Question 1

The international Fisher effect may not hold if

Accepted Answer

A)  risk tolerance levels vary among countries.
B)  interest rates vary among countries.
C)  currencies can move freely among countries.
D)  nominal interest rates vary among countries.
E)  inflation rates vary among countries.F) A) and D)
G) A) and E)

Question 2

You want to import $62,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?

Accepted Answer

A)  3,860,523RS
B)  2,803,006RS
C)  821,048RS
D)  996RS
E)  909RSF) A) and D)
G) A) and C)

Question 3

The theory that real interest rates are equal across countries is called

Accepted Answer

A)  purchasing power parity.
B)  the international Fisher effect.
C)  the unbiased forward rates condition.
D)  uncovered interest parity.
E)  interest rate parity.F) All of the above
G) B) and C)

Question 4

You are planning a return trip to Australia.Your hotel will now cost you $236 per night for 5 nights.You expect to spend $3,800 for food and expenses.How much will this trip cost you in Australian dollars if the indirect quote is 1.0829?

Accepted Answer

A)  A$4,598.76
B)  A$4,802.48
C)  A$5,094.18
D)  A$4,964.92
E)  A$5,392.84F) B) and C)
G) A) and B) E

Question 5

You are expecting a payment of Can$150,000 four years from now.The risk-free rate of return is 3.9 percent in the United States and 4.6 percent in Canada.The inflation rate is 3 percent in the United States and 4.2 percent in Canada.Assume the current exchange rate is Can$1 = $.87.How much will the payment four years from now be worth in U.S.dollars?

Accepted Answer

A)  $138,887
B)  $126,909
C)  $99,300
D)  $166,184
E)  $177,285F) A) and D)
G) B) and E)

Question 6

What does LIBOR stand for?

Accepted Answer

A)  London Interest Bearing Orderly Rate
B)  Lisbon Interest Bearing Organization Rate
C)  Liberal Interest Bearing Offer Rate
D)  Lisbon International Bank Offering Rate
E)  London Interbank Offered RateF) A) and D)
G) C) and D) E

Question 7

You are planning a trip to Australia.The hotel will cost you A$182 per night for 7 nights.You expect to spend another A$4,100 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 0.8507?

Accepted Answer

A)  $6,317.15
B)  $5,961.85
C)  $5,532.61
D)  $4,668.14
E)  $4,571.66F) A) and E)
G) D) and E)

Question 8

The changes in the relative economic conditions between countries are referred to as the

Accepted Answer

A)  international Fisher effect.
B)  international exchange rate effect.
C)  long-run exposure to exchange rate risk.
D)  translation exposure to exchange rate risk.
E)  the interest rate parity risk.F) A) and E)
G) B) and D)

Question 9

Assume today you can exchange $1 for £.7998,while last week £1 was worth $1.2506.Also assume you converted £500 into dollars last week and then converted your dollars back to pounds this week.What is your net profit or loss in pounds?

Accepted Answer

A)  £.1708
B)  £.1149
C)  £.3018
D)  £.3302
E)  £.2108F) B) and D)
G) B) and E)

Question 10

A direct quote is

Accepted Answer

A)  is equal to (1 - Indirect quote) .
B)  also called the European quote.
C)  is shown as the Currency per USD in the Wall Street Journal.
D)  the number of U.S.dollars required to purchase one unit of a foreign currency.
E)  generally set at the beginning of each calendar day and held constant during that day.F) C) and D)
G) A) and E)

Question 11

Assume the current spot rate is Can$1.0267 and the 1-year forward rate is C$1.0259.The nominal risk-free rate in Canada is 2.5 percent while it is 2.1 percent in the United States.If you use covered interest arbitrage,how much extra profit can you earn over that which you would earn if you invested $1,000 in the United States for 1 year?

Accepted Answer

A)  $.21
B)  $4.22
C)  $4.80
D)  $.24
E)  $0F) B) and C)
G) B) and D)

Question 12

Assume a currency is less expensive in the forward market than in the spot market relative to the U.S.dollar.When this occurs,the currency is said to be selling at

Accepted Answer

A)  the spot price.
B)  an arbitrage price.
C)  a premium relative to the dollar.
D)  its true relative value.
E)  a discount relative to the dollar.F) A) and E)
G) C) and E)

Question 13

Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed-rate payments.This exchange is referred to as a

Accepted Answer

A)  gilt exchange.
B)  forward rate.
C)  cross-rate.
D)  spot exchange.
E)  swap.F) C) and D)
G) A) and E)

Question 14

The cross rate is the

Accepted Answer

A)  exchange rate between the U.S.dollar and another currency.
B)  implicit exchange rate between two currencies when both are quoted in a third currency.
C)  rate converting the direct rate into the indirect rate.
D)  difference between the official exchange rate and the rate that can be received locally.
E)  difference between the spot rate and the forward rate.F) A) and B)
G) D) and E) B

Question 15

Assume the spot rate for the Japanese yen currently is ¥111.04 per $1.The 1-year forward rate is ¥111.62 per $1.Also assume a risk-free asset in Japan is currently earning 3.4 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free U.S.security?

Accepted Answer

A)  4.15%
B)  3.08%
C)  2.86%
D)  2.46%
E)  3.94%F) D) and E)
G) A) and C)

Question 16

A coffee mug that suits your style costs $12.98 in the United States.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 0.9894?

Accepted Answer

A)  Can$12.84
B)  Can$12.99
C)  Can$13.08
D)  Can$13.12
E)  Can$12.92F) A) and B)
G) C) and D)

Question 17

Assume the euro is selling in the spot market for $1.10.Simultaneously,in the 3-month forward market the euro is selling for $1.12.Which one of the following statements correctly describes this situation?
I.The euro is selling at a premium relative to the dollar.
II.The dollar is selling at a premium relative to the euro.
III.The dollar is selling at a discount relative to the euro.
IV.The euro is selling at a discount relative to the dollar.

Accepted Answer

A)  I and II only
B)  I and III only
C)  II and IV only
D)  III and IV only
E)  I and IV onlyF) C) and E)
G) All of the above

Question 18

Assume the inflation rate in the United States is 2.8 percent.The spot rate for a foreign currency is 1.6349 while the 3-year forward rate is 1.7084.What is the approximate rate of inflation in the foreign country?

Accepted Answer

A)  4.37%
B)  2.02%
C)  2.42%
D)  2.41%
E)  4.28%F) B) and C)
G) B) and D)

Question 19

An agreement made today that sets both the exchange rate and the quantity of currency that will be traded at some point in the future is called a ________ trade.

Accepted Answer

A)  spot
B)  floating
C)  swap
D)  triangle
E)  forwardF) All of the above
G) D) and E)

Question 20

The forward rate market is dependent upon

Accepted Answer

A)  current forward rates exceeding current spot rates.
B)  current spot rates exceeding current forward rates over time.
C)  current spot rates equalling current forward rates on average over time.
D)  current spot rates equalling the actual future spot rates on average over time.
E)  forward rates equalling the actual future spot rates on average over time.F) A) and B)
G) B) and E)

Exam 20: International Corporate Finance

The international Fisher effect may not hold if

Correct Answer
verified

You want to import $62,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?

Correct Answer
verified

The theory that real interest rates are equal across countries is called

Correct Answer
verified

You are planning a return trip to Australia.Your hotel will now cost you $236 per night for 5 nights.You expect to spend $3,800 for food and expenses.How much will this trip cost you in Australian dollars if the indirect quote is 1.0829?

Correct Answer
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E

Correct Answer
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What does LIBOR stand for?

Correct Answer
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E

You are planning a trip to Australia.The hotel will cost you A$182 per night for 7 nights.You expect to spend another A$4,100 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 0.8507?

Correct Answer
verified

The changes in the relative economic conditions between countries are referred to as the

Correct Answer
verified

Assume today you can exchange $1 for £.7998,while last week £1 was worth $1.2506.Also assume you converted £500 into dollars last week and then converted your dollars back to pounds this week.What is your net profit or loss in pounds?

Correct Answer
verified

A direct quote is

Correct Answer
verified

Correct Answer
verified

Assume a currency is less expensive in the forward market than in the spot market relative to the U.S.dollar.When this occurs,the currency is said to be selling at

Correct Answer
verified

Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed-rate payments.This exchange is referred to as a

Correct Answer
verified

The cross rate is the

Correct Answer
verified
B

Assume the spot rate for the Japanese yen currently is ¥111.04 per $1.The 1-year forward rate is ¥111.62 per $1.Also assume a risk-free asset in Japan is currently earning 3.4 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free U.S.security?

Correct Answer
verified

A coffee mug that suits your style costs $12.98 in the United States.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 0.9894?

Correct Answer
verified

Correct Answer
verified

Assume the inflation rate in the United States is 2.8 percent.The spot rate for a foreign currency is 1.6349 while the 3-year forward rate is 1.7084.What is the approximate rate of inflation in the foreign country?

Correct Answer
verified

An agreement made today that sets both the exchange rate and the quantity of currency that will be traded at some point in the future is called a ________ trade.

Correct Answer
verified

The forward rate market is dependent upon

Correct Answer
verified

Exam 20: International Corporate Finance

The international Fisher effect may not hold if

Correct AnswerverifiedShow Answer

You want to import $62,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?

Correct AnswerverifiedShow Answer

The theory that real interest rates are equal across countries is called

Correct AnswerverifiedShow Answer

You are planning a return trip to Australia.Your hotel will now cost you $236 per night for 5 nights.You expect to spend $3,800 for food and expenses.How much will this trip cost you in Australian dollars if the indirect quote is 1.0829?

Correct AnswerverifiedE

Correct AnswerverifiedShow Answer

What does LIBOR stand for?

Correct AnswerverifiedE

You are planning a trip to Australia.The hotel will cost you A$182 per night for 7 nights.You expect to spend another A$4,100 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 0.8507?

Correct AnswerverifiedShow Answer

The changes in the relative economic conditions between countries are referred to as the

Correct AnswerverifiedShow Answer

Assume today you can exchange $1 for £.7998,while last week £1 was worth $1.2506.Also assume you converted £500 into dollars last week and then converted your dollars back to pounds this week.What is your net profit or loss in pounds?

Correct AnswerverifiedShow Answer

A direct quote is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume a currency is less expensive in the forward market than in the spot market relative to the U.S.dollar.When this occurs,the currency is said to be selling at

Correct AnswerverifiedShow Answer

Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed-rate payments.This exchange is referred to as a

Correct AnswerverifiedShow Answer

The cross rate is the

Correct AnswerverifiedB

Assume the spot rate for the Japanese yen currently is ¥111.04 per $1.The 1-year forward rate is ¥111.62 per $1.Also assume a risk-free asset in Japan is currently earning 3.4 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free U.S.security?

Correct AnswerverifiedShow Answer

A coffee mug that suits your style costs $12.98 in the United States.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 0.9894?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume the inflation rate in the United States is 2.8 percent.The spot rate for a foreign currency is 1.6349 while the 3-year forward rate is 1.7084.What is the approximate rate of inflation in the foreign country?

Correct AnswerverifiedShow Answer

An agreement made today that sets both the exchange rate and the quantity of currency that will be traded at some point in the future is called a ________ trade.

Correct AnswerverifiedShow Answer

The forward rate market is dependent upon

Correct AnswerverifiedShow Answer

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E

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E

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B

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