mid2-key

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

This preview shows pages 1–3. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

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 peso’s 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 firm’s assets and liabilities and exchange rate fluctuations is:...
View Full Document

## This note was uploaded on 04/03/2012 for the course BUS 445 taught by Professor Lee during the Spring '11 term at Rhode Island.

### Page1 / 6

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

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online