Question 1

Given these two exchange rates, $1 = 1.32 Australian dollars and $1 = £0.56, compute the cross-rate between the Australian dollar and the pound. State this exchange rate in Australian dollars.

Accepted Answer

A)   A$2.49
B)   A$2.36
C)   A$2.91
D)   A$2.17E) C) and D)
F) A) and B)

Question 2

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

Accepted Answer

A)   $108.24; $678.06; $251,489.57
B)   $105.24; $678.06; $251,499.57
C)   $108.24; $675.06; $251,499.57
D)   $105.24; $675.06; $251,489.57E) A) and B)
F) All of the above

Question 3

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

Accepted Answer

A)   Exchange rate
B)   Spot transaction
C)   Indirect quote
D)   Direct quoteE) All of the above
F) A) and B)

Question 4

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

Accepted Answer

A)   European Union
B)   European Free Trade Agreement (EFT
A)  
C)   European Monetary Fund (EMF) 
D)   MercosurE) A) and B)
F) A) and C)

Question 5

A golf club costs $100 in the United States. The same club costs AU$143 in Australia. Assume that purchasing power parity holds. What is the exchange rate between the U.S. and Australian dollars?

Accepted Answer

A)   AU$1 = $1.43 U.S.
B)   AU$1 = $1.25 U.S.
C)   AU$1 = $0.6993 U.S.
D)   AU$1 = $0.7752U.S.E) B) and D)
F) A) and B)

Question 6

A golf club costs $112 in the United States. The same club costs AU$78 in Australia. Assume that purchasing power parity holds. What is the exchange rate between the U.S. and Australian dollars?

Accepted Answer

A)   $1 U.S. = AU$1.37
B)   $1 U.S. = AU$1.44
C)   AU$1 = $1.37 U.S.
D)   AU$1 = $1.44 U.S.E) B) and D)
F) C) and D)

Question 7

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

Accepted Answer

A)   Buying futures contracts
B)   Buying options
C)   Currency swaps
D)   Fixed peg arrangementsE) B) and C)
F) C) and D)

Question 8

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

Accepted Answer

A)   0.02250 rupee
B)   0.9775 rupee
C)   1.0225 rupee
D)   44.44 rupeeE) A) and B)
F) All of the above

Question 9

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?

Accepted Answer

A)   Exchange rates
B)   Spot rates
C)   Indirect rates
D)   Cross ratesE) C) and D)
F) None of the above

Question 10

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?

Accepted Answer

A)   Arbitrage
B)   Spot transaction
C)   Indirect quote
D)   Cross quoteE) A) and B)
F) A) and D)

Question 11

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

Accepted Answer

A)   5.0226 krone
B)   5.1137 krone
C)   5.2814 krone
D)   5.3097 kroneE) A) and B)
F) All of the above

Question 12

International capital budgeting will require that managers:

Accepted Answer

A)   recognize all of the risks as well as the rewards.
B)   increase the discount rate to account for any added risks associated with that country.
C)   convert all incremental cash flows to the domestic currency or convert the domestic discount rate to an equivalent rate in the foreign country.
D)   All of the options are required.E) All of the above
F) A) and B)

Question 13

Compute the amount of each foreign currency that can be purchased for $5,000:
1)  1 Danish krone = $0.18
2)  1 Indian rupee = $0.15
3)  1 Israeli shekel = $0.37
$5,000 equals:

Accepted Answer

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 shekelE) A) and C)
F) B) and D)

Question 14

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

Accepted Answer

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

Question 15

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?

Accepted Answer

A)   Foreign rate risk
B)   Exchange rate risk
C)   Spot rate risk
D)   Value rate riskE) None of the above
F) All of the above

Question 16

Suppose exchange rates between the U.S. dollar and the Mexican peso is 11.45 peso = $1 and the exchange rate between the U.S. dollar and the euro is $1 = 1.0866 euros. What is the cross-rate of the Mexican peso to the euro?

Accepted Answer

A)   9.49
B)   10.54
C)   12.44
D)   12.54E) None of the above
F) C) and D)

Question 17

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

Accepted Answer

A)   Purchasing power parity
B)   Interest rate parity
C)   Law of one price
D)   Price swap parityE) All of the above
F) C) and D)

Question 18

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

Accepted Answer

A)   South American Union
B)   South American Free Trade Agreement (SAFT
A)  
C)   South American Monetary Fund (SAMF) 
D)   MercosurE) A) and B)
F) A) and C)

Question 19

The concept of interest parity describes:

Accepted Answer

A)   why spot and forward rates differ.
B)   how inflation causes exchange rates to change.
C)   why identical products should have the same price.
D)   none of the options.E) B) and D)
F) A) and D)

Question 20

Firms can expand internationally through several methods that require increasingly higher participation in capital at risk and potential for profits and include which of the following?

Accepted Answer

A)   import/export
B)   partnering through sales subsidiary, licensing or franchising, or joint venture
C)   direct ownership
D)   all of the aboveE) All of the above
F) C) and D)

Exam 19: International Corporate Finance

The concept of interest parity describes:

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A golf club costs $100 in the United States. The same club costs AU$143 in Australia. Assume that purchasing power parity holds. What is the exchange rate between the U.S. and Australian dollars?

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

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

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Suppose exchange rates between the U.S. dollar and the Mexican peso is 11.45 peso = $1 and the exchange rate between the U.S. dollar and the euro is $1 = 1.0866 euros. What is the cross-rate of the Mexican peso to the euro?

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

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Firms can expand internationally through several methods that require increasingly higher participation in capital at risk and potential for profits and include which of the following?

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

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

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

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

Correct AnswerverifiedShow Answer

A golf club costs $112 in the United States. The same club costs AU$78 in Australia. Assume that purchasing power parity holds. What is the exchange rate between the U.S. and Australian dollars?

Correct AnswerverifiedShow Answer

International capital budgeting will require that managers:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

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Compute the amount of each foreign currency that can be purchased for $5,000: 1) 1 Danish krone = $0.18 2) 1 Indian rupee = $0.15 3) 1 Israeli shekel = $0.37 $5,000 equals:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Given these two exchange rates, $1 = 1.32 Australian dollars and $1 = £0.56, compute the cross-rate between the Australian dollar and the pound. State this exchange rate in Australian dollars.

Correct AnswerverifiedShow Answer

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