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Exam 18: Multinational Financial Management

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Question 21

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If one Swiss franc can purchase 0.80 U.S.dollar,how many Swiss francs can one U.S.dollar buy?

A) 1.0375
B) 1.2500
C) 1.2250
D) 1.0500
E) 1.5375

F) A) and E)
G) B) and D)

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Question 22

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Suppose a U.S.firm buys $200,000 worth of television tubes from a Mexican manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received) .The rising U.S.deficit has caused the dollar to depreciate against the peso recently.The current exchange rate is 5.52 pesos per U.S.dollar.The 90-day forward rate is 5.45 pesos/dollar.The firm goes into the forward market today and buys enough Mexican pesos at the 90-day forward rate to completely cover its trade obligation.Assume the spot rate in 90 days is 5.30 Mexican pesos per U.S.dollar.How much in U.S.dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge? Do not round the intermediate calculations and round the final answer to the nearest cent. ​

A) $4,758.46
B) $5,733.08
C) $6,478.38
D) $6,650.37
E) $5,905.07

F) A) and B)
G) C) and D)

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Question 23

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Multinational financial management requires that financial analysts consider the effects of changing currency values.

A foreign currency will,on average,depreciate against the U.S.dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

In Japan,90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return.In the United States,90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%.All securities are of equal risk,and Japanese securities are denominated in terms of the Japanese yen.Assuming that interest rate parity holds in all markets,which of the following statements is most CORRECT?

Which of the following statements is NOT CORRECT?

If one U.S.dollar buys 1.69 Canadian dollars,how many U.S.dollars can you purchase for one Canadian dollar?

Currently,a U.S.trader notes that in the 6-month forward market,the Japanese yen is selling at a premium (that is,you receive more dollars per yen in the forward market than you do in the spot market) ,while the British pound is selling at a discount.Which of the following statements is CORRECT?

Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

If one U.S.dollar buys 0.67 euro,how many dollars can you purchase for one euro?

Multinational financial management requires that

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

Suppose DeGraw Corporation,a U.S.exporter,sold a solar heating station to a Japanese customer at a price of 143.5 million yen,when the exchange rate was 140.0 yen per dollar.In order to close the sale,DeGraw agreed to make the bill payable in yen,thus agreeing to take some exchange rate risk for the transaction.The terms were net 6 months.If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid,what dollar amount would DeGraw actually receive after it exchanged yen for U.S.dollars?

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.77 shekels per dollar,then the forward rate for the Israeli shekel is selling at a(n) ______________ to the spot rate.

Suppose in the spot market 1 U.S.dollar equals 1.3750 Canadian dollars.6-month Canadian securities have an annualized return of 6.00% (and thus a 6-month periodic return of 3.00%) .6-month U.S.securities have an annualized return of 6.50% and a periodic return of 3.25%.If interest rate parity holds,what is the U.S.dollar-Canadian dollar exchange rate in the 180-day forward market? In other words,how many Canadian dollars are required to purchase one U.S.dollar in the 180-day forward market? Do not round the intermediate calculations and round the final answer to four decimal places.

A foreign currency will,on average,depreciate against the U.S.dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States.

Suppose 90-day investments in Britain have a 6.00% annualized return and a 1.50% quarterly (90-day) return.In the U.S. ,90-day investments of similar risk have a 4.00% annualized return and a 1.00% quarterly (90-day) return.In the 90-day forward market,1 British pound equals $1.85.If interest rate parity holds,what is the spot exchange rate ($/£) ? Do not round the intermediate calculations and round the final answer to four decimal places.

Which of the following are reasons why companies move into international operations?

Exchange rate risk is the risk that the cash flows from a foreign project,when converted to the parent company's currency,will be worth less than was originally projected because of exchange rate changes.

Suppose DeGraw Corporation,a U.S.exporter,sold a solar heating station to a Japanese customer at a price of 142.0 million yen,when the exchange rate was 140.0 yen per dollar.In order to close the sale,DeGraw agreed to make the bill payable in yen,thus agreeing to take some exchange rate risk for the transaction.The terms were net 6 months.If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid,what dollar amount would DeGraw actually receive after it exchanged yen for U.S.dollars?