Question 1

In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT?

Accepted Answer

A)   The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.
B)   The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market.
C)   The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.
D)   The yen-dollar exchange rate in the 180-day forward market equals the yen-dollar exchange rate in the 90-day spot market.
E)   The relationship between spot and forward interest rates cannot be inferred.F) A) and B)
G) A) and C)

Question 2

If one Swiss franc can purchase $0.76 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Accepted Answer

A)   0.9592
B)   1.0658
C)   1.1842
D)   1.3158
E)   1.4474F) None of the above
G) A) and B)

Question 3

When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

Accepted Answer

A) True 
 B)False

Question 4

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Accepted Answer

A) True 
 B)False

Question 5

Suppose one British pound can purchase 1.82 U.S. dollars today 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?

Accepted Answer

A)   $1.4860
B)   $1.6511
C)   $1.8346
D)   $2.0384
E)   $2.2422F) B) and E)
G) B) and D)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 = 0.64 euro. What is the cross rate of Swiss francs to euros? (In other words, how many Swiss francs are needed to purchase one euro?)

Accepted Answer

A)   1.9828
B)   2.2031
C)   2.4234
D)   2.6658
E)   2.9324F) A) and B)
G) D) and E)

Question 8

If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate.

Accepted Answer

A) True 
 B)False

Question 9

A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)   appreciate against the U.S. dollar.
B)   depreciate against the U.S. dollar.
C)   remain unchanged against the U.S. dollar.
D)   appreciate against other major currencies.
E)   appreciate against the dollar and other major currencies.F) B) and E)
G) B) and D)

Exam 19: Multinational

When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

Correct Answer
verified

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Correct Answer
verified

If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate.

Correct Answer
verified

If one Swiss franc can purchase $0.76 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Correct Answer
verified

Correct Answer
verified

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 = 0.64 euro. What is the cross rate of Swiss francs to euros? (In other words, how many Swiss francs are needed to purchase one euro?)

Correct Answer
verified

Suppose one British pound can purchase 1.82 U.S. dollars today 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?

Correct Answer
verified

A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Exam 19: Multinational

When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

Correct AnswerverifiedShow Answer

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Correct AnswerverifiedShow Answer

If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate.

Correct AnswerverifiedShow Answer

If one Swiss franc can purchase $0.76 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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 = 0.64 euro. What is the cross rate of Swiss francs to euros? (In other words, how many Swiss francs are needed to purchase one euro?)

Correct AnswerverifiedShow Answer

Suppose one British pound can purchase 1.82 U.S. dollars today 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?

Correct AnswerverifiedShow Answer

A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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Correct Answer
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Correct Answer
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