Question 1

Assume the spot exchange rate for the Hungarian forint is HUF 215.Also assume the inflation rate in the United States is 4 percent per year while it is 9.5 percent in Hungary.What is the expected exchange rate 5 years from now?

Accepted Answer

A)   269
B)   276
C)   281
D)   294
E)   299F) A) and E)
G) A) and D)

Question 2

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 2.6 percent while it is 4.3 percent in the U.S.What is the expected exchange rate four years from now if relative purchasing power parity exists?

Accepted Answer

A)   £0.5799
B)   £0.5822
C)   £0.6105
D)   £0.6623
E)   £0.6644F) None of the above
G) A) and D)

Question 3

Assume the spot rate for the Japanese yen currently is ¥99.31 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)   4.20 percent
D)   4.96 percent
E)   5.01 percentF) A) and C)
G) All of the above

Question 4

Assume the current spot rate is C$1.1875 and the one-year forward rate is C$1.1724.The nominal risk-free rate in Canada is 4 percent while it is 3 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)   $0.018
B)   $0.023
C)   $0.029
D)   $0.031
E)   $0.035F) A) and B)
G) A) and C)

Question 5

Which one of the following states that the current forward rate is an unbiased predictor of the future spot exchange rate?

Accepted Answer

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

Question 6

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 4.2 percent while it is 3.1 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

A)   £0.6161
B)   £0.6178
C)   £0.6239
D)   £0.6279
E)   £0.6291F) A) and E)
G) C) and E)

Question 7

Long-run exposure to exchange rate risk relates to:

Accepted Answer

A)   daily variations in exchange rates.
B)   variances between spot and future rates.
C)   unexpected changes in relative economic conditions.
D)   differences between future spot rates and related forward rates.
E)   accounting gains and losses created by fluctuating exchange rates.F) A) and C)
G) B) and E)

Question 8

Relative purchasing power parity:

Accepted Answer

A)   states that identical items should cost the same regardless of the currency used to make the purchase.
B)   relates differences in inflation rates to differences in exchange rates.
C)   compares the real rate of return to the nominal rate of return.
D)   explains the differences in real rates across national boundaries.
E)   relates future exchange rates to current spot rates.F) D) and E)
G) A) and E)

Question 9

You would like to purchase a security that is issued by the British government.Which one of the following should you purchase?

Accepted Answer

A)   Samurai bond
B)   kronor
C)   Euro
D)   LIBOR
E)   giltF) B) and E)
G) A) and E)

Question 10

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.6869.The expected inflation rate in Norway is 6 percent and in the U.S.it is 3.1 percent.A risk-free asset in the U.S.is yielding 4 percent.What risk-free rate of return should you expect on a Norwegian security?

Accepted Answer

A)   3.5 percent
B)   4.0 percent
C)   4.5 percent
D)   5.0 percent
E)   6.9 percentF) C) and E)
G) B) and D)

Question 11

Based on the information below,what is the cross-rate for Australian dollars in terms of Swiss francs?

Accepted Answer

A)   0.5607
B)   0.7219
C)   0.8897
D)   1.1437
E)   1.2834F) A) and B)
G) B) and C)

Question 12

Assume the spot rate for the British pound currently is £0.6211 per $1.Also assume the one-year forward rate is £0.6347 per $1.A risk-free asset in the U.S.is currently earning 3.4 percent.If interest rate parity holds,what rate can you earn on a one-year risk-free British security?

Accepted Answer

A)   1.18 percent
B)   1.57 percent
C)   3.67 percent
D)   5.66 percent
E)   5.92 percentF) A) and B)
G) A) and C)

Question 13

-You are analyzing a project with an initial cost of £48,000.The project is expected to return £11,000 the first year,£36,000 the second year and £38,000 the third and final year.There is no salvage value.The current spot rate is £0.6211.The nominal return relevant to the project is 12 percent in the U.S.The nominal risk-free rate in the U.S.is 4 percent while it is 5 percent in the U.K.Assume that uncovered interest rate parity exists.What is the net present value of this project in U.S.dollars?

Accepted Answer

A)   $23,611
B)   $25,938
C)   $26,930
D)   $29,639
E)   $30,796F) None of the above
G) D) and E)

Question 14

The home currency approach:

Accepted Answer

A)   discounts all of a project's foreign cash flows using the current spot rate.
B)   employs uncovered interest parity to project future exchange rates.
C)   computes the net present value (NPV) of a project in the foreign currency and then converts that NPV into U.S.dollars.
D)   utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency.
E)   utilizes the international Fisher effect to compute the relevant exchange rates needed to compute the NPV of foreign cash flows in U.S.dollars.F) C) and D)
G) A) and B)

Question 15

Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _____ relative to the Canadian dollar and the U.S.dollar is expected to _____ relative to the Canadian dollar.

Accepted Answer

A)   discount;appreciate
B)   discount;depreciate
C)   premium;appreciate
D)   premium;depreciate
E)   premium;remain constantF) B) and D)
G) B) and C)

Question 16

The price of one Euro expressed in U.S.dollars is referred to as a(n) :

Accepted Answer

A)   ADR rate.
B)   cross inflation rate.
C)   depository rate.
D)   exchange rate.
E)   foreign interest rate.F) B) and D)
G) All of the above

Question 17

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) A) and C)
G) A) and E)

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

Question 19

Which one of the following is the risk that a firm faces when it opens a facility in a foreign country,given that the exchange rate between the firm's home country and this foreign country fluctuates over time?

Accepted Answer

A)   international risk
B)   diversifiable risk
C)   purchasing power risk
D)   exchange rate risk
E)   political riskF) A) and B)
G) B) and D)

Question 20

You are planning a trip to Australia.Your hotel will cost you A$145 per night for seven nights.You expect to spend another A$2,800 for meals,tours,souvenirs,and so forth.How much will this trip cost you in U.S.dollars given the following exchange rates?

Accepted Answer

A)   $2,559
B)   $2,604
C)   $2,631
D)   $5,452
E)   $5,688F) C) and E)
G) B) and C)

Exam 21: International Corporate Finance

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 2.6 percent while it is 4.3 percent in the U.S.What is the expected exchange rate four years from now if relative purchasing power parity exists?

Correct Answer
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Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _ relative to the Canadian dollar and the U.S.dollar is expected to _ relative to the Canadian dollar.

Correct Answer
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Relative purchasing power parity:

Correct Answer
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Assume the current spot rate is C$1.1875 and the one-year forward rate is C$1.1724.The nominal risk-free rate in Canada is 4 percent while it is 3 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
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Long-run exposure to exchange rate risk relates to:

Correct Answer
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The home currency approach:

Correct Answer
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Which one of the following is the risk that a firm faces when it opens a facility in a foreign country,given that the exchange rate between the firm's home country and this foreign country fluctuates over time?

Correct Answer
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You are planning a trip to Australia.Your hotel will cost you A$145 per night for seven nights.You expect to spend another A$2,800 for meals,tours,souvenirs,and so forth.How much will this trip cost you in U.S.dollars given the following exchange rates?

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

You would like to purchase a security that is issued by the British government.Which one of the following should you purchase?

Correct Answer
verified

Assume the spot rate for the British pound currently is £0.6211 per $1.Also assume the one-year forward rate is £0.6347 per $1.A risk-free asset in the U.S.is currently earning 3.4 percent.If interest rate parity holds,what rate can you earn on a one-year risk-free British security?

Correct Answer
verified

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.6869.The expected inflation rate in Norway is 6 percent and in the U.S.it is 3.1 percent.A risk-free asset in the U.S.is yielding 4 percent.What risk-free rate of return should you expect on a Norwegian security?

Correct Answer
verified

Correct Answer
verified

The price of one Euro expressed in U.S.dollars is referred to as a(n) :

Correct Answer
verified

Assume the spot exchange rate for the Hungarian forint is HUF 215.Also assume the inflation rate in the United States is 4 percent per year while it is 9.5 percent in Hungary.What is the expected exchange rate 5 years from now?

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

Based on the information below,what is the cross-rate for Australian dollars in terms of Swiss francs?

Correct Answer
verified

Assume the spot rate for the Japanese yen currently is ¥99.31 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 states that the current forward rate is an unbiased predictor of the future spot exchange rate?

Correct Answer
verified

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 4.2 percent while it is 3.1 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Correct Answer
verified

Exam 21: International Corporate Finance

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 2.6 percent while it is 4.3 percent in the U.S.What is the expected exchange rate four years from now if relative purchasing power parity exists?

Correct AnswerverifiedShow Answer

Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _____ relative to the Canadian dollar and the U.S.dollar is expected to _____ relative to the Canadian dollar.

Correct AnswerverifiedShow Answer

Relative purchasing power parity:

Correct AnswerverifiedShow Answer

Assume the current spot rate is C$1.1875 and the one-year forward rate is C$1.1724.The nominal risk-free rate in Canada is 4 percent while it is 3 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

Long-run exposure to exchange rate risk relates to:

Correct AnswerverifiedShow Answer

The home currency approach:

Correct AnswerverifiedShow Answer

Which one of the following is the risk that a firm faces when it opens a facility in a foreign country,given that the exchange rate between the firm's home country and this foreign country fluctuates over time?

Correct AnswerverifiedShow Answer

You are planning a trip to Australia.Your hotel will cost you A$145 per night for seven nights.You expect to spend another A$2,800 for meals,tours,souvenirs,and so forth.How much will this trip cost you in U.S.dollars given the following exchange rates?

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

You would like to purchase a security that is issued by the British government.Which one of the following should you purchase?

Correct AnswerverifiedShow Answer

Assume the spot rate for the British pound currently is £0.6211 per $1.Also assume the one-year forward rate is £0.6347 per $1.A risk-free asset in the U.S.is currently earning 3.4 percent.If interest rate parity holds,what rate can you earn on a one-year risk-free British security?

Correct AnswerverifiedShow Answer

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.6869.The expected inflation rate in Norway is 6 percent and in the U.S.it is 3.1 percent.A risk-free asset in the U.S.is yielding 4 percent.What risk-free rate of return should you expect on a Norwegian security?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The price of one Euro expressed in U.S.dollars is referred to as a(n) :

Correct AnswerverifiedShow Answer

Assume the spot exchange rate for the Hungarian forint is HUF 215.Also assume the inflation rate in the United States is 4 percent per year while it is 9.5 percent in Hungary.What is the expected exchange rate 5 years from now?

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

Based on the information below,what is the cross-rate for Australian dollars in terms of Swiss francs?

Correct AnswerverifiedShow Answer

Assume the spot rate for the Japanese yen currently is ¥99.31 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 states that the current forward rate is an unbiased predictor of the future spot exchange rate?

Correct AnswerverifiedShow Answer

In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 4.2 percent while it is 3.1 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _ relative to the Canadian dollar and the U.S.dollar is expected to _ relative to the Canadian dollar.

Correct Answer
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