Question 1
1.
Which of the following is NOT a reason why companies move into international operations?
Answer
To take advantage of lower production costs in regions where labor costs are relatively low.
To develop new markets for the firm’s products.
To better serve their primary customers.
Because important raw materials are located abroad.
To increase their inventory levels.
Question 2
1.
Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw actually receive after it exchanged yen for U.S. dollars?
Answer
$1,075,958
$1,025,000
$1,000,000
$975,610
$929,404
Question 3
1.
A box of candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP) holds, what is the current exchange rate?
Answer
1 U.S. dollar equals 0.69 Swiss francs
1 U.S. dollar equals 0.85 Swiss francs
1 U.S. dollar equals 1.21 Swiss francs
1 U.S. dollar equals 1.29 Swiss francs
1 U.S. dollar equals 1.44 Swiss francs
Question 4
1.
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?
Answer
1.12
1.63
1.82
2.04
3.64
Question 5
1.
Suppose in the spot market 1 U.S. dollar equals 1.60 Canadian dollars. 6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%). 6-month U.S. securities have an annualized return of 6.5% and a periodic return of 3.25%. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market?
Answer
1 U.S. dollar = 0.6235 Canadian dollars
1 U.S. dollar = 0.6265 Canadian dollars
1 U.S. dollar = 1.0000 Canadian dollars
1 U.S. dollar = 1.5961 Canadian dollars
1 U.S. dollar = 1.6039 Canadian dollars
Question 6
1.
Suppose one year ago, Hein Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates?
Answer
-$240,000
-$43,200
$0
$43,200
$47,473
Question 7
1.
If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?
Answer
0.50
0.71
1.00
1.41
2.81
Question 8
1.
Suppose that currently, 1 British pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?
Answer
1 British pound equals 3.2400 Swiss francs
1 British pound equals 2.6244 Swiss francs
1 British pound equals 1.8588 Swiss francs
1 British pound equals 1.0000 Swiss francs
1 British pound equals 0.3810 Swiss francs
Question 9
1.
Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?
Answer
$14.79
$63.00
$74.55
$85.88
$147.88
Question 10
1.
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 = 1.64 euros. What is the cross-rate of Swiss francs to euros?
Answer
0.43
0.86
1.41
1.64
2.27
Question 11
1.
Suppose 144 yen could be purchased in the foreign exchange market for one U.S. dollar today. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?
Answer
155.5 yen
144.0 yen
133.5 yen
78.0 yen
72.0 yen
Question 12
1.
If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?
Answer
0.37
0.61
1.00
1.64
3.28
Question 13
1.
Suppose a foreign investor who holds tax-exempt Eurobonds paying 9% is considering investing in an equivalent-risk domestic bond in a country with a 28% withholding tax on interest paid to foreigners. If 9% after-tax is the investor’s required return, what before-tax rate would the domestic bond need to pay to provide the required after-tax return?
Answer
9.00%
10.20%
11.28%
12.50%
13.57%
Question 14
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?
Answer
The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.
The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market.
The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.
The spot rate equals the 90-day forward rate.
The spot rate equals the 180-day forward rate.
Question 15
1.
If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will
Answer
Appreciate against the U.S. dollar.
Depreciate against the U.S. dollar.
Remain unchanged against the U.S. dollar.
Appreciate against other major currencies.
Appreciate against the dollar and other major currencies.
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