Question 1

Which one of the following is the best definition of Eurocurrency?

Accepted Answer

A)  Any paper money used by a country that has adopted the euro as its common currency
B)  Money deposited in a financial institution outside the country whose currency is involved
C)  Both paper and coins officially adopted under the euro system of coinage
D)  U.S. dollars owned by any country that has adopted the euro as its currency
E)  Any exchange of funds between two countries that have adopted the euro as their official currencyF) A) and B)
G) A) and C)

Question 2

The one-year forward rate for the Swiss franc is SF 1.1375 = $1.The spot rate is SF 1.1426 = $1.The interest rate on a risk-free asset in Switzerland is 3.3 percent.If interest rate parity exists,a one-year risk-free security in the U.S.is yielding _____ percent.

Accepted Answer

A)  2.28
B)  2.51
C)  2.98
D)  3.40
E)  3.76F) A) and B)
G) C) and D)

Question 3

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 B)
G) A) and C)

Question 4

The one-year forward rate for the British pound is £0.6781 = $1.The spot rate is £0.6789 = $1.The interest rate on a risk-free asset in the UK is 4.6 percent.If interest rate parity exists,what is the one-year risk-free rate in the U.S.?

Accepted Answer

A)  4.68 percent
B)  4.72 percent
C)  4.77 percent
D)  4.83 percent
E)  4.87 percentF) None of the above
G) All of the above

Question 5

Which one of the following most likely represents the greatest political risk for a U.S.-based firm?

Accepted Answer

A)  A product assembly plant located in a foreign country
B)  A foreign sales office
C)  Accounting office that handles all payroll functions and is located in a foreign country
D)  Natural ore mine in a foreign country
E)  Subassembly plant in a foreign country that uses U.S.-made componentsF) D) and E)
G) A) and E)

Question 6

The spot rate between Canada and the U.S.is Can$1.2381 = $1,while the one-year forward rate is Can$1.2379 = $1.The risk-free rate in Canada is 2.8 percent.The risk-free rate in the U.S.is 3.6 percent.How much profit can you earn on a loan of $1,000 by utilizing covered interest arbitrage?

Accepted Answer

A)  -$8.14
B)  -$7.83
C)  -$5.36
D)  $3.49
E)  $6.57F) C) and E)
G) A) and C)

Question 7

You are planning an extended trip to Hong Kong.You have located some housing that you can lease for 11,250 Hong Kong dollars per month.What is the cost per month in U.S.dollars if the exchange rate is HK$1 = $0.1290?

Accepted Answer

A)  $1,208.15
B)  $1,451.25
C)  $78,311.27
D)  $81,395.35
E)  $87,209.30F) A) and E)
G) B) and E)

Question 8

Suppose the spot exchange rate for the Canadian dollar is Can$1.19 and the six-month forward rate is Can$1.16.Assuming absolute PPP holds,what is the current cost in the United States of a beer if the price in Canada is Can$3.75?

Accepted Answer

A)  $2.48
B)  $2.54
C)  $3.15
D)  $3.42
E)  $3.51F) A) and E)
G) None of the above

Question 9

Which one of the following states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Accepted Answer

A)  Arbitrage equilibrium
B)  Relative purchasing power parity
C)  Absolute purchasing power parity
D)  Interest rate parity
E)  Cross-rate parityF) A) and D)
G) A) and E)

Question 10

A U.S.firm has total assets valued at £890,000 located in London.This valuation did not change from last year.Last year,the exchange rate was £0.62 = $1.Today,the exchange rate is £0.68 = $1.By what amount did these assets change in value on the firm's U.S.financial statements?

Accepted Answer

A)  -$126,660.34
B)  $-113,511.03
C)  $-87,248.91
D)  $113,511.03
E)  $126,660.34F) B) and C)
G) C) and D)

Question 11

Assume you can exchange $1 for either £1.0 or €0.50 in the U.S.In the London market,you can exchange £1 for €0.52.This situation creates an opportunity to profit immediately from which one of the following?

Accepted Answer

A)  Futures arbitrage
B)  Currency hedge
C)  Interest rate swap
D)  Absolute purchasing power parity
E)  Triangle arbitrageF) B) and C)
G) A) and E)

Question 12

The spot rate between Japan and the U.S.is ¥100.37 = $1,while the one-year forward rate is ¥99.97 = $1.A one-year risk-free security in the U.S.is yielding 3.8 percent.What is the rate of return on a one-year risk-free security in Japan assuming that interest rate parity exists?

Accepted Answer

A)  3.32 percent
B)  3.39 percent
C)  3.44 percent
D)  3.49 percent
E)  3.56 percentF) All of the above
G) B) and C)

Question 13

The spot exchange rate is the exchange rate that applies to a(n) :

Accepted Answer

A)  LIBOR transaction.
B)  ADR transaction.
C)  spot trade.
D)  forward trade.
E)  future transaction.F) A) and D)
G) C) and D)

Question 14

The spot rate on the Norwegian kroner is 6.689.The exchange rate one year from now is expected to be 6.745 assuming that relative interest rate parity exists.Interest rates in Norway are 3.7 percent.What is the interest rate in the U.S.?

Accepted Answer

A)  2.86 percent
B)  3.02 percent
C)  3.59 percent
D)  4.54 percent
E)  4.68 percentF) A) and C)
G) B) and E)

Question 15

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 E)
G) A) and D)

Question 16

Which one of the following is the risk arising from changes in value caused by political actions?

Accepted Answer

A)  Exchange rate risk
B)  Political risk
C)  Translation risk
D)  LIBOR risk
E)  Cross-rate riskF) B) and E)
G) B) and D)

Question 17

Interest rate parity defines the relationships among which of the following?

Accepted Answer

A)  Spot exchange rates, future exchange rates, interest rates, and inflation rates
B)  Real and nominal interest rates across countries
C)  Real interest and inflation rates
D)  Forward exchange rates, relative interest rates, and spot exchange rates
E)  Spot exchange rates, forward exchange rates, nominal interest rates, and real interest ratesF) All of the above
G) C) and D)

Question 18

Which one of the following must be significantly eliminated if interest rate parity is to exist?

Accepted Answer

A)  Absolute purchasing power parity
B)  Short-run exposure to exchange rate risk
C)  Covered interest arbitrage opportunities
D)  Relative purchasing power parity
E)  Translation exposureF) A) and E)
G) B) and E)

Question 19

According to purchasing power parity,if a Big Mac sells for $3.89 in the United States and 47.25 pesos in Mexico,what is the peso/$ exchange rate?

Accepted Answer

A)  Ps0.0739 = $1
B)  Ps0.0823 = $1
C)  Ps11.29 = $1
D)  Ps12.15 = $1
E)  Ps14.32 = $1F) B) and D)
G) A) and B)

Question 20

If you have three thousand euros,how many dollars do you have given the following exchange rates?

Accepted Answer

A)  $2,261.42
B)  $2,608.14
C)  $3,211.09
D)  $3,979.80
E)  $4,216.50F) B) and C)
G) A) and B)

Exam 18: International Aspects of Financial Management

The spot rate between Japan and the U.S.is ¥100.37 = $1,while the one-year forward rate is ¥99.97 = $1.A one-year risk-free security in the U.S.is yielding 3.8 percent.What is the rate of return on a one-year risk-free security in Japan assuming that interest rate parity exists?

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

Which one of the following most likely represents the greatest political risk for a U.S.-based firm?

Correct AnswerverifiedShow Answer

If you have three thousand euros,how many dollars do you have given the following exchange rates?

Correct AnswerverifiedShow Answer

The one-year forward rate for the British pound is £0.6781 = $1.The spot rate is £0.6789 = $1.The interest rate on a risk-free asset in the UK is 4.6 percent.If interest rate parity exists,what is the one-year risk-free rate in the U.S.?

Correct AnswerverifiedShow Answer

Suppose the spot exchange rate for the Canadian dollar is Can$1.19 and the six-month forward rate is Can$1.16.Assuming absolute PPP holds,what is the current cost in the United States of a beer if the price in Canada is Can$3.75?

Correct AnswerverifiedShow Answer

Which one of the following is the best definition of Eurocurrency?

Correct AnswerverifiedShow Answer

Which one of the following must be significantly eliminated if interest rate parity is to exist?

Correct AnswerverifiedShow Answer

The spot rate on the Norwegian kroner is 6.689.The exchange rate one year from now is expected to be 6.745 assuming that relative interest rate parity exists.Interest rates in Norway are 3.7 percent.What is the interest rate in the U.S.?

Correct AnswerverifiedShow Answer

The one-year forward rate for the Swiss franc is SF 1.1375 = $1.The spot rate is SF 1.1426 = $1.The interest rate on a risk-free asset in Switzerland is 3.3 percent.If interest rate parity exists,a one-year risk-free security in the U.S.is yielding _____ percent.

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

The spot rate between Canada and the U.S.is Can$1.2381 = $1,while the one-year forward rate is Can$1.2379 = $1.The risk-free rate in Canada is 2.8 percent.The risk-free rate in the U.S.is 3.6 percent.How much profit can you earn on a loan of $1,000 by utilizing covered interest arbitrage?

Correct AnswerverifiedShow Answer

Assume you can exchange $1 for either £1.0 or €0.50 in the U.S.In the London market,you can exchange £1 for €0.52.This situation creates an opportunity to profit immediately from which one of the following?

Correct AnswerverifiedShow Answer

Which one of the following is the risk arising from changes in value caused by political actions?

Correct AnswerverifiedShow Answer

Interest rate parity defines the relationships among which of the following?

Correct AnswerverifiedShow Answer

According to purchasing power parity,if a Big Mac sells for $3.89 in the United States and 47.25 pesos in Mexico,what is the peso/$ exchange rate?

Correct AnswerverifiedShow Answer

You are planning an extended trip to Hong Kong.You have located some housing that you can lease for 11,250 Hong Kong dollars per month.What is the cost per month in U.S.dollars if the exchange rate is HK$1 = $0.1290?

Correct AnswerverifiedShow Answer

A U.S.firm has total assets valued at £890,000 located in London.This valuation did not change from last year.Last year,the exchange rate was £0.62 = $1.Today,the exchange rate is £0.68 = $1.By what amount did these assets change in value on the firm's U.S.financial statements?

Correct AnswerverifiedShow Answer

The spot exchange rate is the exchange rate that applies to a(n) :

Correct AnswerverifiedShow Answer

Which one of the following states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Correct AnswerverifiedShow Answer

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Assume that P_E is the euro price of a product,P_US 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?

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