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Exam 21: International Corporate Finance

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Question 51

Multiple Choice

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Party A has agreed to exchange $1 million U.S. for $1.02 million Canadian. What is this agreement called?

A) Gilt
B) LIBOR
C) SWIFT
D) Yankee agreements
E) Swap

F) C) and D)
G) A) and C)

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Question 52

Multiple Choice

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Assume $1 = C$1.1098 and $1 = £.6018. Also assume you can buy £55 for C$100. How much profit can you earn using triangle arbitrage if you start out with $100?

A) $.78
B) $1.04
C) $1.43
D) $1.56
E) $1.54

F) None of the above
G) B) and C)

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Question 53

Multiple Choice

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Assume $1 can buy you either ¥113.25 or £.7708. If a TV in London costs £995, what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

You observe that the inflation rate in the United States is .78 percent per year and that T-bills currently yield 2.94 percent annually. Using the approximate international Fisher effect, what do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 3.53 percent per year?

Long-run exposure to exchange rate risk relates to:

Assume the spot exchange rate for the Hungarian forint is 267.767 HUF. Also assume the inflation rate in the United States is 1.6 percent per year while it is 3.5 percent in Hungary. What is the expected exchange rate three years from now?

Trader A has agreed to give 100,000 U.S. dollars to Trader B in exchange for British pounds based on today's exchange rate of $1 = £.78. The traders agree to settle this trade within two business days. What is this exchange called?

A trader has just agreed to exchange British pounds for French francs three months from today. This exchange is an example of a:

The international Fisher effect states that ________ rates are equal across countries.

A U.S. firm has significant profits that were earned overseas. When U.S. taxes are paid on these profits, the profits are considered to be:

Which one of the following states that the current forward rate is an unbiased predictor of the future spot exchange rate?

International Markets can purchase an item for ¥27,500. What will be the dollar change in the cost of that item in U.S. dollars if the exchange rate of ¥111.30 changes to ¥113.25?

Suppose the current spot rate for the Norwegian krone is NKr5.5923 while the expected inflation rate in Norway is 2.2 percent compared to 1.8 percent in the U.S. A risk-free asset in the U.S. is yielding 3.4 percent. What approximate real rate of return should you expect on a risk-free Norwegian security?

How many euros can you get for $3,800 if one euro is worth $1.2987?

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

A basic interest rate swap generally involves trading a:

Relative purchasing power parity:

Which one of the following formulas correctly describes the relative purchasing power parity relationship?