1. Which of these factors distinguish financial management as practiced by domestic firms from that practiced by multinational corporations:

Select one:

a. Cultural differences

b. Different currency denominations

c. Political risks

d. Different economic and legal structures

e. All of the above

Question 2

Bank of America quoted the 180-day forward rate on the Swiss franc at $0.7902. The spot rate was quoted at $0.7766/SF. What is the forward premium or discount on the Swiss Franc? (Express in percentage to 2 decimal places)

Select one:

a. 3.50% discount

b. 0.98% premium

c. 0.98% discount

d. 3.50% premium

Question 3

If the starting amount is US$1,750,000, what is the Arbitrage profit which is generated if the exchange rate is 95.765/US$ and US$1.7542/ and observed rate of 175/,

Select one:

a. US$82,004

b. US$67,400

c. US$73,015

d. US$73,400

Question 4

Investing in a financial instrument other than ones home currency and locking in the proceeds through the forward rate is called:

Select one:

a. Relative Purchasing Power Parity

b. Uncovered Interest Arbitrage

c. Interest Rate Parity

d. Covered Interest Arbitrage

Question 5

Political risk is defined as:

Select one:

a. All of the above

b. Unanticipated actions by the host government affecting the cash flows of a project

c. Unanticipated changes in exchange rates

d. Unanticipated actions by the World Bank affecting the cash flows of a project

Question 6

Which of the following is true about violations of PPP?

Select one:

a. Impact the real rate of return on any portfolio of financial assets across countries.

b. All of the above

c. Tells us that the relative competitiveness of a country vis--vis the other has changed

d. Indicates a change in the purchasing power of consumers

e. Leads to foreign exchange risk

Question 7

The spot lira/dollar exchange rate is 833 lira/$. The 3-month forward rate is 863 lira/$. What is the lira's forward premium (or discount) on the dollar, expressed as an annual rate?

Select one:

a. 4% discount

b. 4% premium

c. 14% discount

d. 14% premium

Question 8

A currency forward contract is described by:

Select one:

a. None of the above

b. Agreeing today to buy or sell specified amount of a currency at a later date at a price set today

c. Agreeing today to buy or sell specified amount of a currency today at its current price

d. Agreeing today to buy or sell specified amount of a currency at a later date at a price set in the future

QUESTION 9

Assume that interest rate parity holds. In both the spot market and the 90-day forward market 1 Japanese yen equals 0.0086 dollar. The 90-day risk-free securities yield 4.6 percent in Japan. What is the yield on 90-day risk-free securities in the United States

Select one:

a. 1.05%

b. 4.3%

c. 1.15%

d. 4.6%

Question 10

Spot rate = BP 0.6024/US$; 3-month forward rate = BP 0.5984/US$. TE Company is expecting a payment of BP 200 million in 3 months. If the firm hedges this transaction in forward market what is the US$ amount it will receive in three months? (Ignore transaction costs)

Select one:

a. US$166.00 million

b. US $60.40 million

c. US$336.70 million

d. US$165.56 million

Question 11

Toyota builds a new car in Japan for a cost plus profit of 1,950,000 yen. At an exchange rate of 134.Y:$1 the car sells for $14,552.24 in Indianapolis. If the dollar rises in value, against the yen, to an exchange rate of 145Y:$1, what will be the price of the car?

Select one:

a. $14,833.90

b. $13,448.28

c. $15,445.30

d. $13,558.45

Question 12

Barclays Bank of London has offered the following exchange rate quotes:

195.64/ and Korean won 10.8374/.

What is the cross rate between the Korean won and the British Pound.

Select one:

a. Won 2,120.23/

b. Won 180.523/

c. Won 18.0523/

d. Won 1,120.35/

Question 13

A Nintendo Game costs $700 in the United States. The same game costs 1,800 French francs (FF). If purchasing power parity holds, what is the spot exchange rate between the FF and the dollar?

Select one:

a. 1FF = $5.07

b. $1 = 4.35 FF

c. $0.917 = $5.07FF

d. 1 FF = $0.3889

Question 14

Which of the following independent statements are true?

Select one:

a. A foreign currency will on average, appreciate at a percentage rate approximately equal to the amount by which its inflation rate exceeds the inflation rate in the United States.

b. If the current spot rate is 10 Mexican Pesos/US$ and is likely to move to 12.2773 Mexican Pesos/US$ in the next 3 months, the Mexican Peso is likely to appreciate against US$.

c. If you enter in an agreement to buy Japanese Yen for US dollars 90 days from now at a rate of 60/US$ is an example of an indirect quote

d. The cost of capital is generally lower for a foreign project than for an equivalent domestic project since the possibility of exchange gains exists