Deck 18: International Financial Management

Question 1

The inflation rate in London is expected to be 10% over the next year and the inflation rate in Canada is expected to 6%.Using Purchasing Power Parity you could say that

A) the £ will appreciate relative to the Canadian dollar
B) the Canadian dollar will appreciate relative to the £
C) the risk-free rate of interest in London will rise to compensate for the higher inflation rate.
D) the risk-free rate of interest in London will fall to compensate for the higher inflation rate.

Answer 1

the Canadian dollar will appreciate relative to the £

Question 2

Purchasing Power Parity implies that if the law of one price holds at all times then

A) differences in interest rates are associated with expected changes in exchange rates
B) differences in expected inflation rates between two countries are associated with expected changes in exchange rates.
C) Foreign exchange rates are fixed.
D) neither a or b is correct

Answer 2

differences in expected inflation rates between two countries are associated with expected changes in exchange rates.

Question 3

Which of the following may prevent purchasing power parity from holding across different countries?

A) Import taxes
B) transportation costs
C) transaction costs
D) all of the above

Answer 3

all of the above

Question 4

Suppose that a United States firm is considering an investment that will yield cash flows in Canadian dollars.The projects cash flows will be the following: Initial cost = C$-1,000,000,Year 1 = C$550,000,Year 2 = C$340,000,Year 3 = C$125,000.The U.S.firm plans to evaluate the project by discounting the cash flows at the Canadian cost of capital of 7% and then converting the NPV back to U.S.dollars at the current spot rate which is $0.8213/C$.What is the NPV of the project in U.S.dollars?

A) $-71,433
B) $-86,975
C) C$-86,975
D) C$-71,433

Question 5

A coffee table in Canada sells for C$134.The same coffee table sells for $92 in the United States.The expected inflation rate for the next year in Canada is 10% and the expected one year inflation rate for the United States is 8%.What must the exchange rate be currently for Purchasing Power Parity to hold now,and what must the exchange rate change to in order for Purchasing Power Parity to hold in one year.

A) $0.6866/C$ and $0.6741/C$
B) C$0.6866/$ and C$0.6741/$
C) $1.4565/C$ and $1.484/C$
D) none of the above

Question 6

The annualized rate of interest on three-month government bonds is 7% in Italy and the annualized rate on three-month government bonds is 4% in the United States.The current spot rate is $1.12/€.Using interest rate parity what is the implied three-month forward rate between the U.S.dollar and the Euro.

A) $1.112/€
B) $1.128/€
C) €0.8865/$
D) $1.0886/€

Question 7

Which of the following is not a strategy that corporations can use to transfer exchange rate risk?

A) Forward Contracts
B) Option Contracts
C) Currency Swaps
D) operate and sell in only one country

Question 8

Suppose that J.B.Campbell & Company operates in the United States and sells 10 coffee tables to a Japanese company.J.B.Campbell & Company delivers the tables now and will receive ¥187,500 in 6 months.If the current spot rate is ¥122/$ and if the exchange rate in 6 months is ¥127/$,how much will J.B.Campbell & Company have gained / lost from the movements in exchange rates if it does not hedge this transaction.

A) They will not gain or lose anything on this transaction.
B) They will gain ¥50
C) They will gain $60.50
D) They will lose $60.50

Question 9

In the United States the expected rate of inflation is 4% and in Canada the expected rate of inflation is 8%.The risk-free rate of interest in the U.S.is 3%.What would the risk-free interest rate have to be in Canada for real interest rate parity to hold?

A) 9.05%
B) 3.0%
C) 4.0%
D) 6.96%

Question 10

Suppose that the one-year risk-free interest rate is 5% in the United States.The current spot rate is $0.7642/C$ and the one-year forward rate is $0.7834/C$.What must the Canadian one-year risk-free interest rate be in order for interest rate parity to hold?

A) 0.929%
B) 0.783%
C) 2.43%
D) 7.64%

Question 11

The expected rate of inflation for Japan is 11%.The risk-free rate in Japan is 5% and the risk-free rate in Italy is 2%.What must the inflation rate in Italy be in order for real interest rate parity to hold?

A) 11.0%
B) 7.83%
C) -3.51%
D) 14.26%

Question 12

The expected rate of inflation in Japan is 12% and the expected rate of inflation in Italy is 9%.In Italy the risk-free rate of interest is 6%.What does the risk-free rate of interest have to be in Japan for real interest rate parity to hold?

A) 3.16%
B) 8.92%
C) 6.0%
D) 12.0%

Question 13

Mark Duncan owns a furniture manufacturing firm in the United States.He is considering an investment in Japan which will have the following cash flows: Initial cost = ¥-300,000,000,Year 1 = ¥150,000,000,Year 2 = ¥200,000,000,Year 3 = ¥250,000,000 and Year 4 = ¥100,000,000.The appropriate discount rate that should be used to discount yen-denominated cash flows is 11%.Calculate the NPV of the project,if Duncan plans on converting the NPV from Yen into U.S.dollars at the current spot rate of ¥123/$.

A) ¥246,130,565
B) $246,130,565
C) $2,001,062
D) ¥2,001,062

Question 14

Crum Industries is a paper manufacturing company based in the United States.The CEO of the company Hannah Monstzka is considering an investment in Canada to take advantage of Canadian government subsidies.The investment will have the following cash flows: Initial cost = C$-2,000,000,Year 1 = C$1,250,000,Year 2 = C$1,000,000,Year 3 = C$750,000.Monstzka plans on hedging the cash flows using forward contracts throughout the life of the project.The risk-free rate of interest in Canada is 5% and the risk-free rate of interest in the U.S.is 4%.Currently the spot rate is $0.7134/C$ and the project should be discounted at a U.S.adjusted rate of 9%.Assume Monstzka will be able to convert the Canadian dollar cash flows into U.S.dollars at the implied forward rates when they are received.What is the NPV of the project in U.S.dollars?

A) $374,071
B) $567,606
C) $404,930
D) $393,465

Question 15

Beech Industries is a U.S.company that sells shoes to Japanese retailers.Beech Industries just signed a contract to sell 1,000 pairs of shoes to Yakata Inc.The total price for these shoes is ¥200,000.The shoes will be delivered today but Beech Industries won't receive payment for 6 months.The current spot rate is ¥127/$ and the 6-month forward rate is ¥128/$.Marcus Duncan,the treasurer at Beech Industries,expects that in 6 months the spot rate will ¥131/$.Based on the information given Beech Industries is most likely to

A) enter into a 6-month forward contract and lock in the rate ¥128/$
B) remain unhedged on this transaction
C) demand payment today instead of in 6 months
D) cancel the transaction with Yakata Inc. because they will lose too much of their profit due to exchange rate movements.

Question 16

Which of the following is an example of macro political risk?

A) the current government is overthrown by a radical militia group
B) restricting the amount of assets that steel companies may control in their territories
C) raising the level of taxes for oil firms
D) removing tax subsidies received by paper manufacturer's

Question 17

The spot rate for the U.S.dollar relative to the Euro is $1.47/€.The spot rate for the U.S.dollar relative to the Canadian dollar is $0.765/C$.What is the cross exchange rate for the C$ and €?

A) C$1.922/€
B) €1.922/C$
C) C$0.5204/€
D) €0.5204/C$

Question 18

The following are all examples of political risk that could affect a multinational corporation,except

A) increasing taxes on a firm's activities
B) employing quotas on the goods or services that a firm sells
C) Implementing tax incentives to attract new corporations
D) Implementing barriers that prevent a firm from repatriating profits back to their home country

Question 19

Gates Auto Inc.manufactures automobile engines in the United States.Gates Auto Inc.sells 200 of its 8 - cylinder Hoste model engines to a company in Canada.The total price for these engines is C$60,000.Gates Auto Inc.will deliver the engines today and receive payment in 3 months from the Canadian company.When payment is received Gates Auto will convert the C$60,000 into U.S.dollars.The spot rate is $0.7865/C$ and if the spot rate in 3 months is $0.7622/C$,how much will Gates Auto Inc.gain or lose due to exchange rate movements on this transaction if it does not perform any hedges.

A) They will lose $1,458.29
B) They will gain $1,458.29
C) They will not gain or lose anything on this transaction.
D) They will gain $31,530

Question 20

A 32-inch television sells in the United States for $157.The same television sells in Canada for C$212.What must the exchange rate be for Purchasing Power Parity to hold in this example?

A) $1.3503/C$
B) C$1.3053/$
C) $0.7406/C$
D) C$0.7406/$

Question 21

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.

A) $0.00821/¥
B) $0.00786/¥
C) $0.00794/¥
D) $0.00805/¥

Question 22

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?

A) 10
B) 11
C) 12
D) 13

Question 23

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

A) transactions risk
B) economic risk
C) translation risk
D) political risk

Question 24

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

A) the interest rate parity
B) the Big Mac index
C) the law of one price
D) none of the above

Question 25

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

A) the country's national government
B) the supply and demand for that currency
C) the International Monetary Fund
D) the World Bank

Question 26

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?

A) 2.29%
B) -2.29%
C) 3.67%
D) -3.67%

Question 27

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

A) the U.S. dollar is appreciating against the Japanese Yen and the Japanese Yen is depreciating against the U.S. dollar.
B) the U.S. dollar is depreciating against the Japanese Yen and the Japanese Yen is appreciating against the U.S. dollar.
C) the U.S. dollar is depreciating.
D) nothing, because the exchange rates can not be compared to one another.

Question 28

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

A) trades at a 1.79% 90 day forward premium.
B) trades at a 7.14% annual forward premium.
C) trades at a 1.79% 90 day forward discount.
D) trades at a 7.14% annual forward discount.

Question 29

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

A) floating exchange rate system
B) fixed exchange rate system
C) managed floating rate system
D) currency board arrangement

Question 30

The current foreign exchange rate is also called the

A) spot rate
B) forward rate
C) main rate
D) none of the above

Question 31

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%.

A) 4.45%
B) 5.0%
C) 14.45%
D) 9.45%

Question 32

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.

A) $0.7281/C$
B) $0.7248/C$
C) $0.7353/C$
D) $0.7178/C$

Question 33

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)?

A) depreciated by 0.72%
B) appreciated by 0.72%
C) depreciated by 1.24%
D) appreciated by 1.24%

Question 34

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

A) €1 equals $1 since there exchange rates are fixed to one another
B) €0.8903 is equal to $1
C) €1.1232 is equal to $1
D) You can not figure this out since both the U.S. dollar and the Euro are floating exchange rates

Question 35

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)?

A) depreciated by 0.72%
B) appreciated by 0.72%
C) depreciated by 1.24%
D) appreciated by 1.24%

Question 36

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.

A) Depreciated; appreciated
B) was unchanged; was unchanged
C) appreciated; appreciated
D) appreciated; depreciated

Question 37

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)?

A) depreciated by 3.56%
B) appreciated by 3.56%
C) appreciated by 2.29%
D) depreciated by 2.29%

Question 38

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.

A) €0.6526/C$
B) €0.6480/C$
C) €0.6558/C$
D) €0.6605/C$

Question 39

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

A) C$1.5478/€
B) €0.5478/C$
C) C$0.6461/€
D) €0.6461/C$

Question 40

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)?

A) appreciated by 3.56%
B) depreciated by 3.56%
C) appreciated by 2.35%
D) depreciated by 2.35%

Question 41

Smith Enterprises International Investment
Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
Refer to Smith Enterprises International Investment.If the required return of the project is 15% in Euro terms,what should be the required return in dollar terms?

A) 15.00%
B) 12.83%
C) 17.21%
D) 9.65%

Question 42

Smith Enterprises International Investment
Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
Refer to Smith Enterprises International Investment.What is the expected rate of inflation in France?

A) 4.47%
B) 5.00%
C) 6.52%
D) 3.56%

Question 43

Smith Enterprises International Investment
Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
Refer to Smith Enterprises International Investment.What is the cost of the manufacturing plant in U.S.dollars?

A) $20,415,000
B) $25,760,000
C) $30,615,000
D) $32,340,000

Question 44

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 Euro?

A) 2.35%
B) -2.35%
C) 3.67%
D) -3.67%

Question 45

Smith Enterprises International Investment
Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
Refer to Smith Enterprises International Investment.What is the NPV of the investment in US dollars when evaluating the € denominated cash-flows? Assume a required return of 15%.

A) $4.347 million
B) $2.899 million
C) $7.852 million
D) $9.514 million

Question 46

You checked the €/$ exchange rate today and you found that one Dollar cost you €0.8214.When you checked the three months (90 day)€/$ forward exchange rate one dollar was trading at €0.8026.What is the annualized forward premium (discount)for the dollar?

A) 2.29%
B) -2.29%
C) 9.16%
D) -9.16%

Question 47

You just bought a pair of shoes for $129.If the $/€ exchange rate is $1.2275/€,what should be the price of the identical pair of shoes in France,if the purchasing power parity holds?

A) €105.09
B) €154.35
C) €129.00
D) €95.63

Question 48

Smith Enterprises International Investment
Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
Refer to Smith Enterprises International Investment.What is the 2-year $/€ forward exchange rate?

A) .8012
B) .7861
C) .8263
D) .8521

Question 49

If you are looking at an indirect quote for a U.S.Dollar -foreign currency exchange rate and the number has increased from yesterday to today,then

A) the U.S Dollar has increased in value.
B) the U.S Dollar has decreased in value.
C) the foreign currency has decreased in value.
D) both a and c are correct.

Question 50

You just bought a pair of shoes for $129.If an identical pair of shoes sells for €105 in France,what should be the $/€ exchange rate if the purchasing power parity holds?

A) .8140
B) 1.2286
C) 1.2905
D) .5968

Question 51

If the €/$ exchange rate is $1.2267/€ and the $/£ exchange rate is $1.7894/£,what is the €/£ exchange rate?

A) 2.1951
B) 1.4587
C) 0.6855
D) 2.9564

Question 52

In a fixed exchange rate system,if the demand for a currency increases

A) then the government of that country must stand ready to sell its currency.
B) then the government of that country must stand ready to purchase its currency.
C) then the government of that country must stand ready to sell foreign currencies.
D) then the government must prepare the citizens of that country for the economic shock that will come in the future.

Question 53

If you are a U.S.based company making sales in Europe,you would benefit from

A) a strengthening U.S. dollar.
B) a weakening U.S. dollar.
C) a weakening Euro.
D) none of the above.

Question 54

If you are looking for the exchange rate to convert U.S.Dollars to Euros today,then you would need to be looking at

A) the spot exchange rate.
B) the forward exchange rate.
C) the future exchange rate.
D) the dot exchange rate.

Question 55

Smith Enterprises International Investment
Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
Refer to Smith Enterprises International Investment.What is the NPV of the investment in €-terms,if the required rate of return is 15%.

A) €28.5498 million
B) €18.3267 million
C) €3.5498 million
D) €12.5682 million

Question 56

Smith Enterprises International Investment
Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
Refer to Smith Enterprises International Investment.What is the expected $ value of the after tax cash flow received at the end of year 2?

A) $7.86 million
B) $10.45 million
C) $14,72 million
D) $12.72 million

Question 57

The system where a country pegs its currency to that of another currency is called

A) a floating exchange rate system.
B) a fixed exchange rate system.
C) a managed floating rate system.
D) none of the above.

Question 58

You just bought a pair of shoes for $129.If an identical pair of shoes sells for €105 in France,what should be the €/$ exchange rate if the purchasing power parity holds?

A) 1.2286
B) 1.2905
C) .8140
D) .5968

Question 59

You checked the €/$ exchange rate today and you found that one Dollar cost you €0.8214.When you checked the three months (90 day)€/$ forward exchange rate one dollar was trading at €0.8026.What is the annualized forward premium (discount)for the Euro?

A) 9.4%
B) -9.4%
C) 2.35%
D) -2.35%

Question 60

Smith Enterprises International Investment
Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
Refer to Smith Enterprises International Investment.What is the 3-year $/€ forward exchange rate?

A) .7861
B) .7719
C) 1.2955
D) 1.2721

Question 61

If the spot rate for Marsian Spotlets (MRS)is 4 per U.S.Dollar (USD)and the one-year risk-free rate of return is 30%,for the Marsian economy,then what should the risk free rate for the U.S.economy if the 1-year forward rate be for MRS/USD is 5?

A) .04
B) .038
C) .625
D) none of the above

Question 62

You are a U.S.dollar based corporation with a project in Great Britain that will cost you £1,000,000.The project will provide free cash flow of £500,000 for the next 3 years.If the pound denominated discount rate for this project is 12% and the spot rate is .5600£/$,then what is the dollar denominated NPV for the project? Round to the nearest $10.

A) $358,780
B) $200,920
C) $112,510
D) none of the above

Question 63

If the Canadian Dollar is worth $1.50,and the Swiss Franc is worth $1.30,then how many Swiss Francs does it take to purchase a Canadian Dollar?

A) 1.1538
B) 0.8667
C) 1.300
D) none of the above

Question 64

If the spot rate for Marsian Spotlets (MRS)is 4 per U.S.Dollar (USD)and the risk-free rates of return are 10% and 2%,respectively for the Marsian and U.S.economy,then what should the 1-year forward rate be for MRS/USD?

A) 4.3137
B) 4.0000
C) 0.2318
D) none of the above

Question 65

Which of the following accounts for the largest portion of trading volume in the foreign exchange markets?

A) exporters
B) importers
C) investors
D) governments

Question 66

If the spot rate for Jupiter Ringlets (JPR)is 3 USD per Ringlet and the risk-free rates of return are 1% and 2%,respectively for the Jupiter and U.S.economy,then what should the 1-year forward rate be for JPR/USD? Round to the nearest 4th decimal place.

A) 3.0297
B) 3.0000
C) .3301
D) none of the above

Question 67

When one currency buys less of another currency in the forward market than it does in the spot market,we say that it is trading at

A) a forward discount.
B) a forward premium.
C) a spot discount.
D) a spot premium.

Question 68

If the Canadian Dollar is worth $1.50,and the Swiss Franc is worth $1.30,then how many Canadian Dollars does it take to purchase a Swiss Franc?

A) 1.1538
B) 0.8667
C) 1.5000
D) none of the above

Question 69

You are a French wine producer who has a contract to sell $10,000,000 worth of wine in the U.S.for dollars 6 months in the future.If you would like to hedge this position,what could you do to hedge the currency risk involved in transaction?

A) buy dollars and sell euros in the forward market
B) sell dollars and buy euros in the forward market
C) buy euros and sell dollars in the spot market
D) sell dollars and buy euros in the spot market

Question 70

If the law of one price holds and the price of a Big Mac in the U.S.is $1.99 while the price of a Big Mac in Britain is £1.50,then what should the spot exchange rate for $/£ be?

A) 1.3267
B) 1.0000
C) .7538
D) none of the above

Question 71

Forward-spot parity suggests that

A) the forward rate will overestimate the spot rate at a set point in the future.
B) the forward rate is an unbiased predictor of the spot rate at a set point in the future.
C) the forward rate will underestimate the spot rate a set point in the future.
D) none of the above.

Question 72

If the spot rate for the yen/ dollar is ¥110.00 and the forward rate is ¥111.00 then the yen trades at

A) a forward discount of .009091 to the dollar.
B) a forward premium of .009091 to the dollar.
C) a forward discount of .009009 to the dollar.
D) a forward premium of .009009 to the dollar.

Question 73

If the spot rate for Marsian Spotlets (MRS)is 4 per U.S.Dollar (USD)and the one-year risk-free rate of return in the U.S.is 4%,then what should the risk free rate on Mars be if the 1-year forward rate be for MRS/USD is 5?

A) 30.00%
B) 20.19%
C) 20.00%
D) none of the above

Question 74

If the spot rate for the yen/ dollar is ¥110.00 and the one-month forward rate is ¥111.00 then the yen trades at an annual

A) forward discount of .009091 to the dollar.
B) forward premium of .009091 to the dollar.
C) forward discount of .109091 to the dollar.
D) forward premium of .109091 to the dollar.

Question 75

If the law of one price holds and the price of an apple in the U.S.is $1.50 while the price of an apple in Japan is ¥174.00,then what should the spot exchange rate for ¥/$ be?

A) .0086
B) .5747
C) 116.00
D) none of the above

Question 76

You are trying to determine the appropriate risk-adjusted rate,in U.S.dollars for a project in Britain.You know that the correct risk-adjusted discount rate in pounds is 15% and the risk-free rate in pounds is 9%.If the risk-free rate in dollars is 5%,then what is the correct risk-adjusted discount rate in dollars? Round to the nearest .01%

A) 10.80%
B) 5.50%
C) 0.48%
D) none of the above

Question 77

You are trying to determine the appropriate risk-adjusted rate,in Venus sun-dollars for a project on Venus.You know that the correct risk-adjusted discount rate in U.S.dollars is 15% and the risk-free rate in dollars is 8%.If the risk-free rate in sun-dollars is 5%,then what is the correct risk-adjusted discount rate in dollars? Round to the nearest .01%

A) 11.81%
B) 6.48%
C) 1.39%
D) none of the above

Question 78

The 1-year risk-free rate of return in Hobbiton is 10% and the 1-year risk-free rate of return in Gondor is 20%.If the real rate of return on a 1-year risk-free investment in Hobbiton is 0%,the what should be the expected rate of inflation in Gondor?

A) 5.00%
B) 20.00%
C) 30.00%
D) none of the above

Question 79

The type of risk primarily concerned with converting revenues and costs denominated in foreign currencies into a firm's domestic currency is

A) economic exposure.
B) transaction exposure.
C) translation exposure.
D) none of the above.

Question 80

The 1-year risk-free rate of return in Hobbiton is 10% and the 1-year risk-free rate of return in Gondor is 20%.If the expected rate of inflation in Hobbiton is 5%,the what should be the expected rate of inflation in Gondor? Round to the nearest .01%

A) 14.54%
B) 12.70%
C) 3.89%
D) none of the above