Question 1

A Eurobond is:

Accepted Answer

Eurobonds are international bonds issued in multiple countries but denominated in a single currency, not necessarily the Euro, despite the name suggesting a connection to Europe or the Euro currency.

Question 2

Purchasing power parity can best be defined as:

Accepted Answer

Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency.

Question 3

Which of the following is the best definition of cross-rate.

Accepted Answer

The cross-rate is the exchange rate between two currencies, calculated from their common relationships with a third currency. When the U.S. dollar is used as the reference, it allows for the determination of an exchange rate between two other currencies not directly quoted against each other.

Question 4

You want to invest in a project in Australia. The project has an initial cost of A$2.3 million and is expected to produce cash inflows of A$950,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Australia is 5 % while it is only 2 % in Canada. The applicable interest rate in Australia is 9 %. The current spot rate is A$1 = C$.86. What is the net present value of this project in Australian dollars using the foreign currency approach?

Accepted Answer

The answer of You want to invest in a project...

Question 5

Spot exchange rate can best be defined as:

Accepted Answer

The spot exchange rate is the exchange rate used on trading currencies.

Question 6

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n):

Accepted Answer

A cross-rate is the exchange rate between two currencies when neither is the official currency in the country where the exchange rate quote is given. It is derived from the respective rates of these currencies against a common third currency.

Question 7

Forward exchange rate can best be described as:

Accepted Answer

The forward exchange rate is the agreed-upon exchange rate to be used in a forward trade.

Question 8

Forward rate can best be defined as:

Accepted Answer

A forward rate is an agreed-upon exchange rate for a currency transaction that will occur at a specified future date.

Question 9

Which of the following is the best definition of Eurocurrency.

Accepted Answer

Eurocurrency refers to money deposited in a financial institution located outside the country whose currency is being deposited. This allows for the currency to be used in international transactions without the need to convert into the local currency of the bank holding the deposits.

Question 10

In the spot market, $1 is currently equal to A$1.12. The expected inflation rate is 3 % in Australia and 2 % in Canada. What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

The answer of In the spot market, $1 is currently...

Question 11

In the spot market, $1 is currently equal to A$1.2389. The expected inflation rate in Australia is 5 % and in the U.S. 3.5 %. What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

The answer of In the spot market, $1 is currently...

Question 12

Which of the following is the best definition of Eurobond.

Accepted Answer

Eurobonds are international bonds issued in multiple countries but denominated in a single currency, often the currency of the issuer. This allows issuers to raise capital in a foreign currency more easily.

Question 13

A pair of K's woolen gloves sells for C$38.50 in Toronto. If purchasing power parity exists, what is the price of the gloves in Sydney?

Accepted Answer

The answer of  A pair of K's woolen gloves...

Question 14

Which of the following is the best definition of Eurobanks.

Accepted Answer

Eurobanks are banks that make loans and accept deposits in foreign currencies.

Question 15

Bank A quotes you that $1 will buy 2 Argentinean pesos or 5 Danish krone. At the same time, bank B provides you a quote of 3 pesos to buy 5 krone. Thus, there exists a potential for immediate profit via ___________________.

Accepted Answer

Triangle arbitrage is the correct answer because it involves taking advantage of the price differences between three currencies in the foreign exchange market by converting one currency to another, then converting a second currency to a third, and finally converting the third currency back to the original currency, all in an attempt to gain a profit from the discrepancies in the currency exchange rates quoted by the banks.

Question 16

The implicit exchange rate between currencies found from explicit exchange rates quoted in some third currency is called a(n)____________________.

Accepted Answer

A cross-rate is the exchange rate between two currencies, derived from their respective exchange rates against a common third currency.

Question 17

Spot trade can best be defined as:

Accepted Answer

Spot trade involves the immediate exchange of currencies at the current exchange rate, but settlement usually happens within two business days, not immediately.

Question 18

Which of the following is the best definition of counterparty.

Accepted Answer

Counterparty refers to the other party involved in a financial transaction, especially in the context of derivatives and swaps. In a currency swap, the counterparty is the entity that exchanges currency with the principal, each borrowing in the currency the other desires.

Question 19

A Japanese firm builds a manufacturing plant in Canada to avoid transportation charges in bringing its goods to the Canadian market. The Japanese firm is apparently willing to bear the _________________ of changes in the relative economic conditions between Canada and Japan.

Accepted Answer

The Japanese firm is willing to bear the long-run exchange rate risk, which refers to the potential for losses due to fluctuations in the exchange rate between the Japanese yen and the Canadian dollar over the long term. This risk is relevant because the firm's costs and revenues may be in different currencies, and changes in exchange rates can affect the profitability of their Canadian operations.

Question 20

In the spot market, $1 is currently equal to A$1.3953. The expected inflation rate is 4 % in Australia and 3 % in Canada. What is the expected exchange rate one year from now if relative purchasing power parity exists?

Accepted Answer

The answer of In the spot market, $1 is currently...

Quiz 21: International Corporate Finance

A Eurobond is:

Purchasing power parity can best be defined as:

Which of the following is the best definition of cross-rate.

Spot exchange rate can best be defined as:

The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n) :

Forward exchange rate can best be described as:

Forward rate can best be defined as:

Which of the following is the best definition of Eurocurrency.

In the spot market, $1 is currently equal to A$1.12. The expected inflation rate is 3 % in Australia and 2 % in Canada. What is the expected exchange rate one year from now if relative purchasing power parity exists?

In the spot market, $1 is currently equal to A$1.2389. The expected inflation rate in Australia is 5 % and in the U.S. 3.5 %. What is the expected exchange rate one year from now if relative purchasing power parity exists?

Which of the following is the best definition of Eurobond.

A pair of K's woolen gloves sells for C$38.50 in Toronto. If purchasing power parity exists, what is the price of the gloves in Sydney?

Which of the following is the best definition of Eurobanks.

Bank A quotes you that $1 will buy 2 Argentinean pesos or 5 Danish krone. At the same time, bank B provides you a quote of 3 pesos to buy 5 krone. Thus, there exists a potential for immediate profit via ___________________.

The implicit exchange rate between currencies found from explicit exchange rates quoted in some third currency is called a(n) ____________________.

Spot trade can best be defined as:

Which of the following is the best definition of counterparty.

A Japanese firm builds a manufacturing plant in Canada to avoid transportation charges in bringing its goods to the Canadian market. The Japanese firm is apparently willing to bear the _________________ of changes in the relative economic conditions between Canada and Japan.

In the spot market, $1 is currently equal to A$1.3953. The expected inflation rate is 4 % in Australia and 3 % in Canada. What is the expected exchange rate one year from now if relative purchasing power parity exists?