mid2-key - Exam 2 BUS 428: Multinational Financial...

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Unformatted text preview: Exam 2 BUS 428: Multinational Financial Management Spring, 2012 Name: All questions are multiple choice questions. There are 15 questions in total. Using a No.2 pencil, choose the best (or most accurate) answer for each question. When you need to change your answers, erase previous answers completely. You are allowed to use a calculator. Computer is not allowed. Read questions carefully. Good luck! 1. Assume a nominal interest rate on one-year U.S. Treasury Bills of 5% and real interest rate 0.5%. The one-year nominal interest rate in U.K. is 2% and the spot exchange rate is 1.4$/ . What is the expected future spot exchange rate? (a) 0.7353$/ (b) 1.4412$/ (c) 0.6939$/ (d) 1.3600$/ Answer: b) 1 . 05 1 . 02 = E ( S ($ / )) S ($ / ) E ( S ($ / )) = 1 . 05 1 . 4 1 . 02 = 1 . 4412 2. As of today, the spot exchange rate is e 0.80 = $1.00 and the rates of inflation expected to prevail for the next year in the U.S. is 3% and 6% in the euro zone. What is the one-year forward rate that should prevail? (a) e 1.00 = $1.2864 (b) e 1.00 = $1.2146 (c) e 1.00 = $0.7774 (d) e 1.00 = $0.8233 Answer: b). Note that we have an indirect rate e 0.80 = $1.00. There are more than one way to solve it: S ($ / e ) = 1 . 80 = 1 . 25 1 . 03 1 . 06 = F ($ / e ) S ($ / e ) F = 1 . 03 1 . 25 1 . 06 = 1 . 2146 1 3. Suppose annual inflation rates in the U.S. and Mexico are expected to be 6% and 80%, respectively. If the current spot rate for the Mexican peso is $.005, then the best estimate of the pesos spot value in 180 days is: (a) $0.0029 (b) $0.0119 (c) $0.0032 (d) $0.0037 Answer: d). For 180 days the expected inflation is 3% and 40% each 1 . 03 1 . 40 = E ( S ) . 005 E ( S ) = 0 . 0037 4. The link between the home currency value of a firms assets and liabilities and exchange rate fluctuations is:...
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mid2-key - Exam 2 BUS 428: Multinational Financial...

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