Deck 19: International Corporate Finance

Question 1

Which of these is defined as an exchange rate regime where a currency's price is fixed to the value of another currency or to a basket of other currencies?

A)Fixed peg arrangement
B)Freely floating regime
C)Currency market regime
D)Managed-floating regime

Answer 1

Fixed peg arrangement

Question 2

Which of these is an international organization that deals with international trade rules and helps settle disputes between its member governments?

A)World Trade Union
B)World Free Trade Agreement
C)International Monetary Fund
D)World Trade Organization

Answer 2

World Trade Organization

Question 3

Which of these is an organization of 185 countries that monitors currency exchange,examines financial stability,and watches the global financial system?

A)World Monetary Union
B)World Monetary Organization
C)International Monetary Fund
D)International Monetary Union

Answer 3

International Monetary Fund

Question 4

Which of these is defined as the price of one currency in terms of another?

A)Exchange rate
B)Spot transaction
C)Indirect exchange quote
D)Direct exchange quote

Question 5

Which of the following is a theory that the difference in interest rates between two countries is equal to the difference between the forward currency exchange rate and the spot exchange rate?

A)Purchasing power parity
B)Interest rate parity
C)Law of one price
D)Currency swap parity

Question 6

Which of these is defined as the practice of simultaneously purchasing and selling an asset in different forms or markets to take advantage of an imbalance in price?

A)Arbitrage
B)Spot transaction
C)Indirect quote
D)Cross quote

Question 7

Which of these is defined as a contractual agreement that states the exchange rate to be used at a future exchange date?

A)Fixed peg rate
B)Forward exchange rate
C)Managed exchange rate
D)Future strategy rate

Question 8

Which of these is defined as the possibility that the spot currency exchange rate will change and reduce the value of foreign assets and cash flows?

A)Foreign rate risk
B)Exchange rate risk
C)Spot rate risk
D)Value rate risk

Question 9

Which of these is a company that operates production and/or sales facilities in multiple countries?

A)World trade corporation
B)Multinational corporation
C)Free trade corporation
D)Managed-floating corporation

Question 10

Which of these is defined as the amount of domestic currency it takes to buy one unit of foreign currency?

A)Exchange rate
B)Spot transaction
C)Indirect quote
D)Direct quote

Question 11

Which of these is defined as an exchange rate regime where the currency is completely determined by the foreign-exchange market through supply and demand?

A)Foreign market regime
B)Freely floating regime
C)Currency market regime
D)Managed-floating regime

Question 12

Which of these is defined as the amount of foreign currency it takes to buy one unit of domestic currency?

A)Exchange rate
B)Spot transaction
C)Indirect quote
D)Direct quote

Question 13

Which of these is the trade agreement between South American countries to create their own free trade zone?

A)South American Union
B)South American Free Trade Agreement (SAFTA)
C)South American Monetary Fund (SAMF)
D)Mercosur

Question 14

Which of the following is NOT an example of how a company could hedge to reduce currency risk?

A)Buying futures contracts
B)Buying options
C)Currency swaps
D)Fixed peg arrangements

Question 15

Which of these is defined as the currency exchange rate between two foreign currencies,each of which is not the currency of the domestic country?

A)Exchange rates
B)Spot rates
C)Indirect rates
D)Cross rates

Question 16

Which of these is defined as exchanging one currency for another today?

A)Exchange rate
B)Spot transaction
C)Indirect quote
D)Direct quote

Question 17

Which of these is defined as long-term investment in capital in a business operation located in an economy other than that in which the company is based?

A)Managed-floating corporation
B)Multinational investment
C)Multinational corporation
D)Foreign direct investment

Question 18

Which of these is a political and economic union of 27 European countries?

A)European Union
B)European Free Trade Agreement (EFTA)
C)European Monetary Fund (EMF)
D)Mercosur

Question 19

Which of these seeks to reduce,or even eliminate,trade restrictions and tariffs to ease trade between countries?

A)Commerce bureaus
B)Tariff agreements
C)Trade agreements
D)Economic analysts

Question 20

Which of these is defined as an exchange rate regime where the country's central bank allows its currency price to float freely between an upper and lower bound and may buy and sell large amounts of it in order to provide price support or resistance?

A)Foreign market regime
B)Freely floating regime
C)Currency market regime
D)Managed-floating regime

Question 21

Which of the following is the definition of political risk?

A)The possibility that changes in the corporation will occur that reduce the profitability of doing business in that country.
B)The possibility that changes in the business environment will occur that reduce the profitability of doing business in that country.
C)The possibility that changes in the business environment will occur that increase the profitability of doing business in that country.
D)The possibility that international rules will occur that reduce the profitability of doing business in one particular country.

Question 22

Currency Exchange Compute the amount of foreign currency that can be purchased for $750,000:
1 Israeli shekel = $0.2351

A)926,325 shekel
B)750,000 shekel
C)176,325 shekel
D)3,190,131.859 shekel

Question 23

Currency Exchange Compute the amount of foreign currency that can be purchased for $400,000:
1 Indian rupee = $0.02250

A)400,000 rupee
B)360,000,000 rupee
C)9,000 rupee
D)17,777,777.78 rupee

Question 24

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote:
$1 = 0.5467 Latvian lat

A)$1.5467
B)$0.15467
C)$0.018292
D)$1.8292

Question 25

Which of the following is an economic principle that states all identical goods in different markets must have the same price?

A)Purchasing power parity
B)Interest rate parity
C)Law of one price
D)Price swap parity

Question 26

Currency Exchange Compute the amount of foreign currency that can be purchased for $600,000:
1 Korean won = $0.001045

A)627,000 won
B)627 won
C)5,741,640 won
D)574,162,679.4 won

Question 27

Currency Exchange Compute the amount of foreign currency that can be purchased for $200,000:
1 Danish krone = $0.1755

A)200,000 krone
B)11,396 krone
C)35,100 krone
D)1,139,601.14 krone

Question 28

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote:
1 Korean won = $0.001045

A)0.1045 won
B)1.001045 won
C)9.5694 won
D)956.9378 won

Question 29

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote:
1 Thai baht = $0.03057

A)0.03057 baht
B)1.03057 baht
C)0.96943 baht
D)32.7118 baht

Question 30

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote:
$1 = 2,150.4 Venezuelan bolivar

A)$0.00046503
B)$4.65
C)$1.465
D)$2.1504

Question 31

Which of the following is the theory relating the expected adjustment needed in the future spot exchange rate between countries to the inflation rate in each country?

A)Purchasing power parity
B)Interest rate parity
C)Law of one price
D)Currency swap parity

Question 32

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote:
1 Danish krone = $0.1755

A)0.1755 krone
B)0.8245 krone
C)1.1755 krone
D)5.698 krone

Question 33

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote:
$1 = 15,990 Vietnam dong

A)$0.00006254
B)$159.90
C)$6.2539
D)$1.00625

Question 34

Purchasing power parity (PPP)may not hold exactly because of which of the following?

A)Shipping costs
B)Insurance costs
C)Trading costs
D)All of these are transaction costs that may not allow PPP to hold exactly.

Question 35

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote:
1 Malaysian ringget = $0.2875

A)0.2875 ringget
B)1.2875 ringget
C)3.4783 ringget
D)4.4783 ringget

Question 36

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote:
1 Israeli shekel = $0.2351

A)0.2351 shekel
B)0.7649 shekel
C)1.2351 shekel
D)4.2535 shekel

Question 37

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote:
$1 = 3.8249 Saudi Arabian riyal

A)$0.2614
B)$4.8249
C)$0.38249
D)$1.00

Question 38

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote:
$1 = 48.210 Philippine peso

A)$0.0207
B)$1.0207
C)$4.8210
D)$0.4821

Question 39

Exchange Rate Quote Convert the following indirect quote to a dollar direct quote:
$1 = 7.2501 South African rand

A)$0.1379
B)$0.72501
C)$1.00
D)$1.1379

Question 40

Exchange Rate Quote Convert the following direct quote to a dollar indirect quote:
1 Indian rupee = $0.02250

A)0.02250 rupee
B)0.9775 rupee
C)1.0225 rupee
D)44.44 rupee

Question 41

Discount Rates A financial manager has determined that the appropriate discount rate for a foreign project is 15 percent.However,that discount rate applies in the United States using dollars.What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 8 percent and 4 percent,respectively.

A)11 percent
B)19 percent
C)21 percent
D)12 percent

Question 42

Currency Exchange Compute the number of dollars that can be bought with 2 million of foreign currency units:
$1 = 15,990 Vietnam dong

A)$125.0782
B)$3,198.00
C)$12,507.82
D)$198.7577

Question 43

Discount Rates A financial manager has determined that the appropriate discount rate for a foreign project is 15 percent.However,that discount rate applies in the United States using dollars.What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 5 percent and 7 percent,respectively.

A)13 percent
B)17 percent
C)18 percent
D)20 percent

Question 44

Law of One Price If the price of silver in England is £6.85 per ounce,what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5426?

A)$7.3926 per ounce
B)$7.921 per ounce
C)$3.7168 per ounce
D)$12.6244 per ounce

Question 45

Currency Exchange Compute the number of dollars that can be bought with 2 million of foreign currency units:
$1 = 48.210 Philippine peso

A)$41,485.16905
B)$1,959,439.60
C)$414,851.6905
D)$4,148,516.905

Question 46

Currency Exchange Compute the amount of foreign currency that can be purchased for $1,300,000:
1 Thai baht = $0.03057

A)39,741 baht
B)1,339,741 baht
C)1,260,259 baht
D)42,525,351.65 baht

Question 47

Law of One Price If the price of copper in Europe is €2.22 per ounce,what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.7802?

A)$3.0002 per ounce
B)$3.514 per ounce
C)$1.7320 per ounce
D)$2.8454 per ounce

Question 48

Currency Exchange Compute the number of dollars that can be bought with 1.5 million of foreign currency units:
$1 = 0.5467 Latvian lat

A)$969,806.68520
B)$9,698,066.852
C)$82,003,061.45
D)$2,743,735.138

Question 49

Cross Rate Given these two exchange rates,$1 = 11.25 Mexican peso and $1 = €0.7521,compute the cross rate between the Mexican peso and the euro.State this exchange rate in pesos and in euros.

A)0.0669 euros, 14.9589 pesos
B)1.3296 euros, 0.0889 pesos
C)14.9589 euros, 0.0669 pesos
D)0.0889 euros, 1.3296 pesos

Question 50

Law of One Price If the price of silver in England is £7.10 per ounce,what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5275?

A)$7.6275 per ounce
B)$7.429 per ounce
C)$3.74525 per ounce
D)$13.4597 per ounce

Question 51

Currency Exchange Compute the number of dollars that can be bought with 1 million of foreign currency units:
$1 = 3.8249 Saudi Arabian riyal

A)$261,444.7437
B)$4,824,900.00
C)$382,490.00
D)$1,000,000

Question 52

Exchange Rate Risk In the late 1990s,many East Asian currencies suddenly and dramatically devalued.What is the percentage change in value of a $75 million investment in Indonesia when the exchange rate changes from $1 = 1,000 rupiah to $1 = 7,000 rupiah?

A)14.29 percent
B)85.71 percent
C)12.5 percent
D)87.5 percent

Question 53

Cross Rate Given these two exchange rates,$1 = 1.3254 Australian dollars and $1 = £0.5233,compute the cross rate between the Australian dollars and the pound.State this exchange rate in Australian dollars and in pounds.

A)A$2.5329, 0.3948 pounds
B)A$0.3948, 2.5329 pounds
C)A$0.3948, 0.6936 pounds
D)A$0.6936, 0.3948 pounds

Question 54

Currency Exchange Compute the amount of foreign currency that can be purchased for $1,000,000:
1 Malaysian ringget = $0.2875

A)287,500 ringget
B)1,287,500 ringget
C)3,478,260.87 ringget
D)4,478,300 ringget

Question 55

Exchange Rate Risk What is the percentage change in value of a $50 million investment in Russia when the exchange rate changes from $1 = 7 rubles to $1 = 12 rubles?

A)41.67 percent
B)58.33 percent
C)36.84 percent
D)63.16 percent

Question 56

Exchange Rate Risk In the late 1990s,many East Asian currencies suddenly and dramatically devalued.What is the percentage change in value of a $10 million investment in Indonesia when the exchange rate changes from $1 = 3,000 rupiah to $1 = 10,000 rupiah?

A)30 percent
B)10 percent
C)70 percent
D)90 percent

Question 57

Currency Exchange Compute the number of dollars that can be bought with 5 million of foreign currency units:
$1 = 2,150.4 Venezuelan bolivar

A)$2,325.1488
B)$232,514.88
C)$7,325,000
D)$43,008,000.00

Question 58

Interest Rate Parity If the spot rate between the U.S.dollar and the New Zealand dollar is $1 = NZD1.5215,and if the interest rate in the United States is 8 percent and in New Zealand is 4 percent,then what should be the three-month forward exchange rate?

A)$0.6637
B)$0.6572
C)$0.6825
D)$0.6329

Question 59

Currency Exchange Compute the number of dollars that can be bought with 8 million of foreign currency units:
$1 = 7.2501 South African rand

A)$1,103,433.056
B)$5,800,080.00
C)$8,000,000.00
D)$9,103,200.00

Question 60

Discount Rates A financial manager has determined that the appropriate discount rate for a foreign project is 16 percent.However,that discount rate applies in the United States using dollars.What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 4 percent and 8 percent,respectively.

A)16 percent
B)20 percent
C)12 percent
D)24 percent

Question 61

If the price of silver in England is £6.25 per ounce,what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.55?

A)$11.36
B)$13.25
C)$10.17
D)$14.06

Question 62

Exchange Rate Risk A U.S.firm is expecting cash flows of 5 million Mexican pesos and 10 million Indian rupees.The current spot exchange rates are: $1 = 11.255 pesos and $1 = 44.864 rupees.If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 10.080 pesos and $1 = 44.125 rupees,then what is the difference in dollars received that was caused by the delay?

A)$56,000 more
B)$56,000 less
C)$13.265 million more
D)$9.275 million more

Question 63

Triangular Arbitrage The U.S.dollar spot exchange rate with the Australian dollar is $1 = AU$1.2835.The U.S.dollar and euro exchange rate is $1 = €0.7605.If the cross-rate between the euro and Australian dollar is €1 = AU$1.610 then show that an arbitrage is possible.What positions should be taken to profit from the mispricing?

A)Starting with U.S.dollars, buy Australian dollars and convert them to euros, then convert back to U.S.dollars.
B)Starting with U.S.dollars, buy euros and convert them to Australian dollars, then convert back to U.S.dollars.
C)Starting with euros, buy U.S.dollars and covert them to Australian dollars, then convert back to euros.
D)Starting with Australian dollars, buy euros and convert them to U.S.dollars, then convert back to Australian dollars.

Question 64

Compute the number of dollars that can be bought with 1 million of each foreign currency units:
• $1 = 3.9 Saudi Arabian riyal
• $1 = 0.52 Philippine peso
• $1 = 0.75 Latvian lat

A)$258,410.26; $1,923,076.92; $1,333,888.33
B)$256,410.26; $1,928,076.92; $1,333,333.33
C)$256,410.26; $1,923,076.92; $1,333,333.33
D)$258,410.26; $1,928,076.92; $1,333,333.33

Question 65

Purchasing Power Parity If the current spot rate between the U.S.dollar and the Netherland Antilles guilder was $1 = 1.54 guilder,and if the inflation rate in the United States was 2 percent and in the Netherland Antilles it was 8 percent,then what would be the expected spot rate in one year?

A)$0.6104
B)$0.6494
C)$1.4476
D)$0.6133

Question 66

Convert each of the following direct quotes to dollar indirect quotes:
• 1 Korean won = $0.001556
• 1 Malaysian ringgit = $0.3419
• 1 Thai baht = $0.03999
$1 equals:

A)642.67 won; 2.9248 ringget; 28.01 baht
B)662.67 won; 2.9248 ringget; 28.01 baht
C)642.67 won; 2.7408 ringget; 25.01 baht
D)642.67 won; 2.9248 ringget; 25.01 baht

Question 67

Convert each of the following indirect quotes to dollar direct quotes:
• $1 = 3.05 Saudi Arabian riyal
• $1 = 41.45 Philippine peso
• $1 = 0.52 Latvian lat
$1 equals:

A)0.33 riyal; 0.02 peso; 1.92 lat
B)0.33 riyal; 0.02 peso; 1.95 lat
C)0.38 riyal; 0.05 peso; 1.92 lat
D)0.38 riyal; 0.02 peso; 1.95 lat

Question 68

Convert each of the following indirect quotes to dollar direct quotes:
• $1 = 3.95 Saudi Arabian riyal
• $1 = 41.45 Philippine peso
• $1 = 0.58 Latvian lat
$1 equals:

A)0.22 riyal; 0.02 peso; 1.75 lat
B)0.25 riyal; 0.02 peso; 1.72 lat
C)0.38 riyal; 0.05 peso; 1.72 lat
D)0.38 riyal; 0.02 peso; 1.95 lat

Question 69

Purchasing Power Parity If the current spot rate between the U.S.dollar and the Netherland Antilles guilder was $1 = 1.68 guilder,and if the inflation rate in the United States was 1 percent and in the Netherland Antilles it was 6 percent,then what would be the expected spot rate in one year?

A)$0.5952
B)$0.5654
C)$0.6250
D)$0.6571

Question 70

Exchange Rate Risk A U.S.firm is expecting to pay cash flows of 20 million Egyptian pounds and 25 million Qatar rials.The current spot exchange rates are: $1 = 5.829 pounds and $1 = 3.645 rials.If these cash flows are delayed one year and the expected spot rates at that time will be $1 = 5.895 pounds and $1 = 3.899 rials,then what is the difference in dollars paid that was caused by the delay?

A)$0.485 million less
B)$0.485 million more
C)$7.67 million more
D)$7.67 million less

Question 71

Exchange Rate Risk A U.S.firm is expecting cash flows of 15 million Mexican pesos and 20 million Indian rupees.The current spot exchange rates are: $1 = 11.501 pesos and $1 = 45.525 rupees.If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.265 pesos and $1 = 45.005 rupees,then what is the difference in dollars received that was caused by the delay?

A)$0.03 million more
B)$0.03 million less
C)$16.94 million more
D)$16.94 million less

Question 72

Triangular Arbitrage The U.S.dollar spot exchange rate with the Australian dollar is $1 = AU$1.2219.The U.S.dollar and euro exchange rate is $1 = €0.7595.If the cross-rate between the euro and Australian dollar is €1 = AU$1.575 then show that an arbitrage is possible.What positions should be taken to profit from the mispricing?

A)Starting with U.S.dollars, buy Australian dollars and convert them to euros, then convert back to U.S.dollars.
B)Starting with U.S.dollars, buy euros and convert them to Australian dollars, then convert back to U.S.dollars.
C)Starting with euros, buy U.S.dollars and convert them to Australian dollars, then convert back to euros.
D)Starting with Australian dollars, buy euros and convert them to U.S.dollars, then convert back to Australian dollars.

Question 73

Compute the number of dollars that can be bought with 2 million of each foreign currency units:
• $1 = 19,005 Vietnam dong
• $1 = 2,949.6 Venezuelan bolivar
• $1 = 7.9523 South African rand

A)$105.24; $678.06; $251,499.57
B)$108.24; $678.06; $251,489.57
C)$108.24; $675.06; $251,499.57
D)$105.24; $675.06; $251,489.57

Question 74

Interest Rate Parity Assume the spot rate between the U.S.dollar and the Taiwan dollar is $1 = TWD32.456.If the interest rate in the United States is 4 percent and in Taiwan is 3 percent,then what should be the one-month forward exchange rate?

A)$0.0308
B)$0.0311
C)$1.0097
D)$1.0008

Question 75

Convert the following direct quote to dollar indirect quote: 1 Indian rupee = $0.2110.

A)5.0226 rupee
B)4.7393 rupee
C)4.8814 rupee
D)4.9097 rupee

Question 76

Purchasing Power Parity If the current spot rate between the U.S.dollar and the Swedish krona was $1 = 7.5423 krona,and if the inflation rate in the United States was 5 percent and in Sweden it was 2 percent,then what would be the expected spot rate in one year?

A)$0.1366
B)$0.1326
C)$7.7487
D)$0.1356

Question 77

Compute the amount of each foreign currency that can be purchased for $5,000:
A.1 Danish krone = $0.18
B.1 Indian rupee = $0.15
C.1 Israeli shekel = $0.37
$5,000 equals:

A)17,777.78 krone; 33,333.33 rupee; 18,513.51 shekel
B)17,777.78 krone; 33,333.33 rupee; 13,513.51 shekel
C)27,777.78 krone; 38,333.33 rupee; 13,513.51 shekel
D)27,777.78 krone; 33,333.33 rupee; 13,513.51 shekel

Question 78

Convert the following direct quote to dollar indirect quote: 1 Danish krone = $0.1991.

A)5.0226 krone
B)5.1137 krone
C)5.2814 krone
D)5.3097 krone

Question 79

Convert each of the following indirect quotes to dollar direct quotes:
• $1 = 805 Vietnam dong
• $1 = 2,349.6 Venezuelan bolivar
• $1 = 7.0523 South African rand
$1 equals:

A)0.0012 dong; 0.0004 bolivar; 0.1418 rand
B)0.0072 dong; 0.004 bolivar; 0.1418 rand
C)0.0012 dong; 0.004 bolivar; 0.1478 rand
D)0.0022 dong; 0.0004 bolivar; 0.1418 rand

Question 80

Triangular Arbitrage Assume the U.S.dollar spot exchange rate with the Canadian dollar is $1 = CA$1.125.The U.S.dollar and Swiss Franc exchange rate is $1 = 1.235.If the cross rate between the franc and Canadian dollar is 1 franc = CA$0.9820,then show that an arbitrage is possible.What positions should be taken to profit from the mispricing?

A)Start with U.S.dollars, buy francs and convert them to Canadian dollars, then convert back to U.S.dollars.
B)Start with francs, buy U.S.dollars and convert them to Canadian dollars, then convert back to francs.
C)Start with Canadian dollars, buy francs and convert to U.S.dollars, then convert back to Canadian dollars.
D)Start with U.S.dollars, buy Canadian dollars and convert to francs, then convert back to U.S.dollars.