Deck 20: International Corporate Finance

Question 1

An agreement to trade currencies based on the exchange rate today for settlement within two business days is called a(n)_____ trade.

A)spot
B)forward
C)futures
D)option
E)swap

Answer 1

spot

Question 2

Which one of these statements is correct?

A)Relative purchasing power parity says that the expected spot rate one year from now is equal to the current spot rate multiplied by (1 + U.S.inflation rate - Foreign inflation rate).
B)The interest rate parity formula is based on real rates of interest.
C)An indirect quote is the number of dollars required to purchase one unit of a foreign currency.
D)Uncovered interest parity is a combination of the unbiased forward rate and interest rate parity.
E)If the euro per dollar is more expensive in the forward market than in the spot market,the euro is selling at a discount.

Answer 2

Uncovered interest parity is a combination of the unbiased forward rate and interest rate parity.

Question 3

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

A)purchasing power parity.
B)the international Fisher effect.
C)the unbiased forward rates condition.
D)uncovered interest parity.
E)interest rate parity.

Answer 3

the international Fisher effect.

Question 4

Assume a currency is more 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:

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.

Question 5

Which one of these must be true if absolute purchasing power parity is to absolutely hold?

A)Customer preferences for an item must be identical across markets.
B)There must be greater demand for the item in one area as compared to another area.
C)Forward rates must equal spot rates.
D)The goods traded must have a feature unique to each individual market.
E)Transaction costs must be imposed on both ends of a trade.

Question 6

Which one of these statements related to the foreign exchange market is correct?

A)Currency trading floors are operated by the central bank of each country.
B)The primary currency trading floor is located in London.
C)The foreign exchange market is second in size as a financial market only to the New York Stock Exchange.
D)Currency trading floors are located in all the major financial centers of the world and operated by commercial banks.
E)SWIFT is a means of handling foreign currency transactions that is sponsored by a Belgian cooperative.

Question 7

Triangle arbitrage:
I.is a profitable situation involving three separate currency exchange transactions.
II.helps keep the currency market in equilibrium.
III.opportunities can exist in either the spot or the forward market.
IV.only involves currencies other than the U.S.dollar.

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

Question 8

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

A)American Depository Receipt.
B)European Currency Unit.
C)Eurobond.
D)Yankee bond.
E)swap bond.

Question 9

Assume the spot exchange rate is 6.22 Chinese yuan per U.S.dollar.If the inflation rate in China is expected to be double that in the U.S.for the next two years,then the:

A)exchange rate will decrease.
B)exchange rate will double.
C)yuan will appreciate relative to the dollar.
D)yuan will become more valuable.
E)dollar will strengthen against the yuan.

Question 10

Which one of these presents the idea that forward rates are equal to expected future spot rates?

A)International Fisher effect
B)Interest rate parity
C)Uncovered interest rate parity
D)Triangle arbitrage
E)Unbiased forward rate condition

Question 11

Which one of these is a U.S.company-sponsored security that trades on an exchange and has an underlying value based on foreign securities?

A)Yankee bond
B)Foreign bond
C)American Depository Receipt
D)Gilt
E)Eurobond

Question 12

Which two countries use the krone as their home currency?

A)Singapore and India
B)Switzerland and Sweden
C)Denmark and Norway
D)South Africa and Saudi Arabia
E)Kuwait and Iran

Question 13

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.

A)spot
B)floating
C)swap
D)triangle
E)forward

Question 14

Which one of these best expresses the value of one currency in terms of a second currency?

A)LIBOR
B)Exchange rate
C)Depository Rate
D)Arbitrage rate
E)Real rate

Question 15

International bonds issued in a single country and denominated in that country's currency are called:

A)Treasury bonds.
B)Eurobonds.
C)foreign bonds.
D)Brady bonds.
E)gilts.

Question 16

What does LIBOR stand for?

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 Offer Rate

Question 17

Which one of these expresses the concept that a commodity will cost the same regardless of where the commodity is located or the currency used to pay for it?

A)Interest rate parity
B)Uncovered interest rate parity
C)Absolute purchasing power parity
D)International Fisher effect
E)Relative purchasing power parity

Question 18

A bond issued in multiple countries but generally denominated in the single home currency of the issuer is called a:

A)Treasury bond.
B)Eurobond.
C)Bulldog bond.
D)Samurai bond.
E)Yankee bond.

Question 19

Which one of these combinations of country,currency,and currency symbol is incorrect?

A)Mexico,peso,Ps
B)Japan,yen,¥
C)United Kingdom,pound,£
D)Saudi Arabia,riyal,Ry
E)EMU,euro,€

Question 20

The international Fisher effect states that real rates are equal across countries.This equalization may not hold if:
I.currency movement restrictions exist.
II.inflation rates vary among countries.
III.risk tolerance levels vary among countries.
IV.interest rates vary among countries.

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

Question 21

Relative purchasing power parity states that exchange rates vary in response to:

A)differences in interest rates between countries.
B)changes in the trade barriers between countries.
C)changes in the tax rates imposed by a country.
D)differences in the inflation rates between countries.
E)arbitrage trades involving the exchanged currencies.

Question 22

Which one of these is a suggested means of reducing short-run exposure to exchange rate risk?

A)Compiling financial statements only in foreign currency terms
B)Utilizing foreign borrowing to fund foreign operations
C)Borrowing domestic currency,exchanging it for foreign currency,and investing it in foreign investments
D)Ensuring any foreign operation requires significant parent company involvement
E)Using a current spot contract to exchange the amount of funds needed

Question 23

An international firm that imports raw materials can reduce its _____ exposure to _______ rate risk by entering into a forward contract.

A)short-term;inflation
B)long-term;inflation
C)total;interest
D)short-run;exchange
E)long-run;exchange

Question 24

For accounting purposes,the translation gains and losses that affect a firm's balance sheet are:

A)recorded as an intangible asset.
B)treated as either current income or a current expense as they are incurred.
C)treated as an unsecured debt of the firm.
D)recorded as stockholders' equity.
E)recorded as a deferred liability.

Question 25

The cross rate is the:

A)exchange rate between the US 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.

Question 26

The home currency approach:

A)discounts all of a project's foreign cash flows using the current spot rate.
B)employs uncovered interest parity to project future exchange rates.
C)computes the net present value (NPV)of a project in the foreign currency and then converts that NPV into U.S.dollars.
D)utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency.
E)utilizes the international Fisher effect to compute the relevant exchange rates needed to compute the NPV of foreign cash flows in U.S.dollars.

Question 27

The international Fisher effect says that _____ rates are equal across countries.

A)real
B)inflation
C)nominal
D)future
E)spot

Question 28

The foreign currency approach to capital budgeting analysis:
I.is computationally easier to use than the home currency approach.
II.produces the same results as the home currency approach.
III.utilizes the uncovered interest parity relationship.
IV.computes the net present value of a project in both the foreign and in the domestic currency.

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

Question 29

Suppose the spot exchange rate is 2 U.S.dollars per British pound.The forward exchange rate is 1.9 dollars per pound.Which one of the following is true?

A)The U.S.inflation rate is lower than the U.K.inflation rate.
B)The U.K.pound is selling at a premium.
C)The U.K.pound is selling at a discount.
D)U.S.interest rates are lower than U.S.interest rates.
E)The U.S.dollar is expected to depreciate.

Question 30

Which of the following are means of repatriating funds from a foreign operation?
I.Royalties on patents and trade names
II.Central office management fees
III.Interest payments on foreign debt
IV.Dividend payments

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

Question 31

The home currency approach:

A)requires an applicable exchange rate for every time period for which there is a cash flow.
B)stresses the use of the real rate of return to compute the net present value (NPV)of a project.
C)uses the current risk-free nominal rate to discount all of the cash flows related to a project.
D)generally produces more reliable results than those found using the foreign currency approach.
E)provides a net project value in both the home and the foreign currency.

Question 32

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

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.

Question 33

Which of the following conditions exist if absolute purchasing power parity exists?
I.Goods are identical
II.Goods have equal economic values
III.Transaction costs are equal to zero
IV.Trade barriers are nonexistent

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

Question 34

According to the unbiased forward rate theory,the current 90-day forward rate should fairly accurately predict the:

A)interest rate differential between two countries 90 days from now.
B)difference in the inflation rate between two countries 90 days from now.
C)forward rate 90 days from now.
D)real rate 90 days from now.
E)spot rate 90 days from now.

Question 35

The forward rate market is dependent upon:

A)current forward rates exceeding current spot rates.
B)current spot rates exceeding current forward rates over time.
C)current spot rates equaling current forward rates on average over time.
D)current spot rates equaling the actual future spot rates on average over time.
E)forward rates equaling the actual future spot rates on average over time.

Question 36

Assume that 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.

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

Question 37

Interest rate parity:

A)eliminates exchange rate fluctuations.
B)exists when spot rates are equal for multiple countries.
C)exists when the spot rate is equal to the forward rate.
D)means that the nominal risk-free rate of return must be the same across countries.
E)eliminates covered interest arbitrage opportunities.

Question 38

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

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

Question 39

Which one of the following statements is correct assuming that exchange rates are quoted as units of foreign currency per dollar?

A)The exchange rate moves in the same direction as the value of the dollar.
B)The exchange rate is unaffected by differences in the inflation rates of the two countries.
C)The exchange rate falls as the dollar strengthens.
D)When a foreign currency appreciates in value it weakens relative to the dollar.
E)The exchange rate rises when the U.S.inflation rate is higher than the foreign country's rate.

Question 40

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.

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

Question 41

Assume you can exchange C$157 with £100.Also assume you can exchange C$1.01 for $1 and $1.62 for £1.How much profit can you earn in U.S.dollars if you start out with $100?

A)$4.22
B)$1.61
C)$4.13
D)$1.64
E)$0

Question 42

Assume the spot exchange rate is £.6229.The expected inflation rate in the U.K.is 3.8 percent and in the U.S.it is 2.9 percent.What is the expected exchange rate three years from now if relative purchasing power parity exists?

A)£.5391
B)£.6399
C)£.6062
D)£.6285
E)£.6233

Question 43

A coffee mug that suits your style costs $5.98 in the U.S.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 1.013?

A)C$6.06
B)C$5.99
C)C$6.08
D)C$5.90
E)C$5.92

Question 44

Assume the inflation rate in the U.S.is 1.8 percent.The spot rate for a foreign currency is .876 while the 1-year forward rate is .871.What is the approximate rate of inflation in the foreign country?

A)1.23%
B)2.37%
C)1.49%
D)1.63%
E)2.04%

Question 45

A gift you want to buy costs $529 in the U.S.If absolute purchasing power parity exists,the identical gift will cost _____ in Canada if the exchange rate is C$1 = $.9876

A)C$520.08
B)C$535.64
C)C$531.15
D)C$522.44
E)C$534.79

Question 46

You are planning a trip to Australia.The hotel will cost you A$160 per night for seven nights.You expect to spend another A$2,500 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 1.0503?

A)$3,446.63
B)$2,961.85
C)$2,532.61
D)$3,668.14
E)$3,802.09

Question 47

Assume you have £100 and can exchange C$350 for £200.Also assume you can exchange $1 for C$1.03 and £1 for $1.61.How much arbitrage profit in pounds can you earn? (Ignore transaction costs. )

A)£5.53
B)-£4.09
C)£19.02
D)£111.96
E)-£5.83

Question 48

Today,you can exchange $1 for £.6229.Last week,£1 was worth $1.61.Assume you converted £100 into dollars last week and then converted your dollars back to pounds this week.What is your net profit or loss in pounds?

A)£.2708
B)£.2869
C)£.3018
D)£.2585
E)£.2942

Question 49

Assume the inflation rate in the U.S.is 3.6 percent.The spot rate for a foreign currency is 5.872 while the 3-year forward rate is 6.084.What is the approximate rate of inflation in the foreign country?

A)4.68%
B)2.37%
C)2.42%
D)2.41%
E)4.79%

Question 50

Today,you can exchange $1 for €.7549.A month ago,€1 was worth $1.3077.Assume you converted €500 into dollars last month and then converted your dollars back to euros this week.What is your net profit or loss in euros?

A)-£.2886
B)-£6.41
C)£.0074
D)£6.49
E)-£.2901

Question 51

How many euros can you get for $1,600 if the direct quote is1.3081?

A)€1,248.72
B)€1,223.15
C)€2,151.06
D)€2,092.96
E)€1,601.31

Question 52

Assume that ¥87.04 equal $1.Also assume that 6.5614SKr equal $1.How many Japanese yen can you acquire in exchange for 4,300 Swedish krona?

A)¥324.15
B)¥57,041.49
C)¥61,309.90
D)¥2,454,901.88
E)¥2,368,519.67

Question 53

Currently,$1 will buy C$.9867 while $1.3081 will buy €1.What is the Canadian dollar/Euro exchange rate?

A)C$1.3257 = €1
B)C$1.2894 = €1
C)C$1.2619 = €1
D)C$1.2907 = €1
E)C$1.2540 = €1

Question 54

You just returned from some extensive traveling.You started your trip with $30,000 in your pocket.You spent €9,800 traveling throughout euroland,7,500NKr in Norway,and £8,200 in the U.K.The exchange rates were $1 = € .7645,1NKr = $.1785,and £1 = $1.6054.How many dollars did you have left by the time you returned to the U.S.?

A)$10,734.65
B)$211.38
C)$2,304.49
D)$2,678.13
E)$8,004.87

Question 55

A sweater you desire costs C$95.What will the same sweater cost in the U.S.if the direct quote is1.013?

A)C$96.24
B)C$94.09
C)C$93.78
D)C$96.01
E)C$95.27

Question 56

Assume that $1 can buy you either ¥108 or £.55.If a TV in London costs £555,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

A)¥35,255.45
B)¥32,967.00
C)¥97,273.33
D)¥98,008.18
E)¥108,981.82

Question 57

A fancy new coat costs SKr1,559.90.You can exchange SKr1 for $.1524 and €1 for $1.3026.How much will the identical coat cost in euros if absolute purchasing power parity exists?

A)€182.50
B)€144.88
C)€78.58
D)€211.99
E)€133.33

Question 58

Assume the spot exchange rate is A$.9521.The expected inflation rate is 2.5 percent in Australia and 3 percent in the U.S.What is the expected exchange rate one year from now if relative purchasing power parity exists?

A)A$1.0052
B)A$.9018
C)A$.9023
D)A$.9473
E)A$.9569

Question 59

You want to import $50,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01819?

A)2,748,763.06RS
B)2,803,006.47RS
C)2,821,048.19RS
D)1,002.18RS
E)909.50RS

Question 60

Assume the current spot rate is C$1.0135 and the 1-year forward rate is C$1.0132.The nominal risk-free rate in Canada is 2.5 percent while it is 2 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.for one year.

A)$.0142
B)$.0033
C)$.0053
D)$.0154
E)$.0047

Question 61

Assume the indirect quote for the Swedish krona is 6.561 while it is .924 for the Swiss franc.What is the cross-rate between the Swedish krona and the Swiss franc?

A)SKr7.101 = NZ$1
B)SKr7.209 = NZ$1
C)SKr1.302 = NZ$1
D)SKr1.16 = NZ$1
E)SKr.141 = NZ$1

Question 62

You want to invest in a riskless project in London.The project has an initial cost of £50,000 and is expected to produce cash inflows of £28,000 a year for two years.The project will be worthless after two years.The expected inflation rate in the U.K.is 2.2 percent while it is 2.6 percent in the U.S.A risk-free security is paying 3.9 percent in the U.S.The current spot rate is $1 = £.63.What is the net present value of this project in U.S.dollars? Use the foreign currency approach.

A)$5,065.78
B)$3,587.74
C)$2,010.61
D)$5,211.18
E)$6,998.04

Question 63

Assume the spot rate for the Japanese yen currently is ¥87.04 per $1.The 1-year forward rate is ¥86.74 per $1.A risk-free asset in Japan is currently earning 2.2 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free U.S.security?

A)1.15%
B)3.08%
C)2.54%
D)1.46%
E)2.79%

Question 64

Suppose the spot rate on the Canadian dollar is C$.9978.The risk-free nominal rate in the U.S.is 3.13 percent while it is 2.74 percent in Canada.Which one of the following 2-year forward rates best establishes the approximate interest rate parity condition?

A)C$.9900
B)C$1.0010
C)C$.9939
D)C$1.0017
E)C$1.0023

Question 65

You want to invest in a project in Canada.The project has an initial cost of C$290,000 and is expected to produce cash inflows of C$120,000 a year for three years.The project will be worthless after three years.The expected inflation rate in Canada is 3.6 percent while it is 2.7 percent in the U.S.The applicable interest rate in Canada is 11.5 percent.The current spot rate is C$1 = $.97.What is the net present value of this project in U.S.dollars using the foreign currency approach?

A)$736.42
B)$714.33
C)$692.90
D)$708.16
E)$703.08

Question 66

How many Singapore dollars can you get for $4,500 if the direct quote is .8136?

A)S$3,661.20
B)S$4,911.15
C)S$5,530.97
D)S$3,711.54
E)S$4,222.01

Question 67

You are expecting a payment of €500,000 three years from now.The risk-free rate of return is 4 percent in the U.S.and 2 percent in Euroland.The inflation rate is 4 percent in the U.S.and 1 percent in Euroland.Currently,you can buy €76 for $100.How much will the payment three years from now be worth in U.S.dollars?

A)$708,288
B)$699,002
C)$619,949
D)$671,321
E)$684,169

Question 68

The expected inflation rate in Finland is 1.35 percent while it is 3.45 percent in the U.S.A risk-free asset in the U.S.is yielding 4.95 percent.What real rate of return should you expect on a risk-free Finnish security?

A)1.50%
B).15%
C)6.20%
D)2.85%
E)2.15%

Question 69

Assume the current spot rate is C$1.0210 and the 1-year forward rate is C$1.0140.The nominal risk-free rate in Canada is 5.9 percent while it is 4.2 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.for one year.

A)$.0168
B)$.0069
C)$.0190
D)$.0243
E)$.0387

Question 70

Assume the spot rate for the British pound is currently £.6229 per $1.The 1-year forward rate is £.6238 per $1.A risk-free asset in the U.S.is currently earning 2.4 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free British security?

A)2.18%
B)2.25%
C)2.46%
D)2.55%
E)2.59%

Question 71

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.Assume the current exchange rate is C$1 = $.98.How much will the payment four years from now be worth in U.S.dollars?

A)$98,887
B)$94,176
C)$99,300
D)$106,184
E)$98,059

Question 72

Assume the direct quote for the Australian dollar is 1.050 while it is .837 for New Zealand dollar.What is the cross-rate between the Australian dollar and the New Zealand dollar?

A)A$.879 = NZ$1
B)A$.797 = NZ$1
C)A$1.036 = NZ$1
D)A$1.254 = NZ$1
E)A$1.186 = NZ$1

Question 73

You are considering a project in India which has an initial cost of 250,000RS.The project is expected to return a one-time payment of 400,000RS five years from now.The risk-free rate of return is 3 percent in the U.S.and 4 percent in India.The inflation rate is 2 percent in the U.S.and 5 percent in India.Currently,you can buy 5,500RS for $100.How much will the payment five years from now be worth in U.S.dollars?

A)$6,920
B)$2,060
C)$7,201
D)$3,048
E)$6,515

Question 74

You are planning a trip to Australia.Your hotel will cost you A$225 per night for five nights.You expect to spend another A$3,550 for other expenses.How much will this trip cost you in U.S.dollars if the indirect quote is .9521?

A)$4,451.07
B)$4,802.48
C)$3,594.18
D)$3,964.92
E)$4,910.20

Question 75

You want to import $120,000 of merchandise from New Zealand.How many New Zealand dollars will you need to pay for this purchase if the indirect quote is 1.195?

A)NZ$143,400.00
B)NZ$138,000.00
C)NZ$100,418.41
D)NZ$99,607.50
E)NZ$121,309.18

Question 76

Assume a risk-free asset in the U.S.is currently yielding 2.53 percent while a Canadian risk-free asset is yielding 2.62 percent.The current spot rate is C$1.012.What is the approximate 3-year forward rate if interest rate parity holds?

A)C$1.0061
B)C$1.0023
C)C$1.0147
D)C$.9855
E)C$.9939

Question 77

You want to invest in a riskless project in Sweden.The project has an initial cost of SKr380,000 and is expected to produce cash inflows of SKr210,000 a year for 2 years.The project will be worthless after two years.The expected inflation rate in Sweden is 2.6 percent while it is 2.1 percent in the U.S.A risk-free security is paying 3.8 percent in the U.S.The current spot rate is $1 = SKr6.56.What is the net present value of this project in U.S dollars using the foreign currency approach?

A)$1,811.70
B)$13,799.21
C)$2,192.65
D)$3,684.44
E)$14,383.78

Question 78

Suppose the spot rate on the Canadian dollar is C$1.023.The risk-free nominal rate in the U.S.is 2.6 percent while it is 3.25 percent in Canada.Which one of the following 1-year forward rates best establishes the approximate interest rate parity condition?

A)C$1.0296
B)C$1.0164
C)C$1.0552
D)C$1.0867
E)C$1.0923

Question 79

The current spot rate for the Norwegian krone is $1 = NKr5.60.The expected inflation rate in Norway is 1.5 percent and in the U.S.its 2.5 percent.A risk-free asset in the U.S.is yielding 6.5 percent.What real rate of return should you expect on a risk-free Norwegian security?

A)1.5%
B)2.0%
C)3.5%
D)4.0%
E)5.5%

Question 80

Assume the current spot rate for the Norwegian krone is $1 = NKr5.06.The expected inflation rate in Norway is 2 percent and in the U.S.its 4 percent.A risk-free asset in the U.S.is yielding 6 percent.What risk-free rate of return should you expect on a Norwegian security?

A)2%
B)3%
C)4%
D)5%
E)6%