Question 1

What does LIBOR stand for?

Accepted Answer

A) London Interest Bearing Orderly Rate 
B) Lisbon Interest Bearing Organization Rate 
C) Liberal Interest Bearing Offer Rate 
D) Lisbon International Bank Offering Rate 
E) London Interbank Offered Rate 
A) London Interest Bearing Orderly Rate 
B) Lisbon Interest Bearing Organization Rate 
C) Liberal Interest Bearing Offer Rate 
D) Lisbon International Bank Offering Rate 
E) London Interbank Offered Rate E

Question 2

The cross rate is the

Accepted Answer

A) exchange rate between the U.S.dollar and another currency. 
B) implicit exchange rate between two currencies when both are quoted in a third currency. 
C) rate converting the direct rate into the indirect rate. 
D) difference between the official exchange rate and the rate that can be received locally. 
E) difference between the spot rate and the forward rate. 
A) exchange rate between the U.S.dollar and another currency. 
B) implicit exchange rate between two currencies when both are quoted in a third currency. 
C) rate converting the direct rate into the indirect rate. 
D) difference between the official exchange rate and the rate that can be received locally. 
E) difference between the spot rate and the forward rate. B

Question 3

You are planning a return trip to Australia.Your hotel will now cost you $236 per night for 5 nights.You expect to spend $3,800 for food and expenses.How much will this trip cost you in Australian dollars if the indirect quote is 1.0829?

Accepted Answer

A) A$4,598.76 
B) A$4,802.48 
C) A$5,094.18 
D) A$4,964.92 
E) A$5,392.84 
A) A$4,598.76 
B) A$4,802.48 
C) A$5,094.18 
D) A$4,964.92 
E) A$5,392.84 E

Question 4

A direct quote is

Accepted Answer

A) is equal to (1 - Indirect quote). 
B) also called the European quote. 
C) is shown as the Currency per USD in the Wall Street Journal. 
D) the number of U.S.dollars required to purchase one unit of a foreign currency. 
E) generally set at the beginning of each calendar day and held constant during that day. 
A) is equal to (1 - Indirect quote). 
B) also called the European quote. 
C) is shown as the Currency per USD in the Wall Street Journal. 
D) the number of U.S.dollars required to purchase one unit of a foreign currency. 
E) generally set at the beginning of each calendar day and held constant during that day.

Question 5

Assume today you can exchange $1 for £.7998,while last week £1 was worth $1.2506.Also assume you converted £500 into dollars last week and then converted your dollars back to pounds this week.What is your net profit or loss in pounds?

Accepted Answer

A) £.1708 
B) £.1149 
C) £.3018 
D) £.3302 
E) £.2108 
A) £.1708 
B) £.1149 
C) £.3018 
D) £.3302 
E) £.2108

Question 6

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 7

The international Fisher effect may not hold if

Accepted Answer

A) risk tolerance levels vary among countries. 
B) interest rates vary among countries. 
C) currencies can move freely among countries. 
D) nominal interest rates vary among countries. 
E) inflation rates vary among countries. 
A) risk tolerance levels vary among countries. 
B) interest rates vary among countries. 
C) currencies can move freely among countries. 
D) nominal interest rates vary among countries. 
E) inflation rates vary among countries.

Question 8

Assume the current spot rate is Can$1.0267 and the 1-year forward rate is C$1.0259.The nominal risk-free rate in Canada is 2.5 percent while it is 2.1 percent in the United States.If you use covered interest arbitrage,how much extra profit can you earn over that which you would earn if you invested $1,000 in the United States for 1 year?

Accepted Answer

A) $.21 
B) $4.22 
C) $4.80 
D) $.24 
E) $0 
A) $.21 
B) $4.22 
C) $4.80 
D) $.24 
E) $0

Question 9

You are expecting a payment of Can$150,000 four years from now.The risk-free rate of return is 3.9 percent in the United States and 4.6 percent in Canada.The inflation rate is 3 percent in the United States and 4.2 percent in Canada.Assume the current exchange rate is Can$1 = $.87.How much will the payment four years from now be worth in U.S.dollars?

Accepted Answer

A) $138,887 
B) $126,909 
C) $99,300 
D) $166,184 
E) $177,285 
A) $138,887 
B) $126,909 
C) $99,300 
D) $166,184 
E) $177,285

Question 10

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 11

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 12

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 13

You are planning a trip to Australia.The hotel will cost you A$182 per night for 7 nights.You expect to spend another A$4,100 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 0.8507?

Accepted Answer

A) $6,317.15 
B) $5,961.85 
C) $5,532.61 
D) $4,668.14 
E) $4,571.66 
A) $6,317.15 
B) $5,961.85 
C) $5,532.61 
D) $4,668.14 
E) $4,571.66

Question 14

The forward rate market is dependent upon

Accepted Answer

A) current forward rates exceeding current spot rates. 
B) current spot rates exceeding current forward rates over time. 
C) current spot rates equalling current forward rates on average over time. 
D) current spot rates equalling the actual future spot rates on average over time. 
E) forward rates equalling the actual future spot rates on average over time. 
A) current forward rates exceeding current spot rates. 
B) current spot rates exceeding current forward rates over time. 
C) current spot rates equalling current forward rates on average over time. 
D) current spot rates equalling the actual future spot rates on average over time. 
E) forward rates equalling the actual future spot rates on average over time.

Question 15

Assume a currency is less expensive in the forward market than in the spot market relative to the U.S.dollar.When this occurs,the currency is said to be selling at

Accepted Answer

A) the spot price. 
B) an arbitrage price. 
C) a premium relative to the dollar. 
D) its true relative value. 
E) a discount relative to the dollar. 
A) the spot price. 
B) an arbitrage price. 
C) a premium relative to the dollar. 
D) its true relative value. 
E) a discount relative to the dollar.

Question 16

A coffee mug that suits your style costs $12.98 in the United States.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 0.9894?

Accepted Answer

A) Can$12.84 
B) Can$12.99 
C) Can$13.08 
D) Can$13.12 
E) Can$12.92 
A) Can$12.84 
B) Can$12.99 
C) Can$13.08 
D) Can$13.12 
E) Can$12.92

Question 17

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.

Question 18

You want to import $62,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?

Accepted Answer

A) 3,860,523RS 
B) 2,803,006RS 
C) 821,048RS 
D) 996RS 
E) 909RS 
A) 3,860,523RS 
B) 2,803,006RS 
C) 821,048RS 
D) 996RS 
E) 909RS

Question 19

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.

Question 20

Assume the spot rate for the Japanese yen currently is ¥111.04 per $1.The 1-year forward rate is ¥111.62 per $1.Also assume a risk-free asset in Japan is currently earning 3.4 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free U.S.security?

Accepted Answer

A) 4.15% 
B) 3.08% 
C) 2.86% 
D) 2.46% 
E) 3.94% 
A) 4.15% 
B) 3.08% 
C) 2.86% 
D) 2.46% 
E) 3.94%

What does LIBOR stand for?

The cross rate is the

You are planning a return trip to Australia.Your hotel will now cost you $236 per night for 5 nights.You expect to spend $3,800 for food and expenses.How much will this trip cost you in Australian dollars if the indirect quote is 1.0829?

A direct quote is

Assume today you can exchange $1 for £.7998,while last week £1 was worth $1.2506.Also assume you converted £500 into dollars last week and then converted your dollars back to pounds this week.What is your net profit or loss in pounds?

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

The international Fisher effect may not hold if

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?

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.

You are planning a trip to Australia.The hotel will cost you A$182 per night for 7 nights.You expect to spend another A$4,100 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 0.8507?

The forward rate market is dependent upon

Assume a currency is less expensive in the forward market than in the spot market relative to the U.S.dollar.When this occurs,the currency is said to be selling at

A coffee mug that suits your style costs $12.98 in the United States.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 0.9894?

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

You want to import $62,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?

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

Assume the spot rate for the Japanese yen currently is ¥111.04 per $1.The 1-year forward rate is ¥111.62 per $1.Also assume a risk-free asset in Japan is currently earning 3.4 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free U.S.security?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

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Exam 20: International Corporate Finance

What does LIBOR stand for?

The cross rate is the

You are planning a return trip to Australia.Your hotel will now cost you $236 per night for 5 nights.You expect to spend $3,800 for food and expenses.How much will this trip cost you in Australian dollars if the indirect quote is 1.0829?

A direct quote is

Assume today you can exchange $1 for £.7998,while last week £1 was worth $1.2506.Also assume you converted £500 into dollars last week and then converted your dollars back to pounds this week.What is your net profit or loss in pounds?

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

The international Fisher effect may not hold if

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?

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.

You are planning a trip to Australia.The hotel will cost you A$182 per night for 7 nights.You expect to spend another A$4,100 for meals,tours,and other expenses.How much will this trip cost you in U.S.dollars if the direct quote is 0.8507?

The forward rate market is dependent upon

Assume a currency is less expensive in the forward market than in the spot market relative to the U.S.dollar.When this occurs,the currency is said to be selling at

A coffee mug that suits your style costs $12.98 in the United States.If absolute purchasing power parity exists,what will the same mug cost in Canada if the direct quote is 0.9894?

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

You want to import $62,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?

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

Assume the spot rate for the Japanese yen currently is ¥111.04 per $1.The 1-year forward rate is ¥111.62 per $1.Also assume a risk-free asset in Japan is currently earning 3.4 percent.If interest rate parity holds,approximately what rate can you earn on a 1-year risk-free U.S.security?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

Mergers and Acquisitions Web Only

Filters