Question 1

Assume the following spot and forward rates for the euro ($/Euro). $$\begin{array} { l r } 
\text { Spot rate } & \$ 0.6317 \
30 \text {-day forward rate } & 0.6330 \
90 \text {-day forward rate } & 0.6353 \
120 \text {-day forward rate } & 0.6387
\end{array}$$ A) What is the dollar value of one euro in the spot market?
B) Suppose you issued a 90-day forward contract to exchange 100,000 euros into Canadian dollars. How many dollars are involved?
C) How many euros can you get for one dollar in the spot market?
D) What is the 120-day forward premium?

Accepted Answer

A) $0.6317
B) $.6353...

Question 2

Eurobond issues are sold simultaneously in several national capital markets, but denominated in a currency different from that of the nation in which the bonds are issued.

Accepted Answer

A) True 
 B)False

Question 3

The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time.

Accepted Answer

A) True 
 B)False

Question 4

Transaction exposure results in foreign exchange gains and losses.

Accepted Answer

A) True 
 B)False

Question 5

An exporter is able to satisfy foreign demand for a product while avoiding long-term investment although this method is riskier than other alternatives.

Accepted Answer

A) True 
 B)False

Question 6

Transaction exposure associated with changes in the exchange rates between countries can be hedged with a currency futures contract.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not an advantage of borrowing on the Eurodollar market?

Accepted Answer

A)   greater availability of credit
B)   lower overhead costs for lending banks
C)   absence of compensating balance requirements
D)   constant lending rate over timeE) A) and B)
F) C) and D)

Question 8

The rise of the euro market makes the world's three most important currencies the U.S. dollar, the euro, and the Japanese yen.

Accepted Answer

A) True 
 B)False

Question 9

Forward contracts tend to be created in organized exchanges like the International Money Market of the Toronto Futures Exchange.

Accepted Answer

A) True 
 B)False

Question 10

If prices double in Vancouver while the prices in San Paulo remain the same, the purchasing power of the dollar relative to the real

Accepted Answer

A)   should increase by 50%.
B)   should increase by 100%.
C)   should decrease by 50%.
D)   should decrease by 100%.E) All of the above
F) A) and D)

Question 11

The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

Accepted Answer

A)   Purchasing Power Parity Theory.
B)   Balance of Payments.
C)   Interest Rate Parity Theory.
D)   none of the other answers are correctE) A) and B)
F) None of the above

Question 12

If the Brazilian real is equal to $0.46, a Canadian dollar is equal to how many Brazilian reals?

Accepted Answer

A)   1.36
B)   1.96
C)   2.17
D)   0.38E) A) and C)
F) None of the above

Question 13

Which of the following hedging strategies involves a loan without a futures contract?

Accepted Answer

A)   eurobond market
B)   forward exchange market
C)   money market
D)   IMM contractE) All of the above
F) None of the above

Question 14

The North American Free Trade Association (NAFTA) continues to generate more foreign trade despite some negative political views.

Accepted Answer

A) True 
 B)False

Question 15

You are on your way to Mexico. The current exchange rate is 12 pesos to the dollar. When you arrive, you convert $1,000 for how many pesos?

Accepted Answer

A)   12,000
B)   120
C)   .018
D)   not enough information to tellE) B) and D)
F) B) and C)

Question 16

Which of the following statements is true about international equity (stock)  markets?

Accepted Answer

A)   Japanese households are large investors in common stock
B)   commercial banks are generally not involved in the international securities business
C)   some foreign investors are more risk-averse than their counterparts in Canada and prefer dividend income over less certain capital gains
D)   foreign exchanges never include the listing of Canadian firmsE) B) and D)
F) A) and B)

Question 17

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Accepted Answer

A)   foreign exchange risk.
B)   political risk.
C)   translation exposure.
D)   none of the other answers are correctE) None of the above
F) A) and D)

Question 18

Assume the following spot and forward rates for the euro ($/euro). $$\begin{array} { l r } 
\text { Spot rate } & \$ 1.6277 \
30 \text {-day forward rate } & 1.6330 \
90 \text {-day forward rate } & 1.6353 \
120 \text {-day forward rate } & 1.6387
\end{array}$$ A) What is the dollar value of one euro in the spot market?
B) Suppose you issued a 120-day forward contract to exchange 200,000 euros into Canadian dollars. How many dollars are involved?
C) How many euros can you get for one dollar in the spot market?
D) What is the 120-day forward premium?

Accepted Answer

A) $1.6277
B) $1.638...

Question 19

What has motivated Canadian firms to move their operations to foreign countries?

Accepted Answer

A)   trade barriers, lower production costs, access to skilled workers, Canadian tax deferral
B)   trade barriers, lower production costs, access to natural resources and manufacturing
C)   import tariffs, foreign unions, foreign technology, expropriation
D)   lower production costs, tax deferral, access to natural resources and manufacturing, expropriationE) None of the above
F) A) and D)

Question 20

As exchange rates change, they

Accepted Answer

A)   change the relative purchasing power between countries.
B)   can affect imports and exports between countries.
C)   will affect the flow of funds between the countries.
D)   all the other answers are trueE) B) and D)
F) A) and B)

Exam 21: International Financial Management

Transaction exposure results in foreign exchange gains and losses.

Correct Answer
verified

Eurobond issues are sold simultaneously in several national capital markets, but denominated in a currency different from that of the nation in which the bonds are issued.

Correct Answer
verified

Which of the following statements is true about international equity (stock) markets?

Correct Answer
verified

Which of the following hedging strategies involves a loan without a futures contract?

Correct Answer
verified

You are on your way to Mexico. The current exchange rate is 12 pesos to the dollar. When you arrive, you convert $1,000 for how many pesos?

Correct Answer
verified

The North American Free Trade Association (NAFTA) continues to generate more foreign trade despite some negative political views.

Correct Answer
verified

Transaction exposure associated with changes in the exchange rates between countries can be hedged with a currency futures contract.

Correct Answer
verified

As exchange rates change, they

Correct Answer
verified

Correct Answer
verified
A) $0.6317
B) $.6353...
View Answer

If the Brazilian real is equal to $0.46, a Canadian dollar is equal to how many Brazilian reals?

Correct Answer
verified

The rise of the euro market makes the world's three most important currencies the U.S. dollar, the euro, and the Japanese yen.

Correct Answer
verified

The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

Correct Answer
verified

Which of the following is not an advantage of borrowing on the Eurodollar market?

Correct Answer
verified

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Correct Answer
verified

Forward contracts tend to be created in organized exchanges like the International Money Market of the Toronto Futures Exchange.

Correct Answer
verified

What has motivated Canadian firms to move their operations to foreign countries?

Correct Answer
verified

The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time.

Correct Answer
verified

An exporter is able to satisfy foreign demand for a product while avoiding long-term investment although this method is riskier than other alternatives.

Correct Answer
verified

Correct Answer
verified
A) $1.6277
B) $1.638...
View Answer

If prices double in Vancouver while the prices in San Paulo remain the same, the purchasing power of the dollar relative to the real

Correct Answer
verified

Exam 21: International Financial Management

Transaction exposure results in foreign exchange gains and losses.

Correct AnswerverifiedShow Answer

Eurobond issues are sold simultaneously in several national capital markets, but denominated in a currency different from that of the nation in which the bonds are issued.

Correct AnswerverifiedShow Answer

Which of the following statements is true about international equity (stock) markets?

Correct AnswerverifiedShow Answer

Which of the following hedging strategies involves a loan without a futures contract?

Correct AnswerverifiedShow Answer

You are on your way to Mexico. The current exchange rate is 12 pesos to the dollar. When you arrive, you convert $1,000 for how many pesos?

Correct AnswerverifiedShow Answer

The North American Free Trade Association (NAFTA) continues to generate more foreign trade despite some negative political views.

Correct AnswerverifiedShow Answer

Transaction exposure associated with changes in the exchange rates between countries can be hedged with a currency futures contract.

Correct AnswerverifiedShow Answer

As exchange rates change, they

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA) $0.6317B) $.6353...View AnswerShow Answer

If the Brazilian real is equal to $0.46, a Canadian dollar is equal to how many Brazilian reals?

Correct AnswerverifiedShow Answer

The rise of the euro market makes the world's three most important currencies the U.S. dollar, the euro, and the Japanese yen.

Correct AnswerverifiedShow Answer

The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called the

Correct AnswerverifiedShow Answer

Which of the following is not an advantage of borrowing on the Eurodollar market?

Correct AnswerverifiedShow Answer

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Correct AnswerverifiedShow Answer

Forward contracts tend to be created in organized exchanges like the International Money Market of the Toronto Futures Exchange.

Correct AnswerverifiedShow Answer

What has motivated Canadian firms to move their operations to foreign countries?

Correct AnswerverifiedShow Answer

The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time.

Correct AnswerverifiedShow Answer

An exporter is able to satisfy foreign demand for a product while avoiding long-term investment although this method is riskier than other alternatives.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA) $1.6277B) $1.638...View AnswerShow Answer

If prices double in Vancouver while the prices in San Paulo remain the same, the purchasing power of the dollar relative to the real

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
A) $0.6317
B) $.6353...
View 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
A) $1.6277
B) $1.638...
View Answer

Correct Answer
verified