Exam 22: International Corporate Finance

Suppose the WACC for a Canadian company is 7.6%,and the Canadian risk-free interest rate is 4%.If the European risk-free interest rate is 2.5%,what is the company's European WACC?

What is the best explanation for the existence of currency swaps,and how do they mitigate exchange rate risk?

Canadian tax policy requires Canadian corporations to pay taxes on their foreign income at the same rate as profits earned in Canada.

Suppose the WACC for a Canadian company is 6.1%,and the Canadian risk-free interest rate is 3%.If the U.S.risk-free interest rate is 1.4%,what is the company's U.S.WACC?

With internationally integrated capital markets,the value of an investment depends on the currency used in the analysis.

The spot exchange rate for the Mexican peso is 0.114 CAD/MXN,and the one-year forward rate is 0.104 CAD/MXN.If the one-year Canadian interest rate is 3.5% and the one-year Mexican interest rate is 9.0%,what is the credit spread on Mexican one-year bonds?

The ________ rate is a price for a currency denominated in another currency.

Consider the following equation: S × = The term F in this equation is

Consider the following equation: S × = The term in this equation is

Use the information for the question(s) below. You are a Canadian investor who is trying to calculate the present value (PV) of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = 1.8839 CAD/GBP and the forward rate is F₁ = 1.8862 CAD/GBP. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate GBP discount rate is 5.24%. -The present value (PV)of the £5 million cash inflow computed by first converting into dollars and then discounting is closest to:

What are internationally integrated capital markets?

Use the table for the question(s) below. -You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 40% and a WACC of 8.9%,what is the NPV of the investment.?

Use the information for the question(s) below. KT Enterprises, a Canadian import-export trading company, is considering its international tax situation. Currently KT's Canadian tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -The amount of the taxes paid in dollars for the Japanese operations is closest to:

The Law of One Price asserts that we will obtain the same valuation of a project whether (a)we use the domestic cost of capital of the domestic currency equivalent cash flows at the forward exchange rates or (b)we use the corresponding foreign cost of capital and then convert the present value (PV)of the foreign currency value of the cash flows at the spot rate.

Pooling of all foreign tax liabilities on earnings allows corporations to

The one-year forward exchange rate for the British pound is 1.90 CAD/GBP.If the one-year Canadian interest rate is 4% and the one-year British interest rate is 6%,compute the implied spot exchange rate in CAD/GBP.

Why might firms prefer hedging with options rather than forward contracts?

A Canadian importer needs $500,000 U.S.dollars in September,and decides to buy a call option on the USD for September delivery.Suppose a call option on the USD with a September expiration and a strike price of 1.20 USD/CADtrades for 0.0325 CAD per call on 1 USD.If,by the September expiration date,the USD depreciates to 1.23 USD/CAD,how much did the firm lose (in CAD)from hedging with the option,compared to remaining unhedged?

At current exchange rates it takes 0.1475 Canadian dollars to buy Chinese yuan (CNY),and 0.6052 Canadian dollars to buy one Brazilian real (BRL).What must the yuan/real exchange rate be in order to eliminate arbitrage opportunities?

The spot exchange rate is the rate at which one currency can be converted into another today.