Question 1

Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?

Accepted Answer

The answer of Suppose hockey skates sell in Canada for...

Question 2

Suppose 144 yen could be purchased in the foreign exchange market for one U.S. dollar today. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?

Accepted Answer

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Question 3

Suppose a foreign investor who holds tax-exempt Eurobonds paying 9% is considering investing in an equivalent-risk domestic bond in a country with a 28% withholding tax on interest paid to foreigners. If 9% after-tax is the investor's required return, what before-tax rate would the domestic bond need to pay to provide the required after-tax return?

Accepted Answer

The answer of Suppose a foreign investor who holds tax-exempt...

Question 4

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ______________ to the spot rate.

Accepted Answer

The answer of If the spot rate of the Israeli...

Question 5

If one U.S. dollar buys 0.63 euro, how many dollars can you purchase for one euro?

Accepted Answer

The answer of If one U.S. dollar buys 0.63 euro,...

Question 6

Suppose one British pound can purchase 1.82 U.S. dollars today in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

Accepted Answer

The answer of Suppose one British pound can purchase 1.82...

Question 7

If one British pound can purchase $1.98 U.S. dollars, how many British pounds can one U.S. dollar buy?

Accepted Answer

The answer of If one British pound can purchase $1.98...

Question 8

Stover Corporation, a U.S. based importer, makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.64 francs, how much will the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure?

Accepted Answer

The answer of Stover Corporation, a U.S. based importer, makes...

Question 9

If one U.S. dollar sells for 0.60 British pound, how many dollars should one British pound sell for?

Accepted Answer

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Question 10

Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.65. If interest rate parity holds, what is the spot exchange rate ($/£)?

Accepted Answer

According to the interest rate parity, the return on investment in two different countries should be equal when adjusted for the exchange rate. 
Let S be the spot exchange rate, then

(1.06/4) = ($S/£1.00)(1.015/4)

Solving for S, we get

S = $1.6582/£1.00

Question 11

In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT?

Accepted Answer

The answer of In Japan, 90-day securities have a 4%...

Question 12

A currency trader observes the following quotes in the spot market: 1 U.S. dollar = 122 Japanese yen
1 British pound = 2.25 Swiss francs
1 British pound = 1.65 U.S. dollars
Given this information, how many yen can be purchased for 1 Swiss franc?

Accepted Answer

The answer of A currency trader observes the following quotes...

Question 13

Suppose that currently, 1 British pound equals 1.98 U.S. dollars and 1 U.S. dollar equals 1.02 Swiss francs. How many Swiss francs are needed to purchase 1 pound?

Accepted Answer

To find the number of Swiss francs needed to purchase 1 pound, we need to first convert pounds to U.S. dollars, and then U.S. dollars to Swiss francs.

1 pound = 1.98 U.S. dollars

1 U.S. dollar = 1.02 Swiss francs

So, 1 pound = 1.98 x 1.02 Swiss francs

1 pound = 2.0196 Swiss francs

Therefore, the answer is B: 2.0196.

Question 14

Which of the following statements is NOT CORRECT?

Accepted Answer

The term Eurobond does not refer only to bonds denominated in U.S. currency. Eurobonds are bonds denominated in a currency other than that of the country in which they are issued. They are sold outside the borrower's country and can be denominated in any currency, including euros, yen, or Swiss francs.

Question 15

Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 = 0.64 euros. What is the cross rate of Swiss francs to euros?

Accepted Answer

The answer of Suppose the exchange rate between U.S. dollars...

Question 16

Suppose a U.S. firm buys $200,000 worth of television tubes from a Mexican manufacturer for deliin 60 days with payment to be made in 90 days (30 days after the goods are received). The rising U.S. deficit has caused the dollar to depreciate against the peso recently. The current exchange rate is 5.50 pesos per U.S. dollar. The 90-day forward rate is 5.45 pesos/dollar. The firm goes into the forward market today and buys enough Mexican pesos at the 90-day forward rate to completely cover its trade obligation. Assume the spot rate in 90 days is 5.30 Mexican pesos per U.S. dollar. How much in U.S. dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge?

Accepted Answer

The answer of Suppose a U.S. firm buys $200,000 worth...

Question 17

Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw actually receive after it exchanged yen for U.S. dollars?

Accepted Answer

First, we need to figure out the original dollar amount of the sale:

143.5 million yen / 140 yen per dollar = $1,025,000

When it comes time to exchange the yen for dollars in 6 months, DeGraw will receive:

143.5 million yen / 154.4 yen per dollar = $929,404.15

So the answer is E.

Question 18

If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?

Accepted Answer

To find out how many U.S. dollars can be purchased for one Canadian dollar, we need to take the reciprocal of the exchange rate. That is, 1/1.64 = 0.6098, which is closest to answer choice B.

Question 19

A currency trader observes the following quotes in the spot market: 1 U.S. dollar = 10.875 Mexican pesos
1 British pound = 6.205 Danish krone
1 British pound = 1.98 U.S. dollars
Given this information, how many Mexican pesos can be purchased for 1 Danish krone?

Accepted Answer

First, we need to convert British pounds to Danish krone using the second quote:
1 British pound = 6.205 Danish krone

Then, we need to convert British pounds to U.S. dollars using the third quote:
1 British pound = 1.98 U.S. dollars

Combining these two conversions, we can find the conversion rate between Danish krone and U.S. dollars:
1 Danish krone = (1 British pound / 6.205 Danish krone) * (1.98 U.S. dollars / 1 British pound) = 0.317780826 U.S. dollars

Finally, we can convert U.S. dollars to Mexican pesos using the first quote:
1 U.S. dollar = 10.875 Mexican pesos

Therefore, we have:
1 Danish krone = 0.317780826 U.S. dollars
1 U.S. dollar = 10.875 Mexican pesos
1 Danish krone = 0.317780826 * 10.875 Mexican pesos = 3.4555854 Mexican pesos

Therefore, we can purchase 3.4555854 Mexican pesos for 1 Danish krone, which is approximately 2.8918 Mexican pesos (rounded to four decimal places). Therefore, the answer is C.

Question 20

If one Swiss franc can purchase $0.76 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Accepted Answer

To find how many Swiss francs one U.S. dollar can buy, we need to divide 1 by 0.76. This gives us 1.3158, which is the answer in Swiss francs. Therefore, the answer is D.

Quiz 19: Multinational Financial Management