IMXP Corp. enters into a 30-day forward exchange contract to buy 113,540,000 yen for $100,000. Which of the following statements is true concerning this transaction?

Select one:

a. IMXP will pay $100,000 today and receive 113,540,000 yen 30 days from now.

b. The spot exchange rate in 30 days will be 113.54 yen per dollar.

c. IMXP will receive 113,540,000 yen today and pay $100,000 30 days from now.

d. IMXP will pay $100,000 and receive 113,540,000 yen 30 days from now.

One theory that is useful states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity. This theory is known as

Select one:

a. the forward rate theory.

b. the exchange rate theory.

c. the interest rate parity theory.

d. the covered interest arbitrage theory.

Suppose the 360-day forward exchange rate is 1.657 dollars per British pound, and the current spot rate is 1.625 dollars per British pound. If the 360-day interest rate in the United States is 5% and the 360-day interest rate in Great Britain is 3%, is the market in equilibrium according to the interest rate parity theory?

Select one:

a. No, because the higher interest rate in the United States (2%) implies that the forward exchange rate should be 2% lower than the current spot rate.

b. No, because the forward premium on the pound is 2% while the interest rate in the United States is 67% higher than the interest rate in Great Britain.

c. Yes, because the forward premium on the pound (2%) is exactly offset by the lower interest rate in Great Britain.

d. Cannot be determined without knowing the amount of money being exchanged.

The Euro increased dramatically in value against the U.S. dollar between 2000 and 2009. The result has been that

Select one:

a. European exports to the United States are more competitive.

b. U.S. exports are more competitive in Europe.

c. U.S. travelers are finding it less expensive to travel in Europe.

d. U.S. goods cost more in Europe.

The spot exchange rate is 1.57 dollars per pound. The 30-day forward exchange rate is .6211 pounds per dollar. Therefore, pounds in the forward market are selling at a ________ to the current spot rate.

Select one:

a. .958 premium

b. .958 discount

c. .04 discount

d. .04 premium

WSM Wine Importers, Inc. purchased 75,000 cases of French wine at a cost of 6,000,000 euros. If the current exchange rate is 0.7576 euros to the U.S. dollar, what is the purchase price of the wine in U.S. dollars?

Select one:

a. $9,328,651

b. $ 7,919,747

c. $9,684,148

d. $8,350,012

A U.S. corporation investing in a foreign corporation by purchasing stock on a foreign stock exchange is an example of direct foreign investment.

Select one:

True

False

An indirect quote indicates the number of units of foreign currency that can be bought for one unit of the home currency.

Select one:

True

False

Most major countries in the world have agreed on fixed exchange rates in order to facilitate international trade.

Select one:

True

False

The forward exchange rate quoted today should be equal to the spot rate in the future.

Select one:

True

False