Question 1

The 1-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 U.K. is 4.6 percent. If interest rate parity exists, what is the 1 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) A) and B)
G) A) and D)

Question 2

The exchange rate is 1.14 Swiss francs per U.S. dollar. How many U.S. dollars are needed to purchase 2,500 Swiss francs?

Accepted Answer

A)   $2,021.21
B)   $2,192.98
C)   $2,646.64
D)   $2,850.00
E)   $2,918.46F) A) and E)
G) A) and C)

Question 3

Which one of the following terms is defined as having international operations in a world where relative currency values change?

Accepted Answer

A)   Political risk
B)   Relative purchasing power parity
C)   Interest rate parity
D)   Absolute purchasing power parity
E)   Exchange rate riskF) A) and B)
G) B) and D)

Question 4

In New York, you can exchange $1 for €0.7538 or £0.6789. In Berlin, £1 costs €1.1087. How much profit can you earn on $5,000 using triangle arbitrage?

Accepted Answer

A)   $5.45
B)   $5.87
C)   $7.33
D)   $7.92
E)   $8.48F) B) and C)
G) C) and D)

Question 5

Which one of the following is defined as an agreement to exchange two securities or two currencies?

Accepted Answer

A)   Hedge
B)   Swap
C)   SWIFT
D)   Gilt
E)   ArbitrageF) C) and D)
G) A) and B)

Question 6

You just returned from a trip to Venezuela and have 1,516 bolivares fuertes in your pocket. How many dollars will you receive when you exchange this money if the U.S. dollar equivalent of the bolivares fuertes is 0.465701?

Accepted Answer

A)   $629.08
B)   $706.00
C)   $811.40
D)   $2,897.18
E)   $3,255.31F) B) and C)
G) A) and B)

Question 7

Currently, you can exchange $1 for Sf1.14. Assume that the average inflation rate in the U.S. over the next two years will be 2.5 percent annually as compared to 3 percent in Switzerland. Based on this information and relative purchasing power parity, which one of the following assumptions can you make regarding the next two years?

Accepted Answer

A)   The Swiss franc will appreciate against all currencies.
B)   The Swiss franc will appreciate against the U.S. dollar.
C)   The U.S. dollar will appreciate against all currencies.
D)   The U.S. dollar will appreciate against the Swiss franc.
E)   Both the U.S. dollar and the Swiss franc will appreciate against all other currencies.F) A) and E)
G) B) and E)

Question 8

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

Question 9

You can exchange $1 for either C$1.2381 or ¥100.37. What is the cross rate between the Canadian dollar and the Japanese yen?

Accepted Answer

A)   C$.012335/¥1
B)   C$.013723/¥1
C)   C$.014582/¥1
D)   CS124.2681/¥1
E)   C$131.0818/¥1F) None of the above
G) B) and D)

Question 10

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Accepted Answer

A)   Change in book value when the market value of an asset remains constant
B)   Daily fluctuations in the spot rate
C)   Increases in the forward rate as the time to settlement increases
D)   Changes in relative economic conditions between two countries
E)   Unrealized foreign exchange gainsF) A) and E)
G) None of the above

Question 11

Suppose a U.S. firm builds a factory in China, staffs it with Chinese workers, uses materials supplied by Chinese companies, and finances the entire operation with a loan from a Chinese bank located in the same town as the factory. This firm is most likely trying to greatly reduce, or eliminate, which one of the following?

Accepted Answer

A)   Interest rate disparities
B)   Short-run exposure to exchange rate risk
C)   Long-run exposure to exchange rate risk
D)   Political risk associated with the foreign operations
E)   Translation exposure to exchange rate riskF) A) and C)
G) B) and D)

Question 12

A particular set of golf clubs in the U.S. costs $990. According to absolute purchasing power parity, what should the identical set of clubs cost in the U.K. when the spot rate is £0.6703 = $1?

Accepted Answer

A)   £1,476.95
B)   £1,428.08
C)   £633.80
D)   £647.50
E)   £663.60F) B) and D)
G) C) and E)

Question 13

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 which handles all payroll functions and is located in a foreign country
D)   Natural ore mine in a foreign country
E)   Sub-assembly plant in a foreign country that uses U.S. made componentsF) A) and E)
G) A) and D)

Question 14

You are given the exchange rate between the U.S. dollar and the Canadian dollar. You are also given the exchange rate between the U.S. dollar and the Mexican peso. What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Accepted Answer

A)   Swap rate
B)   Depositary rate
C)   Forward rate
D)   London Interbank rate
E)   Cross-rateF) B) and D)
G) A) and E)

Question 15

Which of the following are participants in the foreign exchange market? I. U.S. importers
II)  U.S. exporters
III)  U.S. travelers to Europe
IV)  U.S. portfolio manager who purchases foreign securities

Accepted Answer

A)   I and III only
B)   II and IV only
C)   I, III, and IV only
D)   II, III, and IV only
E)   I, II, III, and IVF) C) and E)
G) A) and D)

Question 16

Assume you can currently exchange one U.S. dollar for one hundred Japanese yen. Also assume the inflation rate will be 2.5 percent annually in the U.S. and 2 percent in Japan. Given these assumptions, how many yen should you expect in exchange for one U.S. dollar next year?

Accepted Answer

A)   More than 100
B)   Either 100 or more than 100
C)   Exactly 100
D)   Either 100 or less than 100
E)   Less than 100F) A) and C)
G) B) and E)

Question 17

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

Question 18

Currently, you can purchase either 124 Canadian dollars or 10,037 Japanese yen for $100. What is the ¥/C$ cross rate?

Accepted Answer

A)   ¥78.87/C$1
B)   ¥80.94/C$1
C)   ¥81.23/C$1
D)   ¥86.27/C$1
E)   ¥87.08/C$1F) All of the above
G) C) and E)

Question 19

Given the following exchange rates, which of the following currencies are selling at a premium?

Accepted Answer

A)   Japanese yen only
B)   Swiss franc and Canadian dollar only
C)   U.S. pound only
D)   Canadian dollar, Swiss franc, and U.K. pound only
E)   all four currenciesF) B) and D)
G) C) and D)

Question 20

Your German friend has decided to come and visit you in the U.S. You estimate the cost of her trip at $2,200. What is the cost to her in euros if the U.S. dollar equivalent of the euro is 1.3266?

Accepted Answer

A)   €1,566.67
B)   €1,658.37
C)   €1,908.50
D)   €2,716.34
E)   €2,918.52F) A) and C)
G) B) and E)

Exam 18: International Aspects of Financial Management

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 Answer
verified

Correct Answer
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Given the following exchange rates, which of the following currencies are selling at a premium?

Correct Answer
verified

The exchange rate is 1.14 Swiss francs per U.S. dollar. How many U.S. dollars are needed to purchase 2,500 Swiss francs?

Correct Answer
verified

Assume you can currently exchange one U.S. dollar for one hundred Japanese yen. Also assume the inflation rate will be 2.5 percent annually in the U.S. and 2 percent in Japan. Given these assumptions, how many yen should you expect in exchange for one U.S. dollar next year?

Correct Answer
verified

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

Correct Answer
verified

Which one of the following is defined as an agreement to exchange two securities or two currencies?

Correct Answer
verified

The 1-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 U.K. is 4.6 percent. If interest rate parity exists, what is the 1 year risk-free rate in the U.S.?

Correct Answer
verified

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Correct Answer
verified

You are given the exchange rate between the U.S. dollar and the Canadian dollar. You are also given the exchange rate between the U.S. dollar and the Mexican peso. What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Correct Answer
verified

Which of the following are participants in the foreign exchange market? I. U.S. importers II) U.S. exporters III) U.S. travelers to Europe IV) U.S. portfolio manager who purchases foreign securities

Correct Answer
verified

A particular set of golf clubs in the U.S. costs $990. According to absolute purchasing power parity, what should the identical set of clubs cost in the U.K. when the spot rate is £0.6703 = $1?

Correct Answer
verified

In New York, you can exchange $1 for €0.7538 or £0.6789. In Berlin, £1 costs €1.1087. How much profit can you earn on $5,000 using triangle arbitrage?

Correct Answer
verified

You just returned from a trip to Venezuela and have 1,516 bolivares fuertes in your pocket. How many dollars will you receive when you exchange this money if the U.S. dollar equivalent of the bolivares fuertes is 0.465701?

Correct Answer
verified

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

Correct Answer
verified

You can exchange $1 for either C$1.2381 or ¥100.37. What is the cross rate between the Canadian dollar and the Japanese yen?

Correct Answer
verified

Correct Answer
verified

Currently, you can purchase either 124 Canadian dollars or 10,037 Japanese yen for $100. What is the ¥/C$ cross rate?

Correct Answer
verified

Which one of the following terms is defined as having international operations in a world where relative currency values change?

Correct Answer
verified

Your German friend has decided to come and visit you in the U.S. You estimate the cost of her trip at $2,200. What is the cost to her in euros if the U.S. dollar equivalent of the euro is 1.3266?

Correct Answer
verified

Exam 18: International Aspects of Financial Management

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

Correct AnswerverifiedShow Answer

Given the following exchange rates, which of the following currencies are selling at a premium?

Correct AnswerverifiedShow Answer

The exchange rate is 1.14 Swiss francs per U.S. dollar. How many U.S. dollars are needed to purchase 2,500 Swiss francs?

Correct AnswerverifiedShow Answer

Assume you can currently exchange one U.S. dollar for one hundred Japanese yen. Also assume the inflation rate will be 2.5 percent annually in the U.S. and 2 percent in Japan. Given these assumptions, how many yen should you expect in exchange for one U.S. dollar next year?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following is defined as an agreement to exchange two securities or two currencies?

Correct AnswerverifiedShow Answer

The 1-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 U.K. is 4.6 percent. If interest rate parity exists, what is the 1 year risk-free rate in the U.S.?

Correct AnswerverifiedShow Answer

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Correct AnswerverifiedShow Answer

You are given the exchange rate between the U.S. dollar and the Canadian dollar. You are also given the exchange rate between the U.S. dollar and the Mexican peso. What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Correct AnswerverifiedShow Answer

Which of the following are participants in the foreign exchange market? I. U.S. importers II) U.S. exporters III) U.S. travelers to Europe IV) U.S. portfolio manager who purchases foreign securities

Correct AnswerverifiedShow Answer

A particular set of golf clubs in the U.S. costs $990. According to absolute purchasing power parity, what should the identical set of clubs cost in the U.K. when the spot rate is £0.6703 = $1?

Correct AnswerverifiedShow Answer

In New York, you can exchange $1 for €0.7538 or £0.6789. In Berlin, £1 costs €1.1087. How much profit can you earn on $5,000 using triangle arbitrage?

Correct AnswerverifiedShow Answer

You just returned from a trip to Venezuela and have 1,516 bolivares fuertes in your pocket. How many dollars will you receive when you exchange this money if the U.S. dollar equivalent of the bolivares fuertes is 0.465701?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You can exchange $1 for either C$1.2381 or ¥100.37. What is the cross rate between the Canadian dollar and the Japanese yen?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Currently, you can purchase either 124 Canadian dollars or 10,037 Japanese yen for $100. What is the ¥/C$ cross rate?

Correct AnswerverifiedShow Answer

Which one of the following terms is defined as having international operations in a world where relative currency values change?

Correct AnswerverifiedShow Answer

Your German friend has decided to come and visit you in the U.S. You estimate the cost of her trip at $2,200. What is the cost to her in euros if the U.S. dollar equivalent of the euro is 1.3266?

Correct AnswerverifiedShow Answer

Correct Answer
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