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Exam 31: International Corporate Finance

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Question 31

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"A commodity costs the same regardless of what currency is used to purchase it." This is a statement of:

A) Absolute Purchasing Power Parity.
B) Relative Purchasing Power Parity.
C) The First Principle of International Finance.
D) The Conservation of Currency Value.
E) None of the above.

F) A) and E)
G) B) and E)

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Question 32

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The most important complication of international finance is the:

A) basic principles of corporate finance do not apply.
B) process of foreign exchange valuation of different currencies.
C) NPV principle can not be applied to foreign operations.
D) All of the above.
E) None of the above.

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

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Question 33

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You want to import €45,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth €.0218?

The forward rate market is dependent upon:

You are planning a trip to Australia.Your hotel will cost you A$150 per night for five nights.You expect to spend another A$2,000 for meals,tours,souvenirs,and so forth.How much will this trip cost you in U.S.dollars given the following exchange rates? $\begin{array}{|l|l|l|}\hline\text { Country } & \text { U.S. \$ Equivalent } & \text { Currency per U.S.\$ } \\\hline Australia &.7004&1.4278 \\\hline\end{array}$

The expected inflation rate in Finland is 2 percent while it is 4 percent in the U.S.A risk-free asset in the U.S.is yielding 5.5 percent.What real rate of return should you expect on a risk-free Norwegian security?

The current spot rate is C$1.400 and the one-year forward rate is C$1.344.The nominal risk-free rate in Canada is 4 percent while it is 8 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.

What kind of trade involves agreeing today on an exchange rate for settlement in 90 days?

The foreign exchange market is where:

Interest rate parity:

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

A foreign bond issued in the United States and denominated in dollars is called a(n) :

"The rate of change in commodity price levels between two countries determines the rate of change in exchange rates between the two countries." This is a statement of:

What is triangle arbitrage? Using the U.S.dollar,the Canadian dollar,and the euro,construct an example in which triangle arbitrage exists,and then show how to exploit it.

In the spot market,$1 is currently equal to A$1.42.The expected inflation rate is 3 percent in Australia and 2 percent in the U.S..What is the expected exchange rate one year from now if relative purchasing power parity exists?

You are expecting a payment of C$100,000 four years from now.The risk-free rate of return is 3 percent in the U.S.and 4 percent in Canada.The inflation rate is 3 percent in the U.S.and 2 percent in Canada.The current exchange rate is C$1 = $.72.How much will the payment four years from now be worth in U.S.dollars?

You are analyzing a very low-risk project with an initial cost of £120,000.The project is expected to return £40,000 the first year,£50,000 the second year and £60,000 the third and final year.The current spot rate is £.54.The nominal return relevant to the project is 4 percent in the U.K.and 3 percent in the U.S.Assume that uncovered interest rate parity exists.What is the net present value of this project in U.S.dollars?

Which of the following statements are correct? I.The usage of forward rates can help reduce the short-run exposure to exchange rate risk. II.Accounting translation gains are recorded on the income statement as other income. III.The long-run exchange rate risk faced by an international firm can be reduced if the firm borrows money in the foreign country where it has operations. IV.Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk.

When the US dollar is quoted as $1.923 to the pound,this quote is a(n) :

The home currency approach: