2. Answer the following multiple choice question. (Choose the correct answer only ). 1 mark each question.

1. Assume a UK-based subsidiary wants to raise 1,000,000 by issuing a bond denominated in Pakistani rupees (PKR). The current exchange rate of the rupee is 0.01. Thus, the MNC needs ___________ rupees to obtain the 1,000,000 needed.

1 point

1. 10,000,000
2. 1,000,000,000
3. 100,000
4. 100,000,000

2. Assume the U.S. dollar is worth 0.55, and the Canadian dollar is worth 0.47. What is the value of the Canadian dollar in U.S. dollars to the nearest cent?

1 point

1. $0.85
2. $1.71
3. $1.17
4. $1.54
5. $0.89

3. Which of the following is the most likely strategy for a UK firm that will be receiving Australian dollars (AUD) in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in AUD)?

1 point

1. purchase a put option on AUD.
2. purchase a call option on AUD.
3. obtain a forward contract to purchase AUD forward.
4. all of the above are appropriate strategies for the scenario described.

4. A UK-based MNC has a contract to export products in which it agreed to accept yens. The UK-based MNCs pound cash flows are adversely affected if the

1 point

(a) Yen appreciates

(b) Yen depreciates

(c) Pound depreciates

(d) both a & c