Exam 3: Exchange Rate Analysis

Bristow Home Improvement imports lumber from Canada. Each unit of lumber costs 8 Canadian dollars. The company sells the lumber in its European stores for 8 euros. Currently, exchange rates are: $1 Canadian = $0.6784 U.S. 1 euro = $0.7900 U.S. How much profit measured in U.S. dollars does Bristow make on each unit of lumber sold?

Last year, the exchange rate between the U.S. dollar and Australian dollar was $0.7678/A$. Today, the exchange rate is $0.7801/A$. If a U.S. investor had invested $100 last year in a one-year Australian security that yielded 9 percent, what is the U.S. dollar rate of return on this investment?

Which of the following statements is most correct?

Which of the following balance of payment report groups would include purchases and sales of fixed assets?

Tahia Meyers, the chief accountant of the Black Pearl Jewelry Company in Moorea, French Polynesia, is planning for the tourist high season that will start at the conclusion of the rainy season. She heard a statement by the local Minister of Economic Affairs in which he suggested that the French Polynesian franc could lose up to ten percent of its value in the upcoming six months. Tahia thinks that this might be just rhetoric directed at the French government, but she would like to look more closely at the issue. She knows that the current spot rate is XPF92.15/$ and has calculated the expected spot rate in six months as XPF95.00/$. What is the percent per annum discount or premium on the franc?

If a country uses a fixed exchange rate system, what actions can it take in response to the balance of payments?

What is covered interest arbitrage and what conditions must exist for it to occur?

The need to use numerous national currencies in the conduct of global business operations is a fact of life for MNEs. For what purpose(s) do they use the foreign exchange markets?

Owens Technology has a product that requires raw materials purchased and produced at a Mexican subsidiary at a cost of 56 pesos, and is then sold to a European customer at a price of 6 euros. Last year, exchange rates stood at $0.092/peso and $1.26/euro and Owens' CEO commented that she was unhappy with the current dollar profit on this product. However, she knew that raising prices could be catastrophic to sales, so Owens embarked on an ambitious cost-cutting plan that dropped the cost of the materials and production to 48 pesos. Currently, exchange rates are $0.102/peso and $1.16/euro. What is the U.S. dollar profit on the product now?

Which of the following statements is most correct?

Assume that a country is running a net credit balance on the balance of payments (BOP) and that the country is trying to maintain a fixed exchange rate against the currencies of its major trading partner. Under these conditions, which of the following statements is incorrect?

Jenna just got back from a two week vacation to England. She started her vacation on March 1 and had $2,000 in spending money. While in England, she spent 80 percent of her money. On March 15, she returned from England and exchanged her remaining British pounds for U.S. dollars. Below are the currency exchange rates offered by her bank on the dates in question. ‪ How many U.S. dollars did she have after her vacation?

Which of the following statement is not correct?

Covered interest arbitrage

Looking at patterns in price and volume data to predict exchange rate fluctuations is called a(n) ___________.

If the inflation rate in the United States is greater than the inflation rate in Canada, other things held constant, the Canadian dollar will

Currently, in the spot market $1 = 116.55 Japanese yen, 1 Japanese yen = 0.00956 euro, and 1 euro = 9.3616 Mexican pesos. How many U.S. dollars will one peso buy?

Which of the following statements regarding foreign exchange markets is most correct?

Which of the following statements about the balance of payments report is most correct?