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Exam 21: International Financial Management

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Question 21

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If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market,then the foreign currency is said to be selling at a discount to the spot rate.

A) True
B) False

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Question 22

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LIBOR is an acronym for London Interbank Offer Rate,which is an average of interest rates offered by London banks to smaller North American corporations.

A) True
B) False

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Question 23

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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.

Exchange rate risk refers to the risk that 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 fluctuations.

Exchange rate quotations consist solely of direct quotations.

A box of candy costs 12.80 euros in Germany and $20 in Canada.Assuming that the law of one price holds,what is the current exchange rate?

A Eurocanadian is Canadian dollar deposited in a bank outside Canada.

When our Canadian dollar appreciates against another country's currency,we may purchase more of the foreign currency with a dollar.

If the inflation rate in Canada is greater than the inflation rate in Britain,other things held constant,what will happen to the British pound?

Suppose the exchange rate between Canadian dollars and Swiss francs is SF 1.10 = $1.00,and the exchange rate between the Canadian dollar and the euro is $1.00 = 0.68 euros.What is the cross-rate of Swiss francs to euros?

Suppose a Canadian firm buys $200,000 worth of television tubes from a Norwegian manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received) .The rising Canadian deficit has caused the dollar to depreciate against the krone recently.The current exchange rate is 5.50 krones per Canadian dollar.The 90-day forward rate is 5.45 krones/dollar.The firm goes into the forward market today and buys enough Norwegian krones at the 90-day forward rate to completely cover its trade obligation.Assume the spot rate in 90 days is 5.30 krones per Canadian dollar.How much in Canadian dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge?

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.

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?

Suppose 1 year ago Hein Company had inventory in Britain valued at 240,000 pounds.The exchange rate for dollars to pounds was £1 = 2 Canadian dollars.This year,the exchange rate is £1 = 1.82 Canadian dollars.The inventory in Britain is still valued at 240,000 pounds.What is the gain or loss in inventory value in Canadian dollars as a result of the change in exchange rates?

An American citizen is travelling to Canada for 6 months.If the exchange rate is $1USD:$1.33CAD,what is the value (in CAD) of his or her travel spending money (assume he or she has saved $25,000 for the trip to Canada) ?

The Eurocurrency market is essentially a long-term market; most loans and deposits in this market have maturities longer than 1 year.

In 1997,a certain 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 110 yen per dollar,what would the car be selling for today in Canadian dollars?

If one US dollar buys 1.0613 Canadian dollars,how many US dollars can you purchase for one Canadian dollar?

Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return.In Canada,90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return.In the 90-day forward market,1 British pound equals $1.96.If interest rate parity holds,what is the spot exchange rate?

Suppose in the spot market 1 US dollar equals 1.0613 Canadian dollars.Six-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%) .6-month 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 US dollar-Canadian dollar exchange rate in the 180-day forward market?