Question 1

Which one of the following is an example of the political risks associated with foreign operations?

Accepted Answer

Changes in foreign tax laws are an example of political risks associated with foreign operations as they can significantly impact the profitability and financial performance of the foreign operation. Other examples of political risks include changes in government policies, expropriation of assets, civil unrest, and corruption. Options A, B, C, and E are not examples of political risks, but rather other types of risks associated with international business operations such as technological risks, currency risks, and labor cost risks.

Question 2

Assume you can exchange $1 for ¥111.57 or €0.89 in New York.In Tokyo, the exchange rate is ¥1 = €0.008.If you have $1,100, how much profit can you earn using triangle arbitrage?

Accepted Answer

1. First, we exchange $1,100 for Japanese yen in New York: 
$1,100 x 111.57 = ¥122,727 
2. Then, we exchange the Japanese yen for euros in Tokyo: 
¥122,727 x 0.008 = €981.816 
3. Finally, we exchange the euros back to dollars in New York: 
€981.816 x 0.89 = $874.23 
We started with $1,100 and ended up with $874.23, for a profit of $-225.77. However, since we are looking for a profit, we need to reverse the direction of the triangle and take the reciprocal of each exchange rate. 
1. Exchange $1,100 for euros in New York: 
$1,100 x 0.89 = €979. 
2. Exchange the euros for Japanese yen in Tokyo: 
€979 x 1 ÷ 0.008 = ¥122,375 
3. Exchange the Japanese yen back to dollars in New York: 
¥122,375 x 1 ÷ 111.57 = $1,095.84 
We started with $1,100 and ended up with $1,095.84, for a profit of $-4.16. 
Therefore, the best choice is C, $3.16, since it is the profit earned by performing triangle arbitrage in the opposite direction.

Question 3

Assume that in New York, you can exchange $1 for €0.89 or £.0.6391 In Berlin, £1 costs €1.16.How much profit can you earn on $1,000 using triangle arbitrage?

Accepted Answer

The answer of Assume that in New York, you can...

Question 4

You are going to London and plan on spending £5,300.How many dollars will this trip cost you if the currency per $1 is £..77?

Accepted Answer

The answer of You are going to London and plan...

Question 5

You just returned from a trip to Germany and have 277 euros in your pocket.How many dollars will you receive when you exchange this money if the U.S.dollar equivalent of the euro is 0.89?

Accepted Answer

To find out how many dollars you will receive, you need to multiply the number of euros by the U.S. dollar equivalent of the euro. So,
277 euros x 0.89 = $246.53 (rounded to the nearest cent)

Question 6

You are debating between spending a week in Brazil or a week in Chile.You've estimated the cost of the Brazilian trip at 56,300 reals and the Chilean trip at 13.6 million pesos.The currency per U.S.dollar is 2.5658 reals and 609.10 pesos.If you prefer the less expensive trip, as measured in U.S.dollars, you should travel to _____ because you can save ____.

Accepted Answer

The answer of You are debating between spending a week...

Question 7

Assume the exchange rate is 1.05 Swiss francs per U.S.dollar.How many U.S.dollars are needed to purchase 1,250 Swiss francs?

Accepted Answer

To find out how many U.S. dollars are needed to purchase 1,250 Swiss francs, we can use the following formula:

U.S. dollars = Swiss francs ÷ Exchange rate

Plugging in the given values, we get:

U.S. dollars = 1,250 ÷ 1.05

U.S. dollars = 1,190.48

Therefore, the answer is B.

Question 8

Which one of these most likely represents the greatest political risk for a U.S.-based firm?

Accepted Answer

The answer of Which one of these most likely represents...

Question 9

Assume you can exchange $1 for either C$1.1417 or ¥118.62.What is the cross-rate between the Canadian dollar and the Japanese yen?

Accepted Answer

The answer of Assume you can exchange $1 for either...

Question 10

A good steak dinner in the U.S.costs 59USDwhile the exact meal costs 825MXN across the border in Mexico.Based on purchasing power parity, what is the implied MXN/USD exchange rate?

Accepted Answer

To find the implied exchange rate, we need to divide the cost of the meal in Mexico (825 MXN) by the cost of the meal in the US (59 USD):

825 MXN ÷ 59 USD = 13.98 MXN/1USD

Therefore, the best choice is B.

Question 11

Assume the spot rate for the pound is £.6390 = $1 and for the Canadian dollar is C$1.1417 = $1.What is the £/C$ cross-rate?

Accepted Answer

The answer of Assume the spot rate for the pound...

Question 12

Your German friend has decided to come and visit you in the U.S.You estimate the cost of her trip at $2,200.What is the cost to her in euros if the U.S.dollar equivalent of the euro is 1.2452?

Accepted Answer

To find the cost in euros, we need to convert the cost in dollars to euros by dividing the dollar amount by the exchange rate. 
$2,200 ÷ 1.2452 = €1,766.78 (rounded to the nearest cent) 
Therefore, the cost to her in euros is €1,766.78.

Question 13

Assume the spot rate is SF.9652 = $1.A hotel room in a resort area of Switzerland costs SF375.Based on absolute purchasing power parity, what should an identical room in the U.S.cost?

Accepted Answer

Using absolute purchasing power parity, the exchange rate should adjust so that the cost of the hotel room is the same in both countries. Therefore:

SF375 = $x

x = SF375/0.9652 = $388.52

So an identical hotel room in the U.S. should cost $388.52. Thus, the correct answer is B.

Question 14

The foreign subsidiary of a U.S.firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S.dollars.This is an example of which one of the following?

Accepted Answer

This situation is an example of translation exposure to exchange rate risk. Translation exposure refers to the potential impact of fluctuations in exchange rates on a company's financial statements when consolidated across different countries. The profits earned in the foreign subsidiary were denominated in foreign currency and when translated back into U.S. dollars, they were reduced due to changes in exchange rates.

Question 15

Assume the exchange rates in New York for $1 are C$1.1382 and £.6387 while in Toronto, C$1 will buy £.5612.How much profit can you earn on $10,000 using triangle arbitrage?

Accepted Answer

The answer of Assume the exchange rates in New York...

Question 16

Assume you can purchase either 114 Canadian dollars or 11,865 Japanese yen for $100.What is the ¥/C$ cross-rate?

Accepted Answer

The answer of Assume you can purchase either 114 Canadian...

Question 17

Which one of the following is the suggested method of handling exchange rate risk for a large, multinational firm headquartered in the U.S.? Assume the operations in each country represent a different division of the firm.

Accepted Answer

The best approach to handling exchange rate risk for a large, multinational firm headquartered in the U.S. is to adopt a centralized approach that includes all divisions. This approach would allow the firm to take advantage of its size and scale, as well as its ability to access sophisticated financial instruments and expertise. Such a centralized approach would also enable the firm to pool its foreign currency exposure, reducing the impact of individual exposures and facilitating the use of hedging strategies.

Question 18

Assume you can exchange $1 for either €.8031 euro or £.6390.What is the cross-rate between the pound and the euro?

Accepted Answer