Question 1

Suppose one year ago, Hein Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the U.S. dollar gain or loss in inventory value as a result of the change in exchange rates?
A) −$38,880.00
B) −$43,200.00
C) −$47,520.00
D) −$52,272.00
E) −$57,499.20

Accepted Answer

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Question 2

If one U.S. dollar sells for 0.60 British pound, how many dollars should one British pound sell for?
A) 1.0935
B) 1.2150
C) 1.3500
D) 1.5000
E) 1.6667

Accepted Answer

Since one U.S. dollar sells for 0.60 British pound, we can find out how many British pounds one dollar can buy by dividing 1 by 0.60. This gives us a value of 1.6667 British pounds per U.S. dollar. Therefore, one British pound should sell for the reciprocal, which is $1/£1.6667 = £0.6. Rounded to two decimal places, this is equivalent to option E, 1.6667.

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?
A) 9.11%
B) 10.13%
C) 11.25%
D) 12.50%
E) 13.75%

Accepted Answer

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Question 4

If one U.S. dollar buys 0.63 euro, how many dollars can you purchase for one euro?
A) 1.0414
B) 1.1571
C) 1.2857
D) 1.4286
E) 1.5873

Accepted Answer

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Question 5

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will
A) appreciate against the U.S. dollar.
B) depreciate against the U.S. dollar.
C) remain unchanged against the U.S. dollar.
D) appreciate against other major currencies.
E) appreciate against the dollar and other major currencies.

Accepted Answer

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Question 6

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?
A) 155.5200
B) 163.2960
C) 171.4608
D) 180.0338
E) 189.0355

Accepted Answer

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Question 7

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?
A) $757,005.48
B) $796,847.88
C) $838,787.24
D) $882,933.94
E) $929,404.15

Accepted Answer

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Question 8

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?
A) 0.8505
B) 0.8723
C) 0.8947
D) 0.9170
E) 0.9400

Accepted Answer

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Question 9

If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?
A) 0.5488
B) 0.6098
C) 0.6707
D) 0.7378
E) 0.8116

Accepted Answer

To find how many U.S. dollars you can purchase for one Canadian dollar, you need to take the reciprocal of the given exchange rate.

Reciprocal of 1.64 = 0.6098

Therefore, you can purchase 0.6098 U.S. dollars for one Canadian dollar.

Question 10

Currently, a U.S. trader notes that in the 6-month forward market, the Japanese yen is selling at a premium (that is, you receive more dollars per yen in the forward market than you do in the spot market), while the British pound is selling at a discount. Which of the following statements is CORRECT?
A) If interest rate parity holds, 6-month interest rates should be the same in the U.S., Britain, and Japan.
B) If interest rate parity holds among the three countries, the United States should have the highest 6-month interest rates and Japan should have the lowest rates.
C) If interest rate parity holds among the three countries, Britain should have the highest 6-month interest rates and Japan should have the lowest rates.
D) If interest rate parity holds among the three countries, Japan should have the highest 6-month interest rates and Britain should have the lowest rates.
E) If interest rate parity holds among the three countries, the United States should have the highest 6-month interest rates and Britain should have the lowest rates.

Accepted Answer

According to interest rate parity, the forward premium/discount should offset the difference in interest rates between two countries. Since the yen is selling at a premium, it means that the 6-month interest rate in Japan is lower than that in the U.S. On the other hand, the pound is selling at a discount, which means that the 6-month interest rate in Britain is higher than that in the U.S. Therefore, if interest rate parity holds, Britain should have the highest 6-month interest rates and Japan should have the lowest rates.

Question 11

If one Swiss franc can purchase $0.76 U.S. dollars, how many Swiss francs can one U.S. dollar buy?
A) 0.9592
B) 1.0658
C) 1.1842
D) 1.3158
E) 1.4474

Accepted Answer

To find out how many Swiss francs one U.S. dollar can buy, we need to divide one by the exchange rate, which is $0.76.

1 / 0.76 = 1.3158

Therefore, one U.S. dollar can buy 1.3158 Swiss francs. The answer is D.

Question 12

If one British pound can purchase $1.98 U.S. dollars, how many British pounds can one U.S. dollar buy?
A) 0.5051
B) 0.5556
C) 0.6111
D) 0.6722
E) 0.7394

Accepted Answer

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Question 13

Which of the following statements is NOT CORRECT?
A) Any bond sold outside the country of the borrower is called an international bond.
B) Foreign bonds and Eurobonds are two important types of international bonds.
C) Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold.
D) The term Eurobond applies only to foreign bonds denominated in U.S. currency.
E) A Eurodollar is a U.S. dollar deposited in a bank outside the U.S.

Accepted Answer

The statement "The term Eurobond applies only to foreign bonds denominated in U.S. currency" is incorrect. Eurobonds are international bonds that are denominated in a currency different from the currency of the country in which it is issued. They can be denominated in any currency, not just U.S. currency.

Question 14

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 = 1.65 U.S. dollars
Given this information, how many Mexican pesos can be purchased for 1 Danish krone?
A) 2.7490
B) 2.8195
C) 2.8918
D) 2.9641
E) 3.0382

Accepted Answer

To solve this problem, we need to use a chain of conversion rates:
1 Danish krone = (1 British pound / 6.205 Danish krone) = 0.161078 BRP
1 BRP = 1.65 USD
1 USD = 10.875 Mexican pesos
So, 0.161078 BRP = (0.161078 BRP/1) x (1.65 USD/1 BRP) x (10.875 Mexican pesos/1 USD) = 2.8918 Mexican pesos
Therefore, 1 Danish krone can purchase 2.8918 Mexican pesos. The answer is C.

Question 15

Today in the spot market $1 = 1.82 Swiss francs and $1 = 130 Japanese yen. In the 90-day forward market, $1 =
1)84 Swiss francs and $1 = 127 Japanese yen. Assume that interest rate parity holds worldwide. Which of the following statements is most CORRECT?
A) Interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Swiss securities.
B) Interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Japanese securities.
C) Interest rates on 90-day risk-free U.S. securities equal the interest rates on 90-day risk-free Japanese securities.
D) Since interest rate parity holds interest rates should be the same in all three countries.
E) Interest rates on 90-day risk-free U.S. securities equal the interest rates on 90-day risk-free Swiss securities.

Accepted Answer

As per interest rate parity, the difference in interest rates between two countries should be equal to the percentage difference between their spot and forward exchange rates. Since the forward rate for Japanese yen is relatively lower than the spot rate compared to the forward rate for Swiss francs, it implies that the US interest rate is higher than the Japanese interest rate. Hence, the correct statement is that interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Japanese securities.

Question 16

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(n) to the spot rate.
A) 6.09% premium
B) 6.76% premium
C) 7.51% discount
D) 8.35% discount
E) 9.18% discount

Accepted Answer

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

Question 17

In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in
U)S. dollars?
A) $ 8,303
B) $ 9,225
C) $10,250
D) $11,275
E) $12,403

Accepted Answer

The answer of In 1985, a given Japanese imported automobile...

Question 18

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 euro. What is the cross rate of Swiss francs to euros? (In other words, how many Swiss francs are needed to purchase one euro?)
A) 1.9828
B) 2.2031
C) 2.4234
D) 2.6658
E) 2.9324

Accepted Answer

To find the cross rate of Swiss francs to euros, we need to use the exchange rates given and cross-multiply them to eliminate the common currency (U.S. dollars). 
SF 1.41 = $1.00
$1.00 = 0.64 euro
Therefore, 1 Swiss franc = ($1.00 / SF 1.41) * (1 euro / $0.64) = 0.8909 euro
So, the cross rate of Swiss francs to euros is 1 / 0.8909 = 1.1229 euros per Swiss franc. Rounded to four decimal places, this is equal to 2.2031. Therefore, the correct answer is choice B.

Question 19

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?
A) 1.9691
B) 2.0196
C) 2.0701
D) 2.1218
E) 2.1749

Accepted Answer

To solve this problem, we need to use the given exchange rates to convert pounds to Swiss francs. We can do this by converting pounds to dollars and then dollars to Swiss francs.

1 pound = 1.98 dollars (given) 
1 dollar = 1.02 francs (given)

So,

1 pound = 1.98 dollars = 1.98 x 1.02 francs = 2.0196 francs

Therefore, it takes 2.0196 Swiss francs to purchase 1 British pound. The best choice is B.

Question 20

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?
A) $1.4860
B) $1.6511
C) $1.8346
D) $2.0384
E) $2.2422

Accepted Answer

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

Quiz 17: Multinational Financial Management

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

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

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will

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?

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?

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

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

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

Which of the following statements is NOT CORRECT?

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 = 1.65 U.S. dollars Given this information, how many Mexican pesos can be purchased for 1 Danish krone?

Today in the spot market $1 = 1.82 Swiss francs and $1 = 130 Japanese yen. In the 90-day forward market, $1 = 1) 84 Swiss francs and $1 = 127 Japanese yen. Assume that interest rate parity holds worldwide. Which of the following statements is most CORRECT?

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(n) to the spot rate.

In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U)S. dollars? A) $ 8,303 B) $ 9,225 C) $10,250 D) $11,275 E) $12,403

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 euro. What is the cross rate of Swiss francs to euros? (In other words, how many Swiss francs are needed to purchase one euro?)

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?

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?