Question 1

The theory that real interest rates are equal across countries is called

Accepted Answer

A) purchasing power parity. 
B) the international Fisher effect. 
C) the unbiased forward rates condition. 
D) uncovered interest parity. 
E) interest rate parity. 
A) purchasing power parity. 
B) the international Fisher effect. 
C) the unbiased forward rates condition. 
D) uncovered interest parity. 
E) interest rate parity. B

Question 2

You want to import $327,000 of merchandise from New Zealand.How many New Zealand dollars will you need to pay for this purchase if the indirect quote is 1.1136?

Accepted Answer

A) NZ$364,147.20 
B) NZ$308,000.00 
C) NZ$330,018.02 
D) NZ$299,607.50 
E) NZ$293,642.24 
A) NZ$364,147.20 
B) NZ$308,000.00 
C) NZ$330,018.02 
D) NZ$299,607.50 
E) NZ$293,642.24 A

Question 3

Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed-rate payments.This exchange is referred to as a

Accepted Answer

A) gilt exchange. 
B) forward rate. 
C) cross-rate. 
D) spot exchange. 
E) swap. 
A) gilt exchange. 
B) forward rate. 
C) cross-rate. 
D) spot exchange. 
E) swap. E

Question 4

Assume the euro is selling in the spot market for $1.10.Simultaneously,in the 3-month forward market the euro is selling for $1.12.Which one of the following statements correctly describes this situation? I.The euro is selling at a premium relative to the dollar.
II)The dollar is selling at a premium relative to the euro.
III)The dollar is selling at a discount relative to the euro.
IV)The euro is selling at a discount relative to the dollar.

Accepted Answer

A) I and II only 
B) I and III only 
C) II and IV only 
D) III and IV only 
E) I and IV only 
A) I and II only 
B) I and III only 
C) II and IV only 
D) III and IV only 
E) I and IV only

Question 5

The home currency approach

Accepted Answer

A) requires an applicable exchange rate for every time period for which there is a cash flow. 
B) stresses the use of the real rate of return to compute the net present value (NPV)of a project. 
C) uses the current risk-free nominal rate to discount all of the cash flows related to a project. 
D) generally produces more reliable results than those found using the foreign currency approach. 
E) provides a net project value in both the home and the foreign currency. 
A) requires an applicable exchange rate for every time period for which there is a cash flow. 
B) stresses the use of the real rate of return to compute the net present value (NPV)of a project. 
C) uses the current risk-free nominal rate to discount all of the cash flows related to a project. 
D) generally produces more reliable results than those found using the foreign currency approach. 
E) provides a net project value in both the home and the foreign currency.

Question 6

Assume you have £100 and can exchange Can$180 for £100.Also assume you can exchange $1 for Can$1.1417 and £1 for $1.5649.How much arbitrage profit in pounds can you earn? Ignore transaction costs.

Accepted Answer

A) £)75 
B) £ 1.09 
C) £ 2.02 
D) £1.96 
E) £)83 
A) £)75 
B) £ 1.09 
C) £ 2.02 
D) £1.96 
E) £)83

Question 7

Suppose the spot exchange rate between U.S.dollars and the U.K.pound is $2/£ while the forward rate is $1.90/£.Which one of the following is true?

Accepted Answer

A) The value of the U.K.pound is expected to remain constant. 
B) The U.K.pound is selling at a premium. 
C) The U.K.pound is selling at a discount. 
D) The U.K.pound is expected to appreciate. 
E) The U.S.dollar is expected to depreciate. 
A) The value of the U.K.pound is expected to remain constant. 
B) The U.K.pound is selling at a premium. 
C) The U.K.pound is selling at a discount. 
D) The U.K.pound is expected to appreciate. 
E) The U.S.dollar is expected to depreciate.

Question 8

Assume the spot exchange rate is £.7024.The expected inflation rate in the United Kingdom is 1.8 percent and in the United States it is 2.4 percent.What is the expected exchange rate 3 years from now if relative purchasing power parity exists?

Accepted Answer

A) £)6871 
B) £)6898 
C) £)6962 
D) £)7066 
E) £)7151 
A) £)6871 
B) £)6898 
C) £)6962 
D) £)7066 
E) £)7151

Question 9

Assume the direct quote for the Australian dollar is 0.8643 while it is 0.7627 for New Zealand dollar.What is the cross-rate between the Australian dollar and the New Zealand dollar?

Accepted Answer

A) A$.8709 = NZ$1 
B) A$.8824 = NZ$1 
C) A$1.0362 = NZ$1 
D) A$1.1254 = NZ$1 
E) A$1.1332 = NZ$1 
A) A$.8709 = NZ$1 
B) A$.8824 = NZ$1 
C) A$1.0362 = NZ$1 
D) A$1.1254 = NZ$1 
E) A$1.1332 = NZ$1

Question 10

Assume the spot exchange rate is A$.8629.The expected inflation rate is 2.8 percent in Australia and 3.4 percent in the United States.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

A) A$.8681 
B) A$.8618 
C) A$.8523 
D) A$.8577 
E) A$.8669 
A) A$.8681 
B) A$.8618 
C) A$.8523 
D) A$.8577 
E) A$.8669

Question 11

Interest rate parity

Accepted Answer

A) eliminates exchange rate fluctuations. 
B) exists when spot rates are equal for multiple countries. 
C) exists when the spot rate is equal to the forward rate. 
D) means that the nominal risk-free rate of return must be the same across countries. 
E) eliminates covered interest arbitrage opportunities. 
A) eliminates exchange rate fluctuations. 
B) exists when spot rates are equal for multiple countries. 
C) exists when the spot rate is equal to the forward rate. 
D) means that the nominal risk-free rate of return must be the same across countries. 
E) eliminates covered interest arbitrage opportunities.

Question 12

You are expecting a payment of €630,000 three years from now.The risk-free rate of return is 3.4 percent in the United States and 2.9 percent in Euroland.The inflation rate is 2.5 percent in the United States and 2.1 percent in Euroland.Assume you can currently buy €82 for $100.How much will the payment 3 years from now be worth in U.S.dollars?

Accepted Answer

A) $808,288 
B) $779,933 
C) $819,949 
D) $671,321 
E) $684,169 
A) $808,288 
B) $779,933 
C) $819,949 
D) $671,321 
E) $684,169

Question 13

An agreement made today that sets both the exchange rate and the quantity of currency that will be traded at some point in the future is called a ________ trade.

Accepted Answer

A) spot 
B) floating 
C) swap 
D) triangle 
E) forward 
A) spot 
B) floating 
C) swap 
D) triangle 
E) forward

Question 14

Which one of these expresses the concept that a commodity will cost the same regardless of where the commodity is located or the currency used to pay for it?

Accepted Answer

A) Interest rate parity 
B) Uncovered interest rate parity 
C) Absolute purchasing power parity 
D) International Fisher effect 
E) Relative purchasing power parity 
A) Interest rate parity 
B) Uncovered interest rate parity 
C) Absolute purchasing power parity 
D) International Fisher effect 
E) Relative purchasing power parity

Question 15

Assume $1 can buy you either ¥112 or £.78.If a TV in London costs £649,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Accepted Answer

A) ¥35,255.45 
B) ¥32,967.00 
C) ¥56,696.64 
D) ¥98,008.18 
E) ¥93,189.74 
A) ¥35,255.45 
B) ¥32,967.00 
C) ¥56,696.64 
D) ¥98,008.18 
E) ¥93,189.74

Question 16

Assume the inflation rate in the United States is 2.8 percent.The spot rate for a foreign currency is 1.6349 while the 3-year forward rate is 1.7084.What is the approximate rate of inflation in the foreign country?

Accepted Answer

A) 4)37% 
B) 2)02% 
C) 2)42% 
D) 2)41% 
E) 4)28% 
A) 4)37% 
B) 2)02% 
C) 2)42% 
D) 2)41% 
E) 4)28%

Question 17

The changes in the relative economic conditions between countries are referred to as the

Accepted Answer

A) international Fisher effect. 
B) international exchange rate effect. 
C) long-run exposure to exchange rate risk. 
D) translation exposure to exchange rate risk. 
E) the interest rate parity risk. 
A) international Fisher effect. 
B) international exchange rate effect. 
C) long-run exposure to exchange rate risk. 
D) translation exposure to exchange rate risk. 
E) the interest rate parity risk.

Question 18

Assume the spot exchange rate is 6.22 Chinese yuan per U.S.dollar.If the inflation rate in China is expected to be double that in the U.S.for the next 2 years,then the

Accepted Answer

A) exchange rate will be unaffected as inflation is irrelevant to exchange rates. 
B) dollar will weaken against the yuan. 
C) yuan will appreciate relative to all other currencies. 
D) dollar will remain constant against the yuan. 
E) dollar will strengthen against the yuan. 
A) exchange rate will be unaffected as inflation is irrelevant to exchange rates. 
B) dollar will weaken against the yuan. 
C) yuan will appreciate relative to all other currencies. 
D) dollar will remain constant against the yuan. 
E) dollar will strengthen against the yuan.

Question 19

Assume today you can exchange $1 for €.8026,while 1 month ago €1 was worth $1.2272.Assume you converted €300 into dollars last month and then converted your dollars back to euros this week.What is your net profit or loss in euros?

Accepted Answer

A) €3.82 
B) −€4.51 
C) −€3.78 
D) €3.49 
E) −€4.91 
A) €3.82 
B) −€4.51 
C) −€3.78 
D) €3.49 
E) −€4.91

Question 20

Relative purchasing power parity states that exchange rates vary in response to

Accepted Answer

A) differences in interest rates between countries. 
B) changes in the trade barriers between countries. 
C) changes in the tax rates imposed by a country. 
D) differences in the inflation rates between countries. 
E) arbitrage trades involving the exchanged currencies. 
A) differences in interest rates between countries. 
B) changes in the trade barriers between countries. 
C) changes in the tax rates imposed by a country. 
D) differences in the inflation rates between countries. 
E) arbitrage trades involving the exchanged currencies.

The theory that real interest rates are equal across countries is called

You want to import $327,000 of merchandise from New Zealand.How many New Zealand dollars will you need to pay for this purchase if the indirect quote is 1.1136?

Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed-rate payments.This exchange is referred to as a

The home currency approach

Assume you have £100 and can exchange Can$180 for £100.Also assume you can exchange $1 for Can$1.1417 and £1 for $1.5649.How much arbitrage profit in pounds can you earn? Ignore transaction costs.

Suppose the spot exchange rate between U.S.dollars and the U.K.pound is $2/£ while the forward rate is $1.90/£.Which one of the following is true?

Assume the spot exchange rate is £.7024.The expected inflation rate in the United Kingdom is 1.8 percent and in the United States it is 2.4 percent.What is the expected exchange rate 3 years from now if relative purchasing power parity exists?

Assume the direct quote for the Australian dollar is 0.8643 while it is 0.7627 for New Zealand dollar.What is the cross-rate between the Australian dollar and the New Zealand dollar?

Assume the spot exchange rate is A$.8629.The expected inflation rate is 2.8 percent in Australia and 3.4 percent in the United States.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Interest rate parity

An agreement made today that sets both the exchange rate and the quantity of currency that will be traded at some point in the future is called a ________ trade.

Which one of these expresses the concept that a commodity will cost the same regardless of where the commodity is located or the currency used to pay for it?

Assume $1 can buy you either ¥112 or £.78.If a TV in London costs £649,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Assume the inflation rate in the United States is 2.8 percent.The spot rate for a foreign currency is 1.6349 while the 3-year forward rate is 1.7084.What is the approximate rate of inflation in the foreign country?

The changes in the relative economic conditions between countries are referred to as the

Assume the spot exchange rate is 6.22 Chinese yuan per U.S.dollar.If the inflation rate in China is expected to be double that in the U.S.for the next 2 years,then the

Assume today you can exchange $1 for €.8026,while 1 month ago €1 was worth $1.2272.Assume you converted €300 into dollars last month and then converted your dollars back to euros this week.What is your net profit or loss in euros?

Relative purchasing power parity states that exchange rates vary in response to

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

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Exam 20: International Corporate Finance

The theory that real interest rates are equal across countries is called

You want to import $327,000 of merchandise from New Zealand.How many New Zealand dollars will you need to pay for this purchase if the indirect quote is 1.1136?

Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed-rate payments.This exchange is referred to as a

The home currency approach

Assume you have £100 and can exchange Can$180 for £100.Also assume you can exchange $1 for Can$1.1417 and £1 for $1.5649.How much arbitrage profit in pounds can you earn? Ignore transaction costs.

Suppose the spot exchange rate between U.S.dollars and the U.K.pound is $2/£ while the forward rate is $1.90/£.Which one of the following is true?

Assume the spot exchange rate is £.7024.The expected inflation rate in the United Kingdom is 1.8 percent and in the United States it is 2.4 percent.What is the expected exchange rate 3 years from now if relative purchasing power parity exists?

Assume the direct quote for the Australian dollar is 0.8643 while it is 0.7627 for New Zealand dollar.What is the cross-rate between the Australian dollar and the New Zealand dollar?

Assume the spot exchange rate is A$.8629.The expected inflation rate is 2.8 percent in Australia and 3.4 percent in the United States.What is the expected exchange rate one year from now if relative purchasing power parity exists?

Interest rate parity

An agreement made today that sets both the exchange rate and the quantity of currency that will be traded at some point in the future is called a ________ trade.

Which one of these expresses the concept that a commodity will cost the same regardless of where the commodity is located or the currency used to pay for it?

Assume $1 can buy you either ¥112 or £.78.If a TV in London costs £649,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Assume the inflation rate in the United States is 2.8 percent.The spot rate for a foreign currency is 1.6349 while the 3-year forward rate is 1.7084.What is the approximate rate of inflation in the foreign country?

The changes in the relative economic conditions between countries are referred to as the

Assume the spot exchange rate is 6.22 Chinese yuan per U.S.dollar.If the inflation rate in China is expected to be double that in the U.S.for the next 2 years,then the

Assume today you can exchange $1 for €.8026,while 1 month ago €1 was worth $1.2272.Assume you converted €300 into dollars last month and then converted your dollars back to euros this week.What is your net profit or loss in euros?

Relative purchasing power parity states that exchange rates vary in response to

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

Mergers Amcq Acquisitions Web Only

Filters