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Exam 19: International Corporate Finance

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Question 51

Multiple Choice

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If the law of one price does not hold, then:

A) investors will not be compensated for their risk.
B) inflation rates will be very volatile.
C) arbitrageurs can make large profits.
D) None of the options will occur.

E) A) and B)
F) B) and D)

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Question 52

Multiple Choice

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Tools that multinationals can use to help them reduce the risks inherent in making investments in foreign countries include:

A) options.
B) hedges.
C) swaps.
D) All of the options are tools that multinationals can use to help them reduce the risks inherent in making investments in foreign countries.

E) A) and D)
F) All of the above

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Question 53

Multiple Choice

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If fewer dollars will buy a unit of foreign currency, then the foreign currency is:

If the current spot rate between the U.S. dollar and the Netherland Antilles guilder was $1 = 1.68 guilder, and if the inflation rate in the United States was 1 percent and in the Netherland Antilles it was 6 percent, then what would be the expected spot rate in one year?

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?

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

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

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

Which of these is an organization of 185 countries that monitors currency exchange, examines financial stability, and watches the global financial system?

A financial manager has determined that the appropriate discount rate for a foreign project is 17 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rates in the United States and in the foreign country are expected to be 3 percent and 8 percent, respectively.

A U.S. firm is expecting cash flows of 5 million Mexican pesos and 10 million Indian rupees. The current spot exchange rates are: $1 =11.255 pesos and $1 = 44.864 rupees. If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 10.080 pesos and $1 = 44.125 rupees, then what is the difference in dollars received that was caused by the delay?

If the spot rate between the U.S. dollar and the Brazilian real is $1 = 2.0895 real and the 3-month forward rate is $1 = 2.1725 real, is the forward real selling at a discount or a premium?

A U.S. firm is expecting to pay cash flows of 20 million Egyptian pounds and 25 million Qatar rials. The current spot exchange rates are: $1 = 5.829 pounds and $1 = 3.645 rials. If these cash flows are delayed one year and the expected spot rates at that time will be $1 = 5.895 pounds and $1 = 3.899 rials, then what is the difference in dollars paid that was caused by the delay?

Which of these is a company that operates production and/or sales facilities in multiple countries?

If the spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.5215, and if the interest rate in the United States is 8 percent and in New Zealand is 4 percent, then what should be the three-month forward exchange rate?

An exchange rate regime where the country's central bank allows its currency price to float freely between an upper and lower bound and may buy or sell large amounts of it in order to provide price support or resistance is referred to as:

If the spot rate between the U.S. dollar and the Mexican peso is $1 = 12.9841 peso and the 3-month forward rate is $1 = 12.5698 pesos, is the forward peso selling at a discount or a premium?

Risks inherent in making investments in foreign countries include:

Compute the amount of foreign currency that can be purchased for $200,000: 1 Danish krone = $0.1755

Convert the following direct quote to dollar indirect quote: 1 Indian rupee = $0.2110.