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1 0 Question out of 1.5 points Exchange rate quotations consist solely of direct quotations. Answer Correct Register to View Answer Question 3 0 out of 1.5 points 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 Correct Answer: 12.50% Question 4 0 out of 1.5 points The United States and most other major industrialized nations currently operate under a system of floating exchange rates. Answer Correct Register to View Answer Question 5 0 out of 1.5 points Credit policy for multinational firms is generally more risky due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers. Answer Correct Register to View Answer Question 6 Stover Corporation, a U.S. based importer, makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.638 francs, how much will the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure? Answer Correct Answer: $638 Question 8 Question 7 0 out of 1.5 points Which of the following statements is NOT CORRECT? Answer Correct Answer: The term Eurobond applies only to foreign bonds denominated in U.S. currency. 0 out of 1.5 points Suppose 6 months ago a Swiss investor bought a 6-month U.S. Treasury bill at a price of $9,708.74, with a maturity value of $10,000. The exchange rate at that time was 1.420 Swiss francs per dollar. Today, at maturity, the exchange rate is 1.324 Swiss francs per dollar. What is the annualized rate of return to the Swiss investor? Answer Correct Answer: 7.92% Question 9 Question 1 0 out of 1.5 points The Eurodollar market is essentially a long-term market; most loans and deposits in this market have maturities longer than one year. Answer Correct Register to View Answer0 out of 1.5 points The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky. Answer Correct Register to View Answer Question 10 0 out of 1.5 points 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 Correct Answer: $929,404 Question 10 1.5 out of 1.5 points Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms. Answer Correct Register to View Answer Question 3 Question 6 0 out of 1.5 points Blenman Corporation, based in the United States, arranged a 2-year, $1,000,000 loan to fund a project in Mexico. The loan is denominated in Mexican pesos, carries a 10.0% nominal rate, and requires equal semiannual payments. The exchange rate at the time of the loan was 5.75 pesos per dollar, but it dropped to 5.10 pesos per dollar before the first payment came due. The loan was not hedged in the foreign exchange market. Thus, Blenman must convert U.S. funds to Mexican pesos to make its payments. If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period, what effective interest rate will Blenman end up paying on the loan? Answer Correct Answer: 21.79% 0 out of 1.5 points In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars? Answer Correct Answer: $10,250 Question 5 0 out of 1.5 points 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 Correct Answer: Appreciate against the U.S. dollar. Question 6 Question 7 0 out of 1.5 points Suppose 6 months ago a Swiss investor bought a 6-month U.S. Treasury bill at a price of $9,708.74, with a maturity value of $10,000. The exchange rate at that time was 1.420 Swiss francs per dollar. Today, at maturity, the exchange rate is 1.324 Swiss francs per dollar. What is the annualized rate of return to the Swiss investor? Answer Correct Answer: 7.92% Question 8 0 out of 1.5 points Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company's currency, will be worth less than was originally projected because of exchange rate changes. Answer Correct Register to View Answer 0 out of 1.5 points Chen Transport, a U.S. based company, is considering expanding its operations into a foreign country. The required investment at Time = 0 is $10 million. The firm forecasts total cash inflows of $4 million per year for 2 years, $6 million for the next 2 years, and then a possible terminal value of $8 million. In addition, due to political risk factors, Chen believes that there is a 50% chance that the gross terminal value will be only $2 million and a 50% chance that it will be $8 million. However, the government of the host country will block 20% of all cash flows. Thus, cash flows that can be repatriated are 80% of those projected. Chen's cost of capital is 15%, but it adds one percentage point to all foreign projects to account for exchange rate risk. Under these conditions, what is the project's NPV? Answer Correct Answer: $2.77 million Question 7 Question 2 0 out of 1.5 points 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 Correct Answer: 1 British pound equals 2.6244 Swiss francs 0 out of 1.5 points 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 Correct Answer: $74.55 Question 9 0 out of 1.5 points If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy? Answer Correct Answer: 1.4 1 Question 10 0 out of 1.5 points A foreign currency will, on average, depreciate the against U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States. Answer Correct Register to View Answer Question 1 0 out of 1.5 points When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification. Answer Correct Register to View Answer Question 2 0 out of 1.5 points A product sells for $750 in the United States. The exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland? Answer Correct Answer: 1,237.50 Swiss francs Question 3 0 out of 1.5 points Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base. Answer Correct Register to View Answer 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 Correct Answer: 155.5 yen Question 6 0 out of 1.5 points If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar? Answer Correct Answer: 0.6 1 Question 8 0 out of 1.5 points 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 Correct Answer: 1 U.S. dollar equals 1.44 Swiss francs Question 9 0 out of 1.5 points If the United States is running a deficit trade balance with China, then in a free market we would expect the value of the Chinese yuan to depreciate against the U.S. dollar. Answer Correct Register to View Answer Question 10 0 out of 1.5 points 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 Correct Answer: 2.04 Question 1 0 out of 1.5 points Multinational financial management requires that financial analysts consider the effects of changing currency values. Answer Correct Register to View Answer Question 2 0 out of 1.5 points If the United States is running a deficit trade balance with China, then in a free market we would expect the value of the Chinese yuan to depreciate against the U.S. dollar. Answer Correct Register to View Answer Question 3 The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates available on U.S. money market instruments. Answer Correct Register to View Answer Question 5 0 out of 1.5 points 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 Correct Answer: 0.8 6 Question 6 0 out of 1.5 points The threat of expropriation creates an incentive for the multinational firm to minimize inventory holdings in certain countries and to bring in goods only as needed. Answer Correct Register to View Answer Question 7 0 out of 1.5 points 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%). 6month 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 180day forward market? Answer Correct Answer: 1 U.S. dollar = 1.5961 Canadian dollars Question 8 0 out of 1.5 points The cash flows relevant for a foreign investment should, from the parent company's perspective, include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country. Answer Correct Register to View Answer Question 9 0 out of 1.5 points If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market, then the forward currency is said to be selling at a discount to the spot rate. Answer Correct Register to View Answer Question 10 0 out of 1.5 points Which of the following is NOT a reason why companies move into international operations? Answer Correct Answer: To increase their inventory levels. Question 2 0 out of 1.5 points LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to smaller U.S. corporations. Answer Correct Register to View Answer Question 7 Question 5 0 out of 1.5 points If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ____ to the spot rate. Answer Correct Answer: discount of 8% Question 9 0 out of 1.5 points Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis. Answer Correct Register to View Answer Question 10 0 out of 1.5 points Suppose a U.S. firm buys $200,000 worth of television tubes from a Mexican manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received). The rising U.S. deficit has caused the dollar to depreciate against the peso recently. The current exchange rate is 5.50 pesos per U.S. dollar. The 90-day forward rate is 5.45 pesos/dollar. The firm goes into the forward market today and buys enough Mexican pesos at the 90-day forward rate to completely cover its trade obligation. Assume the spot rate in 90 days is 5.30 Mexican pesos per U.S. dollar. How much in U.S. dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge? Answer Correct Answer: $5,712.31 Question 3 0 out of 1.5 points A Eurodollar is a U.S. dollar deposited in a bank outside the United States. Answer Correct Register to View Answer0 out of 1.5 points When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with a dollar. Answer Correct Register to View Answer Question 9 0 out of 1.5 points Legal and economic differences among countries, although important, do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries. Answer Correct Register to View Answer Question 10 0 out of 1.5 points 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 Correct Answer: The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market. ... View Full Document

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