Quiz 8

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Unformatted text preview: Question 1 0 out of 1.5 points Exchange rate quotations consist solely of direct quotations. Answer Correct Answer: False 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 Answer: True 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 Answer: True 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 Answer: False 0 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 Answer: True 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 some exchange rate risk for the transaction....
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