Question 1

Suppose it takes 1.82 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?
A) 1.12
B) 1.63
C) 1.82
D) 2.04
E) 3.64

Accepted Answer

To find out how many dollars will a pound buy in 30 days, we need to calculate the exchange rate after the anticipated depreciation of the U.S dollar.

12.0% depreciation of the U.S. dollar against the pound means that the new exchange rate should be:

1.82 * 1.12 = 2.0384

So, in 30 days, one British pound will be able to buy 2.0384 U.S dollars. Rounded to two decimal places, the answer is 2.04.

Therefore, the correct answer is D) 2.04.

Question 2

In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars?
A) $5.964
B) $8,200
C) $10,250
D) $12,628
E) $13,525

Accepted Answer

To find the current price in dollars, we need to convert the yen price to dollars using the current exchange rate:
1,476,000 yen ÷ 144 yen/dollar = $10,250
Therefore, the car would be selling for $10,250 today.

Question 3

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Accepted Answer

The majority of major industrialized nations do indeed operate under a system of floating exchange rates, where the value of a currency is determined by supply and demand in the foreign exchange market. However, there are a few countries that still use fixed exchange rates or peg their currency to another currency or currency basket.

Question 4

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will
A) Depreciate against the U.S. dollar.
B) Remain unchanged against the U.S. dollar.
C) Appreciate against other major currencies.
D) Appreciate against the dollar and other major currencies.
E) Appreciate against the U.S. dollar.

Accepted Answer

If the inflation rate in the United States is greater than the inflation rate in Britain, this means that the purchasing power of the U.S. dollar is decreasing faster than the purchasing power of the British pound. As a result, the exchange rate between the two currencies is expected to adjust in favor of the British pound, causing it to appreciate against the U.S. dollar.

Question 5

If 1.64 Canadian dollars can purchase one U.S. dollar, how many U.S. dollars can you purchase for one Canadian dollar?
A) 0.37
B) 0.61
C) 1.00
D) 1.64
E) 3.28

Accepted Answer

If 1.64 CAD can purchase 1 USD, then 1 CAD can purchase 1/1.64 = 0.609756 USD. Rounded to two decimal places, this is approximately 0.61 USD. Therefore, the best choice is B.

Question 6

Suppose one U.S. dollar can purchase 144 yen today in the foreign exchange market. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?
A) 155.5 yen
B) 144.0 yen
C) 133.5 yen
D) 78.0 yen
E) 72.0 yen

Accepted Answer

If the yen depreciates by 8.0%, it means the value of yen decreases, making the dollar stronger in comparison. Therefore, 1 U.S. dollar could buy more yen. The calculation is 144 yen * 1.08 = 155.52 yen, which rounds to 155.5 yen, indicating the dollar can buy more yen after the depreciation.

Question 7

A Eurodollar is a U.S. dollar deposited in a bank outside the United States.

Accepted Answer

Eurodollars are U.S. dollars held in banks outside the United States, often in Europe or Asia.

Question 8

If it takes $0.71 U.S. dollars to purchase one Swiss franc, how many Swiss francs can one U.S. dollar buy?
A) 0.50
B) 0.71
C) 1.00
D) 1.41
E) 2.81

Accepted Answer

If it takes $0.71 to buy one Swiss franc, then one U.S. dollar can buy:

$1.00 ÷ $0.71/1 Swiss franc = 1.41 Swiss francs

Therefore, the answer is D) 1.41.

Question 9

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ____ to the spot rate.
A) premium of 8%
B) premium of 18%
C) discount of 18%
D) discount of 8%
E) premium of 16%

Accepted Answer

The answer of If the spot rate of the Israeli...

Question 10

Exchange rate quotations consist solely of direct quotations.

Accepted Answer

Exchange rate quotations can be either direct or indirect. Direct quotations show the domestic currency as the base currency and the foreign currency as the quote currency, while indirect quotations show the foreign currency as the base currency and the domestic currency as the quote currency.

Question 11

If the United States is running a deficit trade balance with China, then in a free market we would expect the value of the Chinese yuan to depreciate against the U.S. dollar.

Accepted Answer

In a situation where the United States is running a trade deficit with China, it means the US is importing more from China than it is exporting to China. This would typically lead to a higher demand for Chinese yuan (to pay for the imports) and a lower demand for the US dollar (since China needs fewer dollars to buy US goods). As a result, we would expect the value of the Chinese yuan to appreciate, not depreciate, against the US dollar in a free market scenario.

Question 12

Suppose that 1 British pound currently equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?
A) 1 British pound equals 3.2400 Swiss francs
B) 1 British pound equals 2.6244 Swiss francs
C) 1 British pound equals 1.8588 Swiss francs
D) 1 British pound equals 1.0000 Swiss francs
E) 1 British pound equals 0.3810 Swiss francs

Accepted Answer

To find the cross exchange rate between the pound and the franc, we need to use the fact that 1 pound equals 1.62 dollars and 1 dollar equals 1.62 francs.

First, we can convert pounds to dollars:

1 pound = 1.62 dollars

Next, we can use the fact that 1 dollar equals 1.62 francs to convert from dollars to francs:

1 dollar = 1.62 francs

Putting these two conversions together, we get:

1 pound = 1.62 dollars = 1.62 x 1.62 francs = 2.6244 francs

Therefore, the cross exchange rate between the pound and the franc is:

1 British pound equals 2.6244 Swiss francs (option B)

Question 13

Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company's currency, will be worth less than was originally projected because of exchange rate changes.

Accepted Answer

This statement accurately describes exchange rate risk.

Question 14

Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What is the cross-rate of Swiss francs to euros?
A) 0.43
B) 0.86
C) 1.41
D) 1.64
E) 2.27

Accepted Answer

We can find the cross-rate by multiplying the exchange rate between Swiss francs and U.S. dollars by the exchange rate between U.S. dollars and euros:

SF 1.41/$1.00 × $1.00/1.64 euros = SF 0.859/euro

Therefore, the cross-rate of Swiss francs to euros is 0.859. The closest answer choice is B (0.86).

Question 15

When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with a dollar.

Accepted Answer

When the value of the U.S. dollar appreciates against another country's currency, it means that one dollar can buy more units of the foreign currency than before, allowing for the purchase of more foreign currency with the same amount of dollars.

Question 16

Multinational financial management requires that financial analysts consider the effects of changing currency values.

Accepted Answer

Multinational financial management involves dealing with multiple currencies and their fluctuations, which can have significant impacts on financial decisions and outcomes. Therefore, financial analysts must consider changing currency values when making financial decisions.

Question 17

Legal and economic differences among countries, although important, do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries.

Accepted Answer

Legal and economic differences among countries can pose significant problems for multinational corporations in coordinating and controlling worldwide operations of subsidiaries. These differences may include variations in tax laws, regulations, cultural norms, and business practices that impact the operations and profitability of subsidiaries. It requires careful strategic planning and management to navigate these differences and achieve optimal performance across all subsidiaries.

Question 18

Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure. Essentially, the process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to depreciate.

Accepted Answer

Forward currency transactions involve locking in an exchange rate for the purchase or sale of a currency on a future date, typically to hedge against exchange rate fluctuations. However, the strategy does not necessarily involve simultaneously selling the currency expected to appreciate and buying the currency expected to depreciate. Instead, it involves agreeing to exchange currencies at a future date at a rate decided now, based on the hedging needs related to anticipated currency exposures.

Question 19

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

Accepted Answer

This statement is true. A currency cross rate involves using a third currency as a base to determine the exchange rate between two currencies that may not be directly traded with each other.

Question 20

The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year.

Accepted Answer

The Eurodollar market is actually a short-term market, with most loans and deposits having maturities of less than one year.

Quiz 17: Multinational Financial Management

Suppose it takes 1.82 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars?

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will

If 1.64 Canadian dollars can purchase one U.S. dollar, how many U.S. dollars can you purchase for one Canadian dollar?

Suppose one U.S. dollar can purchase 144 yen today in the foreign exchange market. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?