Question 1

Absolute purchasing power parity is most apt to exist for which one of the following items?

Accepted Answer

A)   House.
B)   Computer.
C)   Silver.
D)   Car.
E)   Refrigerator.F) B) and E)
G) A) and C)

Question 2

Unbiased Forward Rates (UFR)  can best be defined as:

Accepted Answer

A)   The condition stating that the interest rate differential between two countries is equal to the difference between the forward exchange rate and the spot exchange rate.
B)   The condition stating that the current forward rate is an unbiased predictor of the future exchange rate.
C)   The condition stating that the expected percentage change in the exchange rate is equal to the difference in interest rates.
D)   The theory that real interest rates are equal across countries.
E)   The risk related to having international operations in a region where currency values vary.F) A) and D)
G) All of the above

Question 3

A Canadian firm is considering purchasing a subsidiary in Great Britain. The subsidiary will cost  ≤\le≤ 16 million and will generate cash inflows of ≤\le≤ 7.6 million per year at the end of each of the next three years. After that, the company will be worthless. The current exchange rate is  ≤\le≤ 0.83 British pounds per $1. The Canadian inflation rate is expected to be 4% over this period. The current risk-free rate of interest in Canada is 5% and the risk-free rate in Great Britain is 8%.

What is the approximate rate of inflation in Great Britain?

Accepted Answer

A)   2%
B)   5%
C)   7%
D)   8%
E)   10% F) A) and B)
G) A) and C)

Question 4

A(n)  ________________ describes a transaction in which two parties exchange a floating-rate payment for a fixed-rate payment.

Accepted Answer

A)   American Depository Receipt.
B)   Currency swap.
C)   Eurobond trade.
D)   Triangle arbitrage.
E)   Interest rate swap.F) D) and E)
G) A) and C)

Question 5

Which of the following is the best definition of Eurobanks.

Accepted Answer

A)   Money deposited in a financial centre outside of the country whose currency is involved.
B)   International bonds issued in multiple countries but denominated in a single currency (usually the issuer's currency) .
C)   Banks that make loans and accept deposits in foreign currencies.
D)   The implicit exchange rate between two currencies (usually non-U.S.)  quoted in some third currency (usually the U.S. dollar) .
E)   Second borrower in currency swap. Counterparty borrows funds in currency desired by principal.F) C) and D)
G) A) and E)

Question 6

Triangle arbitrage opportunities can exist in either the spot or the forward market.

Accepted Answer

A) True 
 B)False

Question 7

You are planning a trip to Estonia. Your hotel will cost you 2,500 EEK per night for five nights. You expect to spend another 48,000 EEK for meals, tours, souvenirs, and so forth. How much will this trip cost you in Canadian dollars (CAD)  given the following exchange rates?

Accepted Answer

A)   3,878 CAD
B)   4,646 CAD
C)   610,654 CAD
D)   657,552 CAD
E)   787,760 CADF) A) and D)
G) A) and C)

Question 8

A(n)  ____________ is a bond issued in Japan and denominated in yen for sale in other countries.

Accepted Answer

A)   American Depository Receipt.
B)   Samurai bond.
C)   European Currency Unit.
D)   Swap bond.
E)   Eurobond.F) A) and B)
G) C) and D)

Question 9

The home currency approach:

Accepted Answer

A)   Discounts all of a project's foreign cash flows using the current spot rate.
B)   Employs uncovered interest parity to project future exchange rates.
C)   Computes the net present value (NPV)  of a project in the foreign currency and then converts that NPV into Canadian dollars.
D)   Utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency.
E)   Utilizes the international Fisher effect to compute the relevant exchange rates needed to compute the NPV of foreign cash flows in Canadian dollars.F) A) and B)
G) All of the above

Question 10

For absolute purchasing power parity to exist, transaction costs must be zero.

Accepted Answer

A) True 
 B)False

Question 11

You are considering a project in Poland which has an initial cost of 375,000PLN. The project is expected to return a one-time payment of 500,000PLN 4 years from now. The risk-free rate of return is 4 % in Canada and 4.5 % in Poland. Currently, you can buy 323PLN for $100. How much will the payment 4 years from now be worth in Canadian dollars?

Accepted Answer

A)   $148,613
B)   $151,741
C)   $153,262
D)   $154,799
E)   $160,074F) C) and D)
G) A) and B)

Question 12

Suppose absolute purchasing power parity holds. The cost of one kilogram of apples in Canada is C$4.08 and $3.80 in the United States. What is the exchange rate?

Accepted Answer

A)   C$.7598 per $1US
B)   C$.9314 per $1US
C)   C$1.074 per $1US
D)   C$1.092 per $1US
E)   C$1.124 per $1USF) C) and E)
G) B) and D)

Question 13

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n) :

Accepted Answer

A)   Open exchange rate.
B)   Cross-rate.
C)   Backward rate.
D)   Forward rate.
E)   Interest rate.F) B) and C)
G) A) and E)

Question 14

Which of the following is the best definition of cross-rate.

Accepted Answer

A)   Money deposited in a financial centre outside of the country whose currency is involved.
B)   International bonds issued in multiple countries but denominated in a single currency (usually the issuer's currency) .
C)   Banks that make loans and accept deposits in foreign currencies.
D)   The implicit exchange rate between two currencies (usually non-U.S.)  quoted in some third currency (usually the U.S. dollar) .
E)   Second borrower in currency swap. Counterparty borrows funds in currency desired by principal.F) A) and E)
G) C) and D)

Question 15

International Pooch is headquartered in Canada, but is considering the construction of a plant in Japan. If they use the home currency approach to calculating the NPV, they will
1) Convert all yen cash flows into dollars;
2) Discount the cash flows at the firm's required return;
3) Compute the NPV in dollars.

Accepted Answer

A) True 
 B)False

Question 16

The idea that commodities have the same value no matter where they are purchased or what currency is used is known as _____ parity.

Accepted Answer

A)   Forward exchange rates.
B)   Absolute purchasing power.
C)   Interest rate.
D)   Relative purchasing power.
E)   Uncovered interest rate.F) C) and D)
G) All of the above

Question 17

You are considering a project in Poland, which has an initial cost of 250,000PLN. The project is expected to return a one-time payment of 400,000PLN 5 years from now. The risk-free rate of return is 3 % in Canada and 4 % in Poland. The inflation rate is 2 % in Canada and 5 % in Poland. Currently, you can buy 375PLN for $100. How much will the payment 5 years from now be worth in dollars?

Accepted Answer

A)   $101,490
B)   $142,060
C)   $1,462,350
D)   $1,489,025
E)   $1,576,515F) A) and E)
G) B) and E)

Question 18

Which of the following is the best definition of Eurocurrency.

Accepted Answer

A)   Money deposited in a financial centre outside of the country whose currency is involved.
B)   International bonds issued in multiple countries but denominated in a single currency (usually the issuer's currency) .
C)   Banks that make loans and accept deposits in foreign currencies.
D)   The implicit exchange rate between two currencies (usually non-U.S.)  quoted in some third currency (usually the U.S. dollar) .
E)   Second borrower in currency swap. Counterparty borrows funds in currency desired by principal.F) B) and E)
G) A) and C)

Question 19

The use of dividends is a method by which a foreign subsidiary can remit cash to its parent company.

Accepted Answer

A) True 
 B)False

Question 20

A Canadian firm is considering purchasing a subsidiary in Great Britain. The subsidiary will cost  ≤\le≤ 16 million and will generate cash inflows of  ≤\le≤ 7.6 million per year at the end of each of the next three years. After that, the company will be worthless. The current exchange rate is  ≤\le≤ 0.83 British pounds per $1. The Canadian inflation rate is expected to be 4% over this period. The current risk-free rate of interest in Canada is 5% and the risk-free rate in Great Britain is 8%.

Assume the cost of capital for this project is 18.45% on pound investments. What is the NPV in dollars of this project using the foreign currency approach?

Accepted Answer

A)   $294,405
B)   $489,269
C)   $524,963
D)   $631,896
E)   $832,095 F) B) and D)
G) A) and B)

Exam 21: International Corporate Finance

Correct Answer
verified

Correct Answer
verified

A(n) ____________ is a bond issued in Japan and denominated in yen for sale in other countries.

Correct Answer
verified

A(n) ________________ describes a transaction in which two parties exchange a floating-rate payment for a fixed-rate payment.

Correct Answer
verified

The home currency approach:

Correct Answer
verified

Absolute purchasing power parity is most apt to exist for which one of the following items?

Correct Answer
verified

Which of the following is the best definition of Eurobanks.

Correct Answer
verified

You are planning a trip to Estonia. Your hotel will cost you 2,500 EEK per night for five nights. You expect to spend another 48,000 EEK for meals, tours, souvenirs, and so forth. How much will this trip cost you in Canadian dollars (CAD) given the following exchange rates?

Correct Answer
verified

Which of the following is the best definition of Eurocurrency.

Correct Answer
verified

Correct Answer
verified

Unbiased Forward Rates (UFR) can best be defined as:

Correct Answer
verified

Correct Answer
verified

Which of the following is the best definition of cross-rate.

Correct Answer
verified

Triangle arbitrage opportunities can exist in either the spot or the forward market.

Correct Answer
verified

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n) :

Correct Answer
verified

Correct Answer
verified

For absolute purchasing power parity to exist, transaction costs must be zero.

Correct Answer
verified

Suppose absolute purchasing power parity holds. The cost of one kilogram of apples in Canada is C$4.08 and $3.80 in the United States. What is the exchange rate?

Correct Answer
verified

The idea that commodities have the same value no matter where they are purchased or what currency is used is known as _____ parity.

Correct Answer
verified

The use of dividends is a method by which a foreign subsidiary can remit cash to its parent company.

Correct Answer
verified

Exam 21: International Corporate Finance

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A(n) ____________ is a bond issued in Japan and denominated in yen for sale in other countries.

Correct AnswerverifiedShow Answer

A(n) ________________ describes a transaction in which two parties exchange a floating-rate payment for a fixed-rate payment.

Correct AnswerverifiedShow Answer

The home currency approach:

Correct AnswerverifiedShow Answer

Absolute purchasing power parity is most apt to exist for which one of the following items?

Correct AnswerverifiedShow Answer

Which of the following is the best definition of Eurobanks.

Correct AnswerverifiedShow Answer

You are planning a trip to Estonia. Your hotel will cost you 2,500 EEK per night for five nights. You expect to spend another 48,000 EEK for meals, tours, souvenirs, and so forth. How much will this trip cost you in Canadian dollars (CAD) given the following exchange rates?

Correct AnswerverifiedShow Answer

Which of the following is the best definition of Eurocurrency.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Unbiased Forward Rates (UFR) can best be defined as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the best definition of cross-rate.

Correct AnswerverifiedShow Answer

Triangle arbitrage opportunities can exist in either the spot or the forward market.

Correct AnswerverifiedShow Answer

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For absolute purchasing power parity to exist, transaction costs must be zero.

Correct AnswerverifiedShow Answer

Suppose absolute purchasing power parity holds. The cost of one kilogram of apples in Canada is C$4.08 and $3.80 in the United States. What is the exchange rate?

Correct AnswerverifiedShow Answer

The idea that commodities have the same value no matter where they are purchased or what currency is used is known as _____ parity.

Correct AnswerverifiedShow Answer

The use of dividends is a method by which a foreign subsidiary can remit cash to its parent company.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified