Question 1

How can companies use swaps to change the risk of securities that they have issued?

Accepted Answer

Swaps allow firms to exchange one series...

Question 2

What is the law of one price? When would you expect it to hold and when would you not expect it to hold?

Accepted Answer

The law of one price holds that prices o...

Question 3

The theory that goods in a foreign country should be priced approximately equal after currency translation to goods in a host country is referred to as the law of:

Accepted Answer

A)   exchange rates.
B)   large numbers.
C)   spot rates.
D)   one price.

Question 4

According to the expectations theory of exchange rates,what change is expected in the future spot exchange rate if the current spot rate is 8% lower than the forward exchange rate?

Accepted Answer

A)   Future spot rate is expected to increase by 8%
B)   Future spot rate is expected to decrease by 8%
C)   Future spot rate is expected to decrease by 4%
D)   No change is expected in the future spot rate

Question 5

Which of the following would you expect to improve the Dollar-NPV of a foreign capital budgeting proposal?

Accepted Answer

A)   The Dollar is expected to appreciate against the foreign currency
B)   Lower inflation is expected in the foreign country than in the United States
C)   The foreign country has a less stable political environment
D)   The risk-free rate in the foreign country is higher than in the United States

Question 6

The nominal interest rate is the difference between real interest rate and inflation.

Accepted Answer

A) True 
 B)False

Question 7

If you buy Yen forward when the Yen is selling at a forward premium,you will get:

Accepted Answer

A)   more Yen than if you buy on spot market.
B)   fewer Yen than if you buy on spot market.
C)   the same number of Yen as on the spot market, but with a lower commission.
D)   the expectation of more Yen, but the difference is not locked in.

Question 8

Forward rates are always equal to the actual future exchange rates.

Accepted Answer

A) True 
 B)False

Question 9

The spot exchange rate of British Pound (£) is $2.56(Canadian) /£.The annual inflation rate in Canadian $is 4% and 8% in Britain.What will be the anticipated exchange rate at the end of the year if PPP is valid?

Accepted Answer

A)   $2.4652/£
B)   $2.1503/£
C)   $3.0804/£
D)   $2.5600/£

Question 10

The international Fisher effect is valid in the long run,because:

Accepted Answer

A)   inflation rates are equal in different countries.
B)   investors will move their money into countries with high real interest rates.
C)   investors will move their money into countries with high nominal interest rates.
D)   investors will move their money into countries with low inflation.

Question 11

If the spot indirect exchange rate of Mexican Pesos for U.S.Dollars is 9.8/1 and the peso is trading at a forward premium of 3%,then a U.S.trader will receive:

Accepted Answer

A)   more than 9.8 Pesos per Dollar in the future.
B)   less than 9.8 Pesos per Dollar in the future.
C)   9.83 Pesos per Dollar in the future.
D)   10.09 Pesos per Dollar in the future.

Question 12

Explain the international Fisher Effect.

Accepted Answer

The international Fisher effect suggests...

Question 13

What are some simple strategies to protect the firm against exchange rate risk?

Accepted Answer

Expectation theory states that hedging e...

Question 14

The Japanese Yen exchange rate is ¥115 = $1,while the British Pound exchange rate is £1 = $2.05.Given this information,calculate the cross-rate in terms of Yen per pound.

Accepted Answer

A)   ¥235.75 per £1
B)   ¥275.35 per £1
C)   ¥56.10 per £1
D)   ¥51.60 per £1

Question 15

High inflation rates are usually associated with:

Accepted Answer

A)   low nominal interest rates.
B)   high nominal interest rates.
C)   high real interest rates.
D)   low real interest rates.

Question 16

If Purchasing Power Parity is holding,what will happen to the currency of a country with high inflation?

Accepted Answer

A)   Currency will appreciate.
B)   Currency will depreciate.
C)   No significant change in exchange rate.
D)   Currency will sell at a forward premium.

Exam 24: International Financial Management

If Purchasing Power Parity is holding,what will happen to the currency of a country with high inflation?

Correct Answer
verified

The nominal interest rate is the difference between real interest rate and inflation.

Correct Answer
verified

How can companies use swaps to change the risk of securities that they have issued?

Correct Answer
verified
Swaps allow firms to exchange one series...
View Answer

High inflation rates are usually associated with:

Correct Answer
verified

Explain the international Fisher Effect.

Correct Answer
verified
The international Fisher effect suggests...
View Answer

The Japanese Yen exchange rate is ¥115 = $1,while the British Pound exchange rate is £1 = $2.05.Given this information,calculate the cross-rate in terms of Yen per pound.

Correct Answer
verified

Which of the following would you expect to improve the Dollar-NPV of a foreign capital budgeting proposal?

Correct Answer
verified

The spot exchange rate of British Pound (£) is $2.56(Canadian) /£.The annual inflation rate in Canadian $is 4% and 8% in Britain.What will be the anticipated exchange rate at the end of the year if PPP is valid?

Correct Answer
verified

The international Fisher effect is valid in the long run,because:

Correct Answer
verified

The theory that goods in a foreign country should be priced approximately equal after currency translation to goods in a host country is referred to as the law of:

Correct Answer
verified

What is the law of one price? When would you expect it to hold and when would you not expect it to hold?

Correct Answer
verified
The law of one price holds that prices o...
View Answer

What are some simple strategies to protect the firm against exchange rate risk?

Correct Answer
verified
Expectation theory states that hedging e...
View Answer

Forward rates are always equal to the actual future exchange rates.

Correct Answer
verified

If the spot indirect exchange rate of Mexican Pesos for U.S.Dollars is 9.8/1 and the peso is trading at a forward premium of 3%,then a U.S.trader will receive:

Correct Answer
verified

According to the expectations theory of exchange rates,what change is expected in the future spot exchange rate if the current spot rate is 8% lower than the forward exchange rate?

Correct Answer
verified

If you buy Yen forward when the Yen is selling at a forward premium,you will get:

Correct Answer
verified

Exam 24: International Financial Management

If Purchasing Power Parity is holding,what will happen to the currency of a country with high inflation?

Correct AnswerverifiedShow Answer

The nominal interest rate is the difference between real interest rate and inflation.

Correct AnswerverifiedShow Answer

How can companies use swaps to change the risk of securities that they have issued?

Correct AnswerverifiedSwaps allow firms to exchange one series...View AnswerShow Answer

High inflation rates are usually associated with:

Correct AnswerverifiedShow Answer

Explain the international Fisher Effect.

Correct AnswerverifiedThe international Fisher effect suggests...View AnswerShow Answer

The Japanese Yen exchange rate is ¥115 = $1,while the British Pound exchange rate is £1 = $2.05.Given this information,calculate the cross-rate in terms of Yen per pound.

Correct AnswerverifiedShow Answer

Which of the following would you expect to improve the Dollar-NPV of a foreign capital budgeting proposal?

Correct AnswerverifiedShow Answer

The spot exchange rate of British Pound (£) is $2.56(Canadian) /£.The annual inflation rate in Canadian $is 4% and 8% in Britain.What will be the anticipated exchange rate at the end of the year if PPP is valid?

Correct AnswerverifiedShow Answer

The international Fisher effect is valid in the long run,because:

Correct AnswerverifiedShow Answer

The theory that goods in a foreign country should be priced approximately equal after currency translation to goods in a host country is referred to as the law of:

Correct AnswerverifiedShow Answer

What is the law of one price? When would you expect it to hold and when would you not expect it to hold?

Correct AnswerverifiedThe law of one price holds that prices o...View AnswerShow Answer

What are some simple strategies to protect the firm against exchange rate risk?

Correct AnswerverifiedExpectation theory states that hedging e...View AnswerShow Answer

Forward rates are always equal to the actual future exchange rates.

Correct AnswerverifiedShow Answer

If the spot indirect exchange rate of Mexican Pesos for U.S.Dollars is 9.8/1 and the peso is trading at a forward premium of 3%,then a U.S.trader will receive:

Correct AnswerverifiedShow Answer

According to the expectations theory of exchange rates,what change is expected in the future spot exchange rate if the current spot rate is 8% lower than the forward exchange rate?

Correct AnswerverifiedShow Answer

If you buy Yen forward when the Yen is selling at a forward premium,you will get:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Swaps allow firms to exchange one series...
View Answer

Correct Answer
verified

Correct Answer
verified
The international Fisher effect suggests...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The law of one price holds that prices o...
View Answer

Correct Answer
verified
Expectation theory states that hedging e...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified