Question 1

Today, you can get either 121 Canadian dollars or 1,095 Mexican pesos for 100 U.S. dollars. Last year, 100 U.S. dollars was worth 136 Canadian dollars or 1,087 Mexican pesos. One hundred U.S. dollars converted into:

Accepted Answer

Last year, 100 USD was 136 CAD. Today, 136 CAD is worth (136/121)*100 = 112.40 USD.

Question 2

A currency is said to be selling at a discount relative to the dollar when:

Accepted Answer

A currency is considered to be selling at a discount relative to the dollar when its future price in terms of dollars is lower than its current price. This means it is expected to weaken against the dollar, making it less expensive in the future.

Question 3

In the spot market, you can buy 57 EUR for $100. In the 6-month forward market, $100 will buy 58 EUR. Thus, the dollar is selling at _____ relative to the Euro and the Euro is selling at _____ relative to the dollar.

Accepted Answer

In the spot market, $100 buys fewer euros (57 EUR) than in the 6-month forward market (58 EUR), indicating that the dollar is expected to strengthen (or the euro to weaken) over time. Therefore, the dollar is selling at a premium (it will be worth more in the future), and the euro is selling at a discount (it will be worth less in the future).

Question 4

The International Fisher Effect says that _____ rates are equal across countries.

Accepted Answer

The International Fisher Effect posits that real interest rates are equal across countries once you account for exchange rate changes. This principle is based on the idea that real returns should be equalized across countries due to arbitrage opportunities.

Question 5

Under a ____________, a large borrower issues short-term notes with maturities less than a year.

Accepted Answer

A Note Issuance Facility (NIF) is a financial arrangement that allows a large borrower to issue short-term notes, typically with maturities of less than a year, to investors. This facility provides the borrower with flexible access to the capital markets for short-term financing needs.

Question 6

Covered interest arbitrage involves:

Accepted Answer

Covered interest arbitrage involves the simultaneous purchase and sale of a currency in the spot market and the forward market to profit from the interest rate differential between two countries. This strategy uses both spot rates (for the initial conversion of one currency to another) and forward rates (to lock in the price for converting the currency back at a future date), ensuring the arbitrageur is "covered" against currency fluctuations.

Question 7

Today, you can exchange $1 for $\le$.5428. Last week, $\le$1 was worth $1.88. If you had converted $\le$100 into dollars last week you would now have a:

Accepted Answer

Last week, 100 units of the currency would have been worth $188 (100 * $1.88). Today, those same 100 units are worth $54.28 (100 * $0.5428). The difference is a loss of $133.72, not a profit. The correct choices provided do not accurately reflect this calculation, indicating a potential error in the question or choices.

Question 8

Based on the theory of interest rate parity, the percentage forward premium or discount is approximately equal to the difference in _______ interest rates.

Accepted Answer

Interest rate parity theory suggests that the forward exchange rate should incorporate the difference in nominal risk-free interest rates between two countries, as it reflects the opportunity cost of capital without considering the risk of default.

Question 9

The ____________ is Federal Crown Corporation that promotes Canadian exports by making loans to foreign investors.

Accepted Answer

Export Development Canada (EDC) is the Federal Crown Corporation dedicated to helping Canadian companies of all sizes succeed on the world stage by providing insurance and financial services, bonding products, and small business solutions to Canadian exporters and investors and their international buyers.

Question 10

Harris International has operations in three countries. When the accountants value the inventory for financial statement purposes, they often find that the value of the fixed assets in dollars has changed even though the actual assets have not changed since the prior accounting period. This is an example of ______ exposure to exchange rate risk.

Accepted Answer

This scenario describes translation exposure, which occurs when a company must convert financial statements from foreign operations into the parent company's currency. Changes in exchange rates can affect the reported value of assets, liabilities, revenues, and expenses even if their actual value in the local currency remains the same.

Question 11

The exchange rate for the U.S. dollar in the spot market is US$1 = $1.06. In the 1-year forward market the rate is US$1 = $1.09. In this case, the U.S. dollar is:

Accepted Answer

The U.S. dollar selling at a higher rate in the forward market (US$1 = $1.09) compared to the spot market (US$1 = $1.06) indicates that it is selling at a premium relative to the Canadian dollar. This means it costs more Canadian dollars to buy U.S. dollars in the future, suggesting an expectation of the U.S. dollar appreciating or being stronger relative to the Canadian dollar in the forward market.

Question 12

The __________ is a market where one country's currency is traded for another's.

Accepted Answer

The foreign exchange market is where currencies are traded against one another, facilitating international trade and investment by enabling currency conversion.

Question 13

Tiger Importers buys goods from the Far East on credit terms of net 45. Because of the delay in payment, Tiger has ______ exposure to exchange rate risk.

Accepted Answer

Short-run exposure to exchange rate risk occurs because the value of future cash flows can fluctuate due to changes in exchange rates during the period from the time the credit terms are agreed upon until the payment is made, which in this case is within 45 days.

Question 14

The foreign exchange market is where:

Accepted Answer

The foreign exchange market is primarily concerned with the trading of currencies from different countries, allowing for the exchange of one country's currency for another's. This is essential for international trade, travel, and investment.

Question 15

The rate most international banks charge one another for overnight Eurodollar loans is called the ____________________.

Accepted Answer

The London Interbank Offered Rate (LIBOR) is the benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.

Question 16

What is the cross-rate between the Kuwait dinar and the Japanese yen?

Accepted Answer

The answer of  What is the cross-rate between the...

Question 17

Interest rate parity:

Accepted Answer

Interest rate parity is a theory that suggests the difference in interest rates between two countries will be equal to the difference between the forward exchange rate and the spot exchange rate. This condition helps to eliminate covered interest arbitrage opportunities, where an investor seeks to exploit the differences in interest rates between two countries while hedging against exchange rate risk.

Question 18

Today, you can exchange $1 for $\le$0.5087. Last week, $\le$1 was worth $1.9582. How much profit or loss would you now have if you had converted $\le$100 into dollars last week?

Accepted Answer

Last week, 100 F1F1F1S1F1F1F101 was worth $195.82. Today, 100 F1F1F1S1F1F1F1 is worth $150.87. The difference is a loss of $44.95, which is approximately ₤0.39 when converted back to the original currency.

Question 19

The LIBOR is the:

Accepted Answer

The LIBOR (London Interbank Offered Rate) is the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans, particularly for overnight Eurodollar loans.

Question 20

Suppose the price listed in The National Post column titled "in C$" for the Norwegian krone is.1987. This means that:

Accepted Answer

The notation ".1987" in the context of currency exchange means that one unit of the foreign currency (in this case, one Norwegian krone) can be exchanged for .1987 of the domestic currency (in this case, Canadian dollars).

Quiz 21: International Corporate Finance

Today, you can get either 121 Canadian dollars or 1,095 Mexican pesos for 100 U.S. dollars. Last year, 100 U.S. dollars was worth 136 Canadian dollars or 1,087 Mexican pesos. One hundred U.S. dollars converted into:

A currency is said to be selling at a discount relative to the dollar when:

In the spot market, you can buy 57 EUR for $100. In the 6-month forward market, $100 will buy 58 EUR. Thus, the dollar is selling at _ relative to the Euro and the Euro is selling at _ relative to the dollar.

The International Fisher Effect says that _____ rates are equal across countries.

Under a ____________, a large borrower issues short-term notes with maturities less than a year.

Covered interest arbitrage involves:

Today, you can exchange $1 for $\le$ .5428. Last week, $\le$ 1 was worth $1.88. If you had converted $\le$ 100 into dollars last week you would now have a:

Based on the theory of interest rate parity, the percentage forward premium or discount is approximately equal to the difference in _______ interest rates.

The ____________ is Federal Crown Corporation that promotes Canadian exports by making loans to foreign investors.

The exchange rate for the U.S. dollar in the spot market is US$1 = $1.06. In the 1-year forward market the rate is US$1 = $1.09. In this case, the U.S. dollar is:

The __________ is a market where one country's currency is traded for another's.

Tiger Importers buys goods from the Far East on credit terms of net 45. Because of the delay in payment, Tiger has ______ exposure to exchange rate risk.

The foreign exchange market is where:

The rate most international banks charge one another for overnight Eurodollar loans is called the ____________________.

What is the cross-rate between the Kuwait dinar and the Japanese yen?

Interest rate parity:

Today, you can exchange $1 for $\le$ 0.5087. Last week, $\le$ 1 was worth $1.9582. How much profit or loss would you now have if you had converted $\le$ 100 into dollars last week?

The LIBOR is the:

Suppose the price listed in The National Post column titled "in C$" for the Norwegian krone is.1987. This means that:

Quiz 21: International Corporate Finance

Today, you can get either 121 Canadian dollars or 1,095 Mexican pesos for 100 U.S. dollars. Last year, 100 U.S. dollars was worth 136 Canadian dollars or 1,087 Mexican pesos. One hundred U.S. dollars converted into:

A currency is said to be selling at a discount relative to the dollar when:

In the spot market, you can buy 57 EUR for $100. In the 6-month forward market, $100 will buy 58 EUR. Thus, the dollar is selling at _____ relative to the Euro and the Euro is selling at _____ relative to the dollar.

The International Fisher Effect says that _____ rates are equal across countries.

Under a ____________, a large borrower issues short-term notes with maturities less than a year.

Covered interest arbitrage involves:

Today, you can exchange $1 for ≤\le≤ .5428. Last week, ≤\le≤ 1 was worth $1.88. If you had converted ≤\le≤ 100 into dollars last week you would now have a:

Based on the theory of interest rate parity, the percentage forward premium or discount is approximately equal to the difference in _______ interest rates.

The ____________ is Federal Crown Corporation that promotes Canadian exports by making loans to foreign investors.

The exchange rate for the U.S. dollar in the spot market is US$1 = $1.06. In the 1-year forward market the rate is US$1 = $1.09. In this case, the U.S. dollar is:

The __________ is a market where one country's currency is traded for another's.

Tiger Importers buys goods from the Far East on credit terms of net 45. Because of the delay in payment, Tiger has ______ exposure to exchange rate risk.

The foreign exchange market is where:

The rate most international banks charge one another for overnight Eurodollar loans is called the ____________________.

What is the cross-rate between the Kuwait dinar and the Japanese yen?

Interest rate parity:

Today, you can exchange $1 for ≤\le≤ 0.5087. Last week, ≤\le≤ 1 was worth $1.9582. How much profit or loss would you now have if you had converted ≤\le≤ 100 into dollars last week?

The LIBOR is the:

Suppose the price listed in The National Post column titled "in C$" for the Norwegian krone is.1987. This means that:

In the spot market, you can buy 57 EUR for $100. In the 6-month forward market, $100 will buy 58 EUR. Thus, the dollar is selling at _ relative to the Euro and the Euro is selling at _ relative to the dollar.

Today, you can exchange $1 for $\le$ .5428. Last week, $\le$ 1 was worth $1.88. If you had converted $\le$ 100 into dollars last week you would now have a:

Today, you can exchange $1 for $\le$ 0.5087. Last week, $\le$ 1 was worth $1.9582. How much profit or loss would you now have if you had converted $\le$ 100 into dollars last week?