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 call
Trang 14 U.S dollars deposited in a bank in Switzerland are called:
A foreign depository receipts
B international exchange certificates
Trang 27 On Friday evening, Bank A loans Bank B Eurodollars that must be repaid the following Monday
morning Which one of the following is most likely the interest rate that will be charged on this loan?
A Eurodollar yield to maturity
B London Interbank Offer Rate
C Paris Opening Interest Rate
D United States Treasury bill rate
E international prime rate
8 Party A has agreed to exchange $1 million U.S dollars for $1.21 million Canadian dollars What is this agreement called?
9 A large U.S company has £500,000 in excess cash from its foreign operations The company would like
to exchange these funds for U.S dollars In one of the following markets can this exchange be arranged?
A ADR
B national registry
C national discount window
D foreign exchange market
E foreign interest rate
11 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 = £0.62 The traders agree to settle this trade within two business day What is this exchange called?
12 George and Pat just made an agreement to exchange currencies based on today's exchange rate
Settlement will occur tomorrow Which one of the following is the exchange rate that applies to this agreement?
A spot exchange rate
B forward exchange rate
Trang 314 Mr Black has agreed to a currency exchange with Mr White The parties have agreed to exchange
C$12,500 for $10,000 with the exchange occurring 4 months from now This agreed-upon exchange rate
is currently selling in Canada for $127?
A unbiased forward rates condition
B uncovered interest rate parity
C international Fisher effect
D purchasing power parity
E interest rate parity
16 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 the unbiased forward rates condition
B uncovered interest rate parity
C the international Fisher effect
D purchasing power parity
E interest rate parity
17 Which one of the following states that the current forward rate is an unbiased predictor of the future spot exchange rate?
A unbiased forward rates
B uncovered interest rate parity
C international Fisher effect
D purchasing power parity
E interest rate parity
18 Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?
A unbiased forward rates condition
B uncovered interest parity
C international Fisher effect
D purchasing power parity
E interest rate parity
19 Which one of the following supports the idea that real interest rates are equal across countries?
A unbiased forward rates condition
B uncovered interest rate parity
C international Fisher effect
D purchasing power parity
E interest rate parity
20 Which one of the following is the risk that a firm faces when it opens a facility in a foreign country, given that the exchange rate between the firm's home country and this foreign country fluctuates over time?
A international risk
B diversifiable risk
C purchasing power risk
D exchange rate risk
E political risk
Trang 421 The market value of the Blackwell Corporation just declined by 5 percent Analysts believe this decrease
in value was caused by recent legislation passed by Congress Which type of risk does this illustrate?
A international risk
B diversifiable risk
C purchasing power risk
D exchange rate risk
23 Which one of the following names matches the country where the bond is issued?
A Empire: United Kingdom
B Western: United States
C Samurai: China
D Bulldog: France
E Rembrandt: Netherlands
24 The LIBOR is primarily used as the basis for the rate charged on:
A short-term debt in the Lisbon market
B mortgage loans in the Lisbon market
C Eurodollar loans in the London market
D U.S federal funds
E interbank loans in the U.S
25 A basic interest rate swap generally involves trading a:
A short-term rate for a long-term rate
B foreign rate for a domestic rate
C government rate for a corporate rate
D fixed rate for a variable rate
E taxable rate for a tax-exempt rate
26 Which one of the following statements is correct concerning the foreign exchange market?
A The trading floor of the foreign exchange market is located in London, England
B The foreign exchange market is the world's second largest financial market
C
The four primary currencies that are traded in the foreign exchange market are the U.S dollar, the British pound, the French franc, and the euro
D Importers, exporters, and speculators are key players in the foreign exchange market
E The U.S created a communications network called SWIFT to facilitate currency trading
27 Triangle arbitrage:
I is a profitable situation involving three separate currency exchange transactions
II helps keep the currency market in equilibrium
III opportunities can exist in either the spot or the forward market
IV is based solely on differences in exchange ratios between spot and futures markets
A I and IV only
B II and III only
C I, II, and III only
D II, III, and IV only
E I, II, III, and IV
Trang 528 Spot trades must be settled:
A at the time of the trade
B on the day following the trade date
C within two business days
D within three business days
E within one week of the trade date
29 Assume the euro is selling in the spot market for $1.33 Simultaneously, in the 3-month forward market the euro is selling for $1.35 Which one of the following statements correctly describes this situation?
A The spot market is out of equilibrium
B The forward market is out of equilibrium
C The dollar is selling at a premium relative to the euro
D The euro is selling at a premium relative to the dollar
E The euro is expected to depreciate in value
30 Which one of the following formulas expresses the absolute purchasing power parity relationship
between the U.S dollar and the British pound?
31 Which of the following conditions are required for absolute purchasing power parity to exist?
I goods must be identical
II goods must have equal economic value
III transaction costs must be zero
IV there can be no barriers to trade
A I and III only
B II and IV only
C I, III, and IV only
D I, II, and III only
E I, II, III, and IV
32 Absolute purchasing power parity is most apt to exist for which one of the following items?
33 Relative purchasing power parity:
A states that identical items should cost the same regardless of the currency used to make the purchase
B relates differences in inflation rates to differences in exchange rates
C compares the real rate of return to the nominal rate of return
D explains the differences in real rates across national boundaries
E relates future exchange rates to current spot rates
34 Which one of the following formulas correctly describes the relative purchasing power parity
Trang 635 Which one of the following statements is correct given the following exchange rates?
A On Thursday, one U.S dollar was equal to 0.1023 South African rand
B On Friday, one Thai baht was equal to $35.21
C.Both the South African rand and the Thai baht appreciated against the U.S dollar from Thursday to Friday
D The South African rand appreciated from Thursday to Friday against the U.S dollar
E The U.S dollar depreciated from Thursday to Friday against the Thai baht
36 Which of the following variables used in the covered interest arbitrage formula are correctly defined?
I RFC: Foreign country nominal risk-free interest rate
II RUS: U.S real risk-free interest rate
III F1: 360-day forward rate
IV S0: Current spot rate expressed in units of foreign currency per one U.S dollar
A I and II only
B III and IV only
C I, III, and IV only
D II, III, and IV only
E I, II, III, and IV
37 Interest rate parity:
A eliminates covered interest arbitrage opportunities
B exists when spot rates are equal for multiple countries
C means the nominal risk-free rate of return must be the same across countries
D exists when the spot rate is equal to the futures rate
E eliminates exchange rate fluctuations
38 The interest rate parity approximation formula is:
39 The unbiased forward rate is a:
A condition where a future spot rate is equal to the current spot rate
B guarantee of a future spot rate at one point in time
C condition where the spot rate is expected to remain constant over a period of time
D relationship between the future spot rate of two currencies at an equivalent point in time
E predictor of the future spot rate at the equivalent point in time
40 The forward rate market is dependent upon:
A current forward rates exceeding current spot rates
B current spot rates exceeding current forward rates over time
C current spot rates equaling current forward rates, on average, over time
D forward rates equaling the actual future spot rates on average over time
E current spot rates equaling the actual future spot rates on average over time
41 Uncovered interest parity is defined as:
Trang 742 The international Fisher effect states that _ rates are equal across countries
43 The home currency approach:
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 U.S 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 U.S dollars
44 The home currency approach:
A generally produces more reliable results than those found using the foreign currency approach
B requires an applicable exchange rate for every time period for which there is a cash flow
C uses the current risk-free nominal rate to discount all cash flows related to a project
D stresses the use of the real rate of return to compute the net present value (NPV) of a project
E converts a foreign denominated NPV into a dollar denominated NPV
45 The foreign currency approach to capital budgeting analysis:
I is computationally easier to use than the home currency approach
II produces the same results as the home currency approach
III requires an exchange rate for each time period for which there is a cash flow
IV computes the NPV of a project in both the foreign and the domestic currency
A I and III only
B II and IV only
C I, II, and IV only
D II, III, and IV only
E I, II, III, and IV
46 Which one of the following is a suggested method of reducing a U.S importer's short-run exposure to exchange rate risk?
A entering a forward exchange agreement timed to match the invoice date
B investing U.S dollars when an order is placed and using the investment proceeds to pay the invoice
C exchanging funds on the spot market at the time an order is placed with a foreign supplier
D exchanging funds on the spot market at the time an order is received
E exchanging funds on the spot market at the time an invoice is payable
47 Long-run exposure to exchange rate risk relates to:
A daily variations in exchange rates
B variances between spot and future rates
C unexpected changes in relative economic conditions
D differences between future spot rates and related forward rates
E accounting gains and losses created by fluctuating exchange rates
Trang 848 The type of exchange rate risk known as translation exposure is best described as:
A
the risk that a positive net present value (NPV) project could turn into a negative NPV project because
of changes in the exchange rate between two countries
B.the problem encountered by an accountant of an international firm who is trying to record balance sheet account values
C the fluctuation in prices faced by importers of foreign goods
D the variance in relative pay rates based on the currency used to pay an employee
E.the variance between the revenue of an exporter who uses forward rates and an equivalent exporter who does not use forward rates
49 Which of the following statements are correct?
I The usage of forward rates increases the short-run exposure to exchange rate risk
II Accounting translation gains and losses are recorded in the equity section of the balance sheet
III The long-run exchange rate risk faced by an international firm can be reduced if a firm borrows money in the foreign country where the firm has operations
IV Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk
A I and III only
B II and III only
C I, II, and III only
D II, III, and IV only
E I, III, and IV only
50 Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?
A accounting and payroll functions
B partial assembly of components manufactured in the firm's home country
C military weapons manufacturing
D packing materials manufacturing for use by the home country firm
E production of minor parts, such as nuts and bolts, for use by the home country firm
51 How many Euros can you get for $2,100 if one euro is worth $1.2762?
Trang 954 Currently, $1 will buy C$1.2103 while $1.2762 will buy €1 What is the exchange rate between the Canadian dollar and the euro?
56 You just returned from some extensive traveling throughout the Americas You started your trip with
$20,000 in your pocket You spent 3.4 million pesos while in Chile and 16,500 bolivares in Venezuela Then on the way home, you spent 47,500 pesos in Mexico How many dollars did you have left by the time you returned to the U.S given the following exchange rates? (Note: Multiple symbols are used to designate various currencies For example, the U.S dollar is notated as "$" or as "USD".)
57 You have 100 British pounds A friend of yours is willing to exchange 180 Canadian dollars for your
100 British pounds What will be your profit or loss if you accept your friend's offer, given the following exchange rates?
Trang 1059 Today, you can exchange $1 for £0.6211 Last week, £1 was worth $1.6104 How much profit or loss would you now have if you had converted £100 into dollars last week?
60 Today, you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S dollars Last year,
100 U.S dollars was worth 115 Canadian dollars or 1,291 Mexican pesos Which one of the following statements is correct given this information?
A $100 converted into Canadian dollars last year would now be worth $105.22
B $100 converted into Mexican pesos last year would now be worth $99.77
C $100 converted into Mexican pesos last year would now be worth $100.36
D $100 converted into Canadian dollars last year would now be worth $95.05
E $100 invested in Canadian dollars last year would now be worth $100
61 The camera you want to buy costs $289 in the U.S How much will the identical camera cost in Canada if the exchange rate is C$1 = $0.8262? Assume absolute purchasing power parity exists
62 A new coat costs 3,900 Russian rubles How much will the identical coat cost in Euros if absolute
purchasing power parity exists and the following exchange rates apply?
Trang 1165 In the spot market, $1 is currently equal to £0.6211 Assume the expected inflation rate in the U.K is 4.2 percent while it is 3.4 percent in the U.S What is the expected exchange rate one year from now if relative purchasing power parity exists?
69 Assume the spot rate for the Japanese yen currently is ¥98.48 per $1 and the one-year forward rate is
¥97.62 per $1 A risk-free asset in Japan is currently earning 2.5 percent If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S security?