Question 1

Consider the following equation: Spot Rate × [(Foreign Cash Flow)/ (1 + r_FC] = (F × Foreign Cash Flow)/ (1 + r_$) The term F in this equation is ________.

Accepted Answer

The term F represents the forward exchange rate, which is the exchange rate that is agreed upon today for a future transaction. It is the rate at which one currency can be exchanged for another currency at a future date, typically within 30, 60, 90, or 180 days.

Question 2

What is cash-and-carry strategy?

Accepted Answer

The answer of What is cash-and-carry strategy?...

Question 3

A(n)________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

Accepted Answer

An internationally integrated capital market is a market where investors can easily exchange currency and purchase or sell securities in any country at market prices. This is often referred to as a global or integrated market.

Question 4

With internationally integrated capital markets the value of an investment depends on the currency used in the analysis.

Accepted Answer

The value of an investment in internationally integrated capital markets should be independent of the currency used in the analysis because the underlying economic value of the investment does not change with the currency of measurement. Exchange rates adjust to reflect differences in inflation and interest rates between countries, ensuring that the value of an investment is consistent across currencies when markets are efficient.

Question 5

A U.S.-based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 100,000 euros after one year. If the one-year forward exchange rate is $1.35/euro and the dollar cost of capital is 10%, what is the present value (PV)of the project cash flows?

Accepted Answer

First, we need to convert euros to dollars using the forward exchange rate:
100,000 euros x $1.35/euro = $135,000
Next, we need to calculate the present value of the cash flows using the dollar cost of capital of 10%:
PV = $135,000 / (1 + 0.10) = $122,727
Therefore, the answer is choice B.

Question 6

Use the information for the question(s)below. You are a U.S. investor who is trying to calculate the present value (PV)of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.8839/£ and the forward rate is FS1U1B11S1U1B0 = $1.8862/£. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%. -You are a U.S. investor who is trying to calculate the present value (PV)of £15 million cash inflow that will occur one year from now. The spot exchange rate is $1.5742/£ and the forward rate is F₁ = $1.5682/£. The appropriate dollar discount rate for this cash flow is 1.05% and the appropriate £ discount rate is 1.45%. What is the present value of the dollar cash inflow computed by first converting the £ into dollars and then discounting the dollars?

Accepted Answer

Step 1: Convert the cash inflow amount from £ to $ using the forward exchange rate:
£15,000,000 × $1.5682/£ = $23,277,300

Step 2: Discount the dollar cash inflow using the appropriate dollar discount rate:
PV = $23,277,300 / (1 + 1.05%) = $23,030,660.09

Step 3: Round the PV to the nearest cent:
PV = $23,278,575

Therefore, the best choice is C, with a present value of $23,278,575.

Question 7

Consider the following equation: S × [(Foreign Cash Flow)/ (1 + r_FC] = (Forward Rate × Foreign Cash Flow)/ (1 + r_$) The term S in this equation is ________.

Accepted Answer

S in this equation represents the current spot exchange rate between the domestic currency and the foreign currency.

Question 8

Use the information for the question(s)below. You are a U.S. investor who is trying to calculate the present value (PV)of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.8839/£ and the forward rate is FS1U1B11S1U1B0 = $1.8862/£. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%. -You are a U.S. investor who is trying to calculate the present value (PV)of £15 million cash inflow that will occur one year from now. The spot exchange rate is $1.5742/£ and the forward rate is F₁ = $1.5682/£. The appropriate dollar discount rate for this cash flow is 1.05% and the appropriate £ discount rate is 1.45%. What is the present value of the £ cash inflow computed by first discounting the £ and converting them into dollars?

Accepted Answer

First, we need to calculate the present value of the cash inflow in pounds using the pound discount rate:
PV (in £) = £15,000,000 / (1+0.0145) = £14,781,201
Next, we need to convert this into dollars using the forward rate:
PV (in $) = £14,781,201 × $1.5682/£ = $23,181,765
Finally, we need to discount this amount using the dollar discount rate:
PV (in $) = $23,181,765 / (1+0.0105) = $23,275,505
Therefore, the best choice is A.

Question 9

What is floating rate?

Accepted Answer

The answer of What is floating rate?...

Question 10

A U.S.-based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 100,000 euros after one year. If the one-year forward exchange rate is $1.50/euro and the dollar cost of capital is 8%, what is the present value (PV)of the project cash flows?

Accepted Answer

D) Present Value = (Cash Flows × Forward Rate) / (1 + cost of capital)
Present Value = (100,000 euros × $1.5/euro) / (1 + 0.08) = $138,889

Question 11

What is a currency timeline?

Accepted Answer

The answer of What is a currency timeline?...

Question 12

A U.S.-based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 200,000 euros after one year. If the one-year forward exchange rate is $1.40/euro and the dollar cost of capital is 9%, what is the present value (PV)of the project cash flows?

Accepted Answer

C) Present Value = (Cash Flows × Forward Rate) / (1 + cost of capital)
Present Value = (200,000 euros × $1.4/euro) / (1 + 0.09) = $256,881

Question 13

What are internationally integrated capital markets?

Accepted Answer

The answer of What are internationally integrated capital markets?...

Question 14

What is covered interest parity?

Accepted Answer

The answer of What is covered interest parity?...

Question 15

Use the information for the question(s)below.
You are a U.S. investor who is trying to calculate the present value (PV)of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.8839/£ and the forward rate is FS1U1B11S1U1B0 = $1.8862/£. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%.
-The present value (PV)of the £5 million cash inflow computed by first discounting the £s and then converting into dollars is closest to ________.

Accepted Answer

B) PV£ = 11ea84dc_f4b1_4119_9a63_8d631d43a936_TB1316_11_TB1316_11 = £4,751,045.23
PV$ = PV£ × S = £4,751,045.23 × $1.8839/£ = $8,950,494.10

Question 16

Use the information for the question(s)below.
You are a U.S. investor who is trying to calculate the present value (PV)of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.8839/£ and the forward rate is FS1U1B11S1U1B0 = $1.8862/£. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%.
-The present value (PV)of the £5 million cash inflow computed by first converting into dollars and then discounting is closest to ________.

Accepted Answer

First, we need to convert £5 million into dollars using the spot exchange rate: 
PV = £5,000,000 x $1.8839/£ = $9,419,500

Then, we need to discount this amount using the appropriate dollar discount rate of 5.32%. Using the formula: 
PV = FV / (1 + r)^n 
where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods, we have: 
PV = $9,419,500 / (1 + 0.0532)^1 = $8,954,615

Therefore, the closest answer is B) $8,954,615.

Question 17

Consider the following equation: S × [(Foreign Cash Flow)/ (1 + r_FC] = (Forward Rate × Foreign Cash Flow)/ (1 + r_$) The term r_$ in this equation is ________.

Accepted Answer

The answer of Consider the following equation: S × [(Foreign...

Question 18

Consider the following equation: S × [(Foreign Cash Flow)/ (1 + r_FC] = (Forward Rate × Foreign Cash Flow)/ (1 + r_$) The term r_FC in this equation is ________.

Accepted Answer

The term r_FC represents the foreign currency discount rate, which is used to discount the foreign cash flow back to its present value in the foreign currency.

Question 19

Which of the following statements regarding international projects is FALSE?

Accepted Answer

B) The project will most likely generate foreign currency cash flows, although the managers and shareholders care about the home currency value of the project.

Question 20

What is a currency forward contract?

Accepted Answer

The answer of What is a currency forward contract?...

Quiz 23: International Corporate Finance

Consider the following equation: Spot Rate × [(Foreign Cash Flow) / (1 + r_FC] = (F × Foreign Cash Flow) / (1 + r_$) The term F in this equation is ________.

What is cash-and-carry strategy?

A(n) ________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

With internationally integrated capital markets the value of an investment depends on the currency used in the analysis.

Consider the following equation: S × [(Foreign Cash Flow) / (1 + r_FC] = (Forward Rate × Foreign Cash Flow) / (1 + r_$) The term S in this equation is ________.

What is floating rate?

What is a currency timeline?

What are internationally integrated capital markets?

What is covered interest parity?

Consider the following equation: S × [(Foreign Cash Flow) / (1 + r_FC] = (Forward Rate × Foreign Cash Flow) / (1 + r_$) The term r_$ in this equation is ________.

Consider the following equation: S × [(Foreign Cash Flow) / (1 + r_FC] = (Forward Rate × Foreign Cash Flow) / (1 + r_$) The term r_FC in this equation is ________.

Which of the following statements regarding international projects is FALSE?

What is a currency forward contract?

Quiz 23: International Corporate Finance

Consider the following equation: Spot Rate × [(Foreign Cash Flow) / (1 + rFC] = (F × Foreign Cash Flow) / (1 + r$) The term F in this equation is ________.

What is cash-and-carry strategy?

A(n) ________ market is one where an investor can exchange any currency in any amount at the spot rate or forward rate and is free to purchase or sell any security in any amount in any country at their current market prices.

With internationally integrated capital markets the value of an investment depends on the currency used in the analysis.

Consider the following equation: S × [(Foreign Cash Flow) / (1 + rFC] = (Forward Rate × Foreign Cash Flow) / (1 + r$) The term S in this equation is ________.

What is floating rate?

What is a currency timeline?

What are internationally integrated capital markets?

What is covered interest parity?

Consider the following equation: S × [(Foreign Cash Flow) / (1 + rFC] = (Forward Rate × Foreign Cash Flow) / (1 + r$) The term r$ in this equation is ________.

Consider the following equation: S × [(Foreign Cash Flow) / (1 + rFC] = (Forward Rate × Foreign Cash Flow) / (1 + r$) The term rFC in this equation is ________.

Which of the following statements regarding international projects is FALSE?

What is a currency forward contract?

Consider the following equation: Spot Rate × [(Foreign Cash Flow) / (1 + r_FC] = (F × Foreign Cash Flow) / (1 + r_$) The term F in this equation is ________.

Consider the following equation: S × [(Foreign Cash Flow) / (1 + r_FC] = (Forward Rate × Foreign Cash Flow) / (1 + r_$) The term S in this equation is ________.

Consider the following equation: S × [(Foreign Cash Flow) / (1 + r_FC] = (Forward Rate × Foreign Cash Flow) / (1 + r_$) The term r_$ in this equation is ________.

Consider the following equation: S × [(Foreign Cash Flow) / (1 + r_FC] = (Forward Rate × Foreign Cash Flow) / (1 + r_$) The term r_FC in this equation is ________.