Question 1

What is floating rate?

Accepted Answer

The answer of What is floating rate?...

Question 2

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

B) Present Value = (Cash Flows × Forward Rate) / (1 + cost of capital)
Present Value = (100,000 euros × $1.35/euros) / (1 + 0.10) = $122,727

Question 3

What is covered interest parity?

Accepted Answer

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

Question 4

What are internationally integrated capital markets?

Accepted Answer

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

Question 5

Consider the following equation:
S × 
= 
The term 
In this equation is

Accepted Answer

The answer of Consider the following equation:
S × 
= 
The...

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%.
-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

To calculate the present value in dollars, we need to first calculate the present value in pounds and then convert it to dollars using the spot exchange rate.

PV in pounds = £5 million / (1 + 5.24%) = £4,760,649.72

PV in dollars = PV in pounds x spot exchange rate 
= £4,760,649.72 x $1.8839/£ = $8,950,494.66

The closest answer choice is B.

Question 7

Consider the following equation:
S × 
= 
The term 
In this equation is

Accepted Answer

The answer of Consider the following equation:
S × 
= 
The...

Question 8

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 9

What is cash-and-carry?

Accepted Answer

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

Question 10

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

The description matches an internationally integrated capital market. In such a market, investors can exchange any currency at the spot or forward rate and can freely purchase or sell any security in any amount in any country at the current market prices. This type of market allows for greater capital flow and investment opportunities on a global scale. The other options, financial, limit order, and over-the-counter, do not fully match the description given.

Question 11

What is a currency timeline?

Accepted Answer

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

Question 12

Consider the following equation:
S × 
= 
The term F in this equation is

Accepted Answer

The answer of Consider the following equation:
S × 
= 
The...

Question 13

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

The answer of Use the information for the question(s)below.
You are...

Question 14

Consider the following equation:
S × 
= 
The term S in this equation is

Accepted Answer

In this equation, S is the unknown value representing the current spot exchange rate. This can be solved for by dividing both sides of the equation by 11ea7fd1_1fd4_bf1a_99dd_5bf631ffb606_TB1622_11.

Question 15

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 firm cares about the home currency value of the project.

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%. -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

To calculate the present value of the £ cash inflow, we need to first discount the future £ cash inflow using the appropriate £ discount rate and then convert the present value into dollars using the spot exchange rate. 
PV in £ = £15 million / (1 + 0.0145) = £14,778,325.12
PV in $ = £14,778,325.12 x 1.5742/$1 = $23,275,505.20, which rounds to $23,275,505. Therefore, the best choice is A.

Question 17

What is a currency forward contract?

Accepted Answer

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

Question 18

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

To calculate the present value (PV) of the project cash flows, we need to convert the cash flows from euros to dollars using the one-year forward exchange rate.

PV = CF / (1 + r)^t

where PV is the present value, CF is the cash flow, r is the dollar cost of capital, and t is the time period.

PV = 200,000 euros / (1 + 0.09)^1 * $1.40/euro 
PV = $256,880.70

Therefore, the PV of the project cash flows is $256,881, which is closest to option C.

Question 19

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 20

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 to dollars at the spot exchange rate: 
PV = £5 million x $1.8839/£ = $9,419,500

Next, we need to discount the future cash flow at the appropriate dollar discount rate: 
PV = $9,419,500 / (1 + 5.32%) = $8,954,615

Therefore, the present value (PV) of the £5 million cash inflow computed by first converting into dollars and then discounting is $8,954,615, which is closest to answer choice B.

Quiz 23: International Corporate Finance

What is floating rate?

What is covered interest parity?

What are internationally integrated capital markets?

Consider the following equation: S × = The term In this equation is

Consider the following equation: S × = The term In this equation is

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

What is cash-and-carry?

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.

What is a currency timeline?

Consider the following equation: S × = The term F in this equation is

Consider the following equation: S × = The term S in this equation is

Which of the following statements regarding international projects is FALSE?

What is a currency forward contract?