Question 1

Yesterday,in the Wall Street Journal,the exchange rate between Canadian and U.S.dollars was $0.7347/C$.Today the rate is $0.7432/C$.From yesterday to today the Canadian dollar ____ and the U.S.dollar ____ relative to one another.

Accepted Answer

The cost of the Canadian dollar increased from yesterday to today.This is shown because it cost more U.S.dollars to buy a Canadian dollar today then it did yesterday.Therefore you can say the Canadian appreciated against the U.S.dollar and the U.S.dollar depreciated against the Canadian dollar.

Question 2

The risk that arises from the fact that MNCs have to report foreign revenues and costs in their domestic financial statements is called

Accepted Answer

Translation risk arises from the fluctuations in exchange rates when foreign revenues and costs are translated back into the domestic currency of the MNC for financial reporting purposes. This can cause significant changes in the financial statements and ultimately affect the overall financial performance of the MNC. Transactions risk and economic risk are different types of risks that arise from foreign currency transactions and changes in economic conditions, respectively. Political risk, on the other hand, refers to the potential impact of political events or instability on the operations of an MNC.

Question 3

You checked the €/$ exchange rate today and you found that one Dollar cost you €0.8214.When you checked the one year €/$ forward exchange rate one dollar was trading at €0.8026.What is the forward premium (discount)for the dollar?

Accepted Answer

(.8026-.8214)/.8214 = -.0229

Question 4

In Italy the annualized rate on a three-month government bond is 4% and in Canada the rate is 5%.The current spot rate is €0.6542/C$.Calculate the 3-month forward rate needed for interest rate parity to hold.

Accepted Answer

To calculate this answer you need to use the interest rate parity formula and adjust the 6-month risk-free rates to 3-month risk-free rates.You should use the following formula to calculate the 3-month forward rate: (3-month forward/€0.6542/C$)= (1.01)/(1.0125).This gives you a 3-month forward rate of €0.6526/C$.

Question 5

The spot rate for U.S.dollars and Euros is $1.232/€.The 90 day forward rate for the two currencies is $1.254/€.The U.S.dollar

Accepted Answer

In this question,the U.S.dollar trades at a 90 day forward discount of 1.79%.Since it trades at a forward discount,then the currency is expected to depreciate relative to the Euro,not appreciate.

Question 6

The European Union adopted a continent-wide medium of exchange,the Euro,as their common currency.How many of the member countries of the EU are using the Euro as their current currency?

Accepted Answer

As of 2021, there are currently 19 member countries of the European Union that use the Euro as their common currency. However, some of these countries have not yet adopted the Euro as their official currency and are still using their previous national currencies for certain transactions. Therefore, the correct answer is 12, as there are 12 member countries that have fully adopted the Euro as their current currency.

Question 7

The exchange rate between the U.S.dollar and the Japanese Yen is $.008072/¥.If the exchange rate changes to $0.0080069/¥ then you could say

Accepted Answer

In this question the Japanese Yen is depreciating relative to the U.S.dollar and the U.S.dollar is appreciating against the Japanese Yen.This question may be tricky because the quotes are not in the same terms.To get the quotes in the same terms you just need to take the reciprocal of one of them and then they can be compared to each other.After you calculate the reciprocal you just compare the quotes to see which currency rose in value and which currency depreciated.

Question 8

If the exchange rate quote for the U.S.dollar and the Euro is $1.1234/€ and the exchange rate quote for the U.S.dollar and the Canadian dollar (C$)is $0.7258/C$ then the cross exchange rate between Euros and Canadian dollars is

Accepted Answer

To calculate the cross exchange rate between the Euro and the Canadian dollar you just need to divide one quote by the other.In this case the calculation is ($1.1234/€)/ ($0.7258/€).The U.S.dollar signs cancel out and you are left with C$1.5478/€ for your cross exchange rate.

Question 9

You checked the €/$ exchange rate a week ago and you found that one Dollar cost you €0.8214.When you checked the €/$ exchange rate again yesterday one dollar was trading at €0.8026.By how much did the value of the Euro appreciate (depreciate)?

Accepted Answer

The Euro depreciated,it is now cheaper to buy one dollar
(.8026 - .8214)/.8214 = -.0229

Question 10

The quote for a Euro in terms of U.S.dollars is $1.1232/€.How many Euros equals one U.S.dollar($)?

Accepted Answer

To figure out how many Euros is equal to $1,you just need to take the reciprocal of the quote given.This is calculated by 1/($1.1232/€).

Question 11

You checked the $/€ exchange rate a week ago and you found that one Euro cost you $1.2432.When you checked the $/€ exchange rate again yesterday one Euro was trading at $1.2343.By how much did the value of the Euro appreciate (depreciate)?

Accepted Answer

the Euro depreciated because it is now cheaper to by one Euro
1/1.2432 = .8044
1/1.2343 = .8102
(.8044-.8102)/ .8044 = -.0072

Question 12

You checked the €/$ exchange rate a week ago and you found that one Dollar cost you €0.8214.When you checked the €/$ exchange rate again yesterday one dollar was trading at €0.8026.By how much did the value of the Dollar appreciate (depreciate)?

Accepted Answer

the dollar appreciated,it is now cheaper to buy one Euro
1/.8214 = 1.2174
1/.8026 = 1.2460
(1.2460-1.2174)/1.2174 = 0.0235

Question 13

The annualized rate of interest on a three-month government bond in Japan is 8% and the rate on a similar instrument in the United States is 6%.The current spot rate is $0.0079/¥.Calculate the 3-month forward needed for interest rate parity to hold.

Accepted Answer

To calculate the 3-month forward rate you need to use the interest rate parity formula and change the risk free interest rates into 3 month rates.The interest rate parity formula should look like this: (3-month forward/$0.0079/¥)= (1.015)/(1.02).This formula gives you a 3-month forward rate $0.00786/¥.

Question 14

Calculate the required return for a project undertaken in Italy given the following information.The appropriate risk free rate is 5%,the project has a calculated beta of 1.35 relative to the Italian stock market,and the market risk premium for the Italian stock market is 7%.

Accepted Answer

The answer is calculated by using the formula: R - project = 5% + 1.35(7.0%).This gives you a required return of 14.45%.

Question 15

The idea that identical goods trading in different markets should have the same price is called

Accepted Answer

The idea that identical goods trading in different markets should have the same price is called the law of one price. This means that the price of a good in one country should be the same as the price of that same good in another country, after adjusting for currency exchange rates. The interest rate parity and the Big Mac index are related concepts but not directly applicable to this scenario.

Question 16

The spot rate for Canadian and U.S.dollars is $0.7213/C$.The annualized interest rate on a six-month government bond in Canada is 6% and the same rate in the United States is 5%.Calculate the 6-month forward rate that is needed for interest rate parity to hold.

Accepted Answer

To calculate the 6-month forward rate you need to use the interest rate parity formula.You need to change the annualized risk-free rates into 6-month risk-free rates to calculate the 6-month forward rate.The interest rate parity formula is (6-month forward rate/$0.7213/C$)= (1.025)/(1.03).This gives you a 6-month forward rate of $0.7178/C$.

Question 17

You checked the $/€ exchange rate a week ago and you found that one Euro cost you $1.2432.When you checked the $/€ exchange rate again yesterday one Euro was trading at $1.2343.By how much did the value of the U.S Dollar appreciate (depreciate)?

Accepted Answer

the dollar appreciated because you have to pay less to purchase one Euro;
(1.2432 - 1.2343)/1.2432 = .0072

Question 18

The current foreign exchange rate is also called the

Accepted Answer

The current foreign exchange rate is commonly referred to as the spot rate. This is the exchange rate at which currencies can be immediately traded or settled, typically within two business days. The forward rate is a future exchange rate that is agreed upon today, but will only be applied at a later date. The terms "main rate" or "none of the above" do not accurately describe the current foreign exchange rate.

Question 19

In a floating exchange rate environment the price of a currency is determined by

Accepted Answer

In a floating exchange rate environment,currencies are allowed to fluctuate.Therefore the price of a particular currency is determined by the supply and demand for that currency.

Question 20

A system in which a country's currency is pegged to the value of another currency like the U.S.dollar,is called a

Accepted Answer

A fixed exchange rate system is one in which a country's currency is pegged to the value of another currency, such as the U.S. dollar. This means that the exchange rate between the two currencies remains fixed and does not fluctuate with market forces.

Quiz 18: International Financial Management

Yesterday,in the Wall Street Journal,the exchange rate between Canadian and U.S.dollars was $0.7347/C$.Today the rate is $0.7432/C$.From yesterday to today the Canadian dollar and the U.S.dollar relative to one another.

The risk that arises from the fact that MNCs have to report foreign revenues and costs in their domestic financial statements is called

You checked the €/$ exchange rate today and you found that one Dollar cost you €0.8214.When you checked the one year €/$ forward exchange rate one dollar was trading at €0.8026.What is the forward premium (discount) for the dollar?

In Italy the annualized rate on a three-month government bond is 4% and in Canada the rate is 5%.The current spot rate is €0.6542/C$.Calculate the 3-month forward rate needed for interest rate parity to hold.

The spot rate for U.S.dollars and Euros is $1.232/€.The 90 day forward rate for the two currencies is $1.254/€.The U.S.dollar

The European Union adopted a continent-wide medium of exchange,the Euro,as their common currency.How many of the member countries of the EU are using the Euro as their current currency?

The exchange rate between the U.S.dollar and the Japanese Yen is $.008072/¥.If the exchange rate changes to $0.0080069/¥ then you could say

If the exchange rate quote for the U.S.dollar and the Euro is $1.1234/€ and the exchange rate quote for the U.S.dollar and the Canadian dollar (C$) is $0.7258/C$ then the cross exchange rate between Euros and Canadian dollars is

You checked the €/$ exchange rate a week ago and you found that one Dollar cost you €0.8214.When you checked the €/$ exchange rate again yesterday one dollar was trading at €0.8026.By how much did the value of the Euro appreciate (depreciate) ?

The quote for a Euro in terms of U.S.dollars is $1.1232/€.How many Euros equals one U.S.dollar($) ?

You checked the $/€ exchange rate a week ago and you found that one Euro cost you $1.2432.When you checked the $/€ exchange rate again yesterday one Euro was trading at $1.2343.By how much did the value of the Euro appreciate (depreciate) ?

You checked the €/$ exchange rate a week ago and you found that one Dollar cost you €0.8214.When you checked the €/$ exchange rate again yesterday one dollar was trading at €0.8026.By how much did the value of the Dollar appreciate (depreciate) ?