FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 18: Multinational Financial Management

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

Stover Corporation,a U.S.based importer,makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs,or $24,000,at the spot rate of 1.665 Swiss francs per dollar.The terms of the purchase are net 90 days,and the U.S.firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk.Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 Swiss francs.If the spot rate in 90 days is actually 1.622 Swiss francs,how much in U.S.dollars will the U.S.firm have saved or lost by hedging its exchange rate exposure? Do not round the intermediate calculations and round the final answer to the nearest cent.

A) $1,001.85
B) $773.36
C) $878.82
D) $940.34
E) $817.30

F) C) and D)
G) A) and B)

Correct Answer

verified

Show Answer

Question 52

True/False

Review LaterAdd Note

Review Later

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

A) True
B) False

Correct Answer

verified

Show Answer

Question 53

Multiple Choice

Review LaterAdd Note

Blenman Corporation,based in the United States,arranged a 2-year,$1,000,000 loan to fund a project in Mexico.The loan is denominated in Mexican pesos,carries a 7.00% nominal rate,and requires equal semiannual payments.The exchange rate at the time of the loan was 5.75 pesos per dollar,but it dropped to 5.10 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus,Blenman must convert U.S.funds to Mexican pesos to make its payments.If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period,what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places.

Exchange rate risk is the risk that the cash flows from a foreign project,when converted to the parent company's currency,will be worth less than was originally projected because of exchange rate changes.

The cash flows relevant for a foreign investment should,from the parent company's perspective,include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.

If the inflation rate in the United States is greater than the inflation rate in Britain,other things held constant,the British pound will

Currently,a U.S.trader notes that in the 6-month forward market,the Japanese yen is selling at a premium (that is,you receive more dollars per yen in the forward market than you do in the spot market) ,while the British pound is selling at a discount.Which of the following statements is CORRECT?

A box of candy costs 28.80 Swiss francs in Switzerland and $20.00 in the United States.Assuming that purchasing power parity (PPP) holds,how many Swiss francs are required to purchase one U.S.dollar? Do not round the intermediate calculations and round the final answer to four decimal places.

Suppose hockey skates sell in Canada for 132 Canadian dollars,and 1 Canadian dollar equals 0.71 U.S.dollar.If purchasing power parity (PPP) holds,what is the price of hockey skates in the United States?

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market,then the forward currency is said to be selling at a discount to the spot rate.

Suppose one year ago,Hein Company had inventory in Britain valued at 229,000 pounds.The exchange rate for dollars to pounds was 1£ = 2.00 U.S.dollars.This year the exchange rate is 1£ = 1.82 U.S.dollars.The inventory in Britain is still valued at 229,000 pounds.What is the U.S.dollar gain or loss in inventory value as a result of the change in exchange rates?

A currency trader observes the following quotes in the spot market: Given this information,how many Mexican pesos can be purchased for 1 Danish krone?

Suppose one British pound can purchase 1.88 U.S.dollars today in the foreign exchange market,and currency forecasters predict that the U.S.dollar will depreciate by 12.00% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

If one U.S.dollar sells for 0.40 British pound,how many dollars should one British pound sell for?

A Eurodollar is a U.S.dollar deposited in a bank outside the United States.

Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure.Essentially,the process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to depreciate.

In Japan,90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return.In the United States,90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%.All securities are of equal risk,and Japanese securities are denominated in terms of the Japanese yen.Assuming that interest rate parity holds in all markets,which of the following statements is most CORRECT?

Suppose 144 yen could be purchased in the foreign exchange market for one U.S.dollar today.If the yen depreciates by 6.0% tomorrow,how many yen could one U.S.dollar buy tomorrow?

Because political risk is seldom negotiable,it cannot be explicitly addressed in multinational corporate financial analysis.

Suppose the exchange rate between U.S.dollars and Swiss francs is SF 1.41 = $1.00,and the exchange rate between the U.S.dollar and the euro is $1.00 = 0.45 euro.What is the cross rate of Swiss francs to euros? (In other words,how many Swiss francs are needed to purchase one euro?) Do not round the intermediate calculations and round the final answer to four decimal places. ​