Shera Corporation has extensive liabilities denominated in pounds resulting from imports from UK. However, Shera's revenues are denominated solely in U.S. dollars. Which of the following is probably not true?

Shera has at least some transaction exposure.

All of the above are true.

Shera has at least some translation exposure.

Shera would benefit from a depreciation of the British pound.

Shera has at least some economic exposure.

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Question 23 pts

ABC Inc. produces home appliances and sells them in the U.S. It outsources the production of the appliances to a Vietnamese manufacturer, and the imported appliances are priced in dollars. Its major competitor for appliances is located in China. Based on this information, ABC Inc. is subject to ____ exposure.

economic and transaction

transaction

translation

economic

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Question 33 pts

Suppose there are no transaction costs. If the one year forward rate of the euro is an accurate estimate of the spot rate one year from now, then the actual cost of hedging payable will be:

positive.

zero.

positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.

negative.

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Question 43 pts

ABC Inc. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Jonathan Inc. is a U.S.-based MNC that has the same exposure as ABC Inc. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk?

ABC Inc.

Jonathan Inc.

the firms have about the same level of exposure.

neither firm has any exposure.

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Question 53 pts

Assume the following information:

	Predicted Value of	Realized Value of
Period	New Zealand Dollar	New Zealand Dollar
1	$.52	$.50
2	.54	.60
3	.44	.42
4	.51	.55

Given this information, the mean absolute forecast error as a percentage of the realized value is about:

6.00%.

2.87%.

none of the above

26.0%.

6.50%.

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Question 63 pts

Assume that interest rate parity holds. The U.S. four-year interest rate is 5% annualized, and the Indian four-year interest rate is 8% annualized. Today's spot rate of the Indian rupee is $.14. What is the approximate four-year forecast of the rupee's spot rate if the four-year forward rate is used as a forecast?

$.262.

$.174.

$.125.

$.226.

$.115.

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Question 73 pts

If inflation rate in Canada is 5%, while the inflation rate in the U.S. is 3%. According to PPP, the Canadian dollar should ____ by ____%.

Appreciate; 1.94

Depreciate; 1.90%

Depreciate; 4.85

Appreciate 4.85%

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Question 85 pts

Assume the following information:

	Quoted Bid Price	Quoted Ask Price
Value of a Canadian dollar in $	$0.66	$0.69
Value of Chinese Yuan in $	$.074	$.075
Value of a Canadian dollar in Chinese Yuan	8.2	8.3

Assume you have $100,000 to conduct triangular arbitrage. What will be your profit from implementing this strategy?

$6,024

$6,133

$2,368

$13,711

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Question 93 pts

Assume that the Japanese government wants to reduce inflation. Which of the following would be an appropriate action for the Japanese government?

Buy yen with foreign currency

None of the above

Sell yen for foreign currency

Increase interest rates

Decrease interest rates

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Question 103 pts

To weaken the dollar using sterilized intervention, the Fed would ____ dollars and simultaneously ____ Treasury securities.

sell; buy

buy; sell

sell; sell

buy; buy

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Question 113 pts

The value of $1 equals to C$ 1.03 today. If the value of the value of $1 equals to C$ .95 one year from now, the Canadian dollar ____ by ____%.

depreciated; 4.85

appreciated; 5.10

appreciated; 8.42

depreciated; 5.10