Foreign Cash Flow)  / (1 + r$) 
The term F in this equation is ________.

Accepted Answer

A)   the future spot exchange rate
B)   the current spot exchange rate
C)   the amount of foreign currency
D)   the forward exchange rateE) A) and B)
F) A) and C)

Question 8

You have just landed in Paris with $750 in your wallet. At the foreign exchange booth, you see that euros are being quoted at $1.34/€. How many euros can you exchange for your $750?

Accepted Answer

A)   1,005 euros
B)   559.70 euros
C)   750.00 euros
D)   179.56 eurosE) All of the above
F) B) and C)

Question 9

Which of the following statements is FALSE?

Accepted Answer

A)   Many countries regulate or limit capital inflows or outflows, and many do not allow their currencies to be freely converted into dollars, thereby creating capital market segmentation.
B)   The existence of internationally integrated capital markets makes many decisions in international corporate finance more complicated but potentially more lucrative for a firm that is well positioned to exploit the market segmentation.
C)   Political, legal, social, and cultural characteristics that differ across countries may require compensation in the form of a country risk premium.
D)   Swaps allow firms to mitigate their exchange rate risk exposure between assets and liabilities, while still making investments and raising funds in the most attractive locales.E) All of the above
F) A) and D)

Question 10

Suppose a firm imports goods from Europe and the import price is denominated in euros, then ________.

Accepted Answer

A)   the exporter bears foreign exchange risk
B)   Central Bank faces foreign exchange risk
C)   the importer bears foreign exchange risk
D)   none of the aboveE) A) and D)
F) B) and C)

Question 11

The one-year forward exchange rate is Rupees 45/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

Accepted Answer

A)   Rupees 43.23/$
B)   Rupees 43.75/$
C)   Rupees 43.99/$
D)   Rupees 44.32/$E) A) and B)
F) A) and C)

Question 12

If a foreign project is owned by a domestic corporation, managers and shareholders need to determine the home currency value of the foreign currency cash flows.

Accepted Answer

A) True 
 B)False

Question 13

With internationally integrated capital markets the value of an investment depends on the currency used in the analysis.

Accepted Answer

A) True 
 B)False

Question 14

The ________ rate is a price for a currency denominated in another currency.

Accepted Answer

A)   marginal
B)   foreign exchange
C)   interest
D)   reversionE) A) and D)
F) B) and C)

Question 15

The one-year forward exchange rate for the British Pound is $1.70/Pound. If the one-year U.S. interest rate is 5% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

Accepted Answer

A)   $1.69/pound
B)   $1.72/pound
C)   $1.75/pound
D)   $1.78/poundE) B) and D)
F) A) and B)

Question 16

What are internationally segmented capital markets?

Accepted Answer

Internationally segmented capital market...

Question 17

Use the information for the question(s)  below.
The current spot exchange rate, S, is $1.8862/£. Suppose that the yield curve in both countries is flat. The risk-free rate on dollars, r$, is 5.35% and the risk-free interest rate on pounds, r£, is 4.80%.
-Luther Industries, a U.S. firm, is considering an investment in Japan. The dollar cost of equity for Luther is 12%. The risk-free interest rates on dollars and yen are r$ = 5.5% and r¥ = 1.5%, respectively. Luther Industries is willing to assume that capital markets are internationally integrated. Luther Industries needs to know the comparable cost of equity in Japanese yen for a project with free cash flows that are uncorrelated with spot exchange rates. The yen cost of equity for Luther Industries is closest to ________.

Accepted Answer

A)   14.0%
B)   12.3%
C)   7.8%
D)   18.5%E) All of the above
F) A) and C)

Question 18

Which of the following statements is FALSE?

Accepted Answer

A)   Differential access to national capital markets is common enough that it provides the best explanation for the existence of currency swaps, which are like the interest rate swap contracts, but with the holder receiving coupons in one currency and paying coupons denominated in a different currency.
B)   Currency swaps generally also have final face value payments, also in different currencies.
C)   Using a currency swap, a firm can borrow in the market where it has the best access to capital, and then "swap" the coupon and principal payments to whichever currency it would prefer to make payments in.
D)   With differential access to national markets, to maximize shareholder value, the firm should raise capital in the foreign market; the method of valuing the foreign project as if it were a domestic project would then provide the correct net present value (NPV) .E) None of the above
F) C) and D)

Question 19

________ are players in the foreign exchange market.

Accepted Answer

A)   Global investment banks
B)   Large multinational firms
C)   Central banks
D)   All of the aboveE) A) and B)
F) All of the above

Question 20

What is covered interest parity?

Accepted Answer

Covered interest parity states...

Exam 23: International Corporate Finance

The one-year forward exchange rate for the British Pound is $1.70/Pound. If the one-year U.S. interest rate is 5% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

Correct Answer
verified

What is cash-and-carry strategy?

Correct Answer
verified
A strategy used to lock in the...
View Answer

Which of the following statements is FALSE?

Correct Answer
verified

The importer-exporter dilemma is caused by ________.

Correct Answer
verified

The one-year forward exchange rate is Rupees 45/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

Correct Answer
verified

Which of the following statements is FALSE?

Correct Answer
verified

A ________ exchange rate is the rate that a firm can tie in for a future transaction date.

Correct Answer
verified

The spot exchange rate for Indian Rupees is Rs 41/$. The one-year forward exchange rate is Rs 42/$ and the one-year U.S. interest rate is 4%. What is the implied one year interest rate in India?

Correct Answer
verified

Consider the following equation: Spot Rate × [(Foreign Cash Flow) / (1 + r_FC] = (F × Foreign Cash Flow) / (1 + r_$) The term F in this equation is ________.

Correct Answer
verified

Suppose a firm imports goods from Europe and the import price is denominated in euros, then ________.

Correct Answer
verified

Correct Answer
verified

With internationally integrated capital markets the value of an investment depends on the currency used in the analysis.

Correct Answer
verified

One British pound can be purchased for $1.65. What is the exchange rate in terms of pounds per dollar?

Correct Answer
verified

You have just landed in Paris with $750 in your wallet. At the foreign exchange booth, you see that euros are being quoted at $1.34/€. How many euros can you exchange for your $750?

Correct Answer
verified

What is covered interest parity?

Correct Answer
verified
Covered interest parity states...
View Answer

The ________ rate is a price for a currency denominated in another currency.

Correct Answer
verified

What are internationally segmented capital markets?

Correct Answer
verified
Internationally segmented capital market...
View Answer

________ are players in the foreign exchange market.

Correct Answer
verified

Which of the following statements is FALSE?

Correct Answer
verified

If a foreign project is owned by a domestic corporation, managers and shareholders need to determine the home currency value of the foreign currency cash flows.

Correct Answer
verified

Exam 23: International Corporate Finance

The one-year forward exchange rate for the British Pound is $1.70/Pound. If the one-year U.S. interest rate is 5% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

Correct AnswerverifiedShow Answer

What is cash-and-carry strategy?

Correct AnswerverifiedA strategy used to lock in the...View AnswerShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

The importer-exporter dilemma is caused by ________.

Correct AnswerverifiedShow Answer

The one-year forward exchange rate is Rupees 45/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

A ________ exchange rate is the rate that a firm can tie in for a future transaction date.

Correct AnswerverifiedShow Answer

The spot exchange rate for Indian Rupees is Rs 41/$. The one-year forward exchange rate is Rs 42/$ and the one-year U.S. interest rate is 4%. What is the implied one year interest rate in India?

Correct AnswerverifiedShow Answer

Consider the following equation: Spot Rate × [(Foreign Cash Flow) / (1 + rFC] = (F × Foreign Cash Flow) / (1 + r$) The term F in this equation is ________.

Correct AnswerverifiedShow Answer

Suppose a firm imports goods from Europe and the import price is denominated in euros, then ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

With internationally integrated capital markets the value of an investment depends on the currency used in the analysis.

Correct AnswerverifiedShow Answer

One British pound can be purchased for $1.65. What is the exchange rate in terms of pounds per dollar?

Correct AnswerverifiedShow Answer

You have just landed in Paris with $750 in your wallet. At the foreign exchange booth, you see that euros are being quoted at $1.34/€. How many euros can you exchange for your $750?

Correct AnswerverifiedShow Answer

What is covered interest parity?

Correct AnswerverifiedCovered interest parity states...View AnswerShow Answer

The ________ rate is a price for a currency denominated in another currency.

Correct AnswerverifiedShow Answer

What are internationally segmented capital markets?

Correct AnswerverifiedInternationally segmented capital market...View AnswerShow Answer

________ are players in the foreign exchange market.

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

If a foreign project is owned by a domestic corporation, managers and shareholders need to determine the home currency value of the foreign currency cash flows.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
A strategy used to lock in the...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Consider the following equation: Spot Rate × [(Foreign Cash Flow) / (1 + r_FC] = (F × Foreign Cash Flow) / (1 + r_$) The term F in this equation is ________.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Covered interest parity states...
View Answer

Correct Answer
verified

Correct Answer
verified
Internationally segmented capital market...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified