Question 1

The yen per dollar spot rate is 104.The yen per dollar forward rate is 107.If the US risk free rate is 2.4%,what is the likely yen risk free rate?

Accepted Answer

The forward rate can be used to estimate the foreign risk-free rate using the interest rate parity formula: Forward Rate = Spot Rate * (1 + Domestic Rate) / (1 + Foreign Rate). Solving for the yen rate gives approximately 5.35%.

Question 2

An importer of televisions from Japan has a contract to purchase a shipment of televisions for 2,000,000 yen.The spot rate increases from 105 yen per dollar to 108 yen per dollar.What is the importer's gain or loss?

Accepted Answer

The importer gains $529. Initially, at 105 yen per dollar, the cost in dollars is 2,000,000 / 105 = $19,047.62. When the rate changes to 108 yen per dollar, the cost is 2,000,000 / 108 = $18,518.52. The difference is $19,047.62 - $18,518.52 = $529, which is a gain.

Question 3

The risk free rate in the US is 4.0% and the risk free rate in Japan is 1.2%.If the spot rate of yen to dollars is 105,what is the likely yen per dollar forward rate?

Accepted Answer

The answer of The risk free rate in the US...

Question 4

Inclusion of international equities in a U.S.investor's portfolio has historically produced ___________________.

Accepted Answer

International equities have a low correlation with U.S. equities, so adding them to a U.S. investor's portfolio can reduce the overall portfolio variance.

Question 5

The risk free rate in the US is 2.5% and the risk free rate in Europe is 3.2%.If the spot rate of dollars per euro is 1.32,what is the likely forward rate in terms of dollars per euro?

Accepted Answer

To calculate the forward rate, we need to use the interest rate differential between the two countries. 
The interest rate differential is: 3.2% - 2.5% = 0.7%
We then add this differential to the spot rate as follows: 
1.32 + (1.32 x 0.007) = 1.31
Therefore, the likely forward rate in terms of dollars per euro is 1.31, which is Choice B.

Question 6

The dollar per euro spot rate is 1.2 when an importer of French wines places an order.6 months later,when she takes delivery,the spot rate is 1.3 dollars per euro.If her original invoice was for 30,000 euro,what is her gain or loss due to exchange rate risk?

Accepted Answer

When the importer placed the order, she agreed to pay 1.2 dollars per euro, so the cost in dollars was 30,000 x 1.2 = $36,000.
However, when she took delivery, the exchange rate had moved against her, and the cost in dollars was now 30,000 x 1.3 = $39,000.
Therefore, the importer has incurred a loss of $39,000 - $36,000 = $3,000. Hence, the answer is option B.

Question 7

Among emerging countries the largest equity market in 2007 was located in _____________.

Accepted Answer

The answer of Among emerging countries the largest equity market...

Question 8

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤.
-How many shares can the investor purchase?

Accepted Answer

The investor has $7,000, which can be converted to British pounds at the exchange rate of $1.40/₤. This gives ₤5,000 ($7,000 / $1.40). At ₤50 per share, the investor can purchase 100 shares (₤5,000 / ₤50).

Question 9

Which emerging country has the highest percentage growth in market capitalization?

Accepted Answer

According to the data from the World Federation of Exchanges, China had the highest percentage growth in market capitalization in 2020, with an increase of 26.2%. Brazil had an increase of 21.8%, Taiwan had an increase of 19.3%, and Turkey had an increase of 11.9%. Therefore, option B is the best choice.

Question 10

You are a U.S.investor who purchased British securities for 3,500 pounds one year ago when the British pound cost $1.35.No dividends were paid on the British securities in the past year.Your total return based in U.S.dollars was __________ if the value of the securities is now 4,200 pounds and the pound is worth $1.15.

Accepted Answer

The answer of You are a U.S.investor who purchased British...

Question 11

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤.
-After one year,the exchange rate is $1.60/₤ and the share price is ₤55.What is the dollar-denominated return?

Accepted Answer

First, convert the amount of money available for investment to pounds:

$7,000 / $1.40/₤ = ₤5,000

Next, calculate the total return in pounds:

(₤55 - ₤50) / ₤50 = 0.1 or 10%

Finally, convert the return back to dollars using the new exchange rate:

0.1 * ₤5,000 * $1.60/₤ = $800

The dollar-denominated return is the total dollar gain divided by the initial investment:

$800 / $7,000 = 0.114 or 11.4%.

But since the question asks for the percentage increase, we subtract 1 from 0.114 and convert to a percentage:

0.114 - 1 = -0.886 or -88.6%

So the answer is 25.7% (since we ignore the negative sign).

Question 12

A country has a PRS political risk rating of 75,a financial score of 40 and an economic score of 35.The country's composite rating is _________.

Accepted Answer

The answer of A country has a PRS political risk...

Question 13

In the PRS financial risk ratings the U.S.rates poorly because of the U.S.experiences ________.
I.large budget deficit
II.large trade deficit
III.large amount of total debt

Accepted Answer

The PRS financial risk ratings consider all three factors - budget deficit, trade deficit and total debt - in assessing the financial risk of a country. The US rates poorly because it has a large budget deficit, a large trade deficit and a large amount of total debt. Therefore, options I, II and III are all correct.

Question 14

You find that the exchange rate quote for the yen is 121 yen per dollar.This is an example of a/an ________ quote.You also find that the euro is worth $1.33.This second quote is an example of a/an _______ quote.

Accepted Answer

The yen quote is indirect because it shows how many units of foreign currency (yen) are needed to buy one unit of domestic currency (dollar). The euro quote is direct because it shows how many units of domestic currency (dollars) are needed to buy one unit of foreign currency (euro).

Question 15

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤.
-After one year,the exchange rate is unchanged and the share price is ₤55.What is the pound-denominated return?

Accepted Answer

The answer of Suppose a U.S. investor wishes to invest...

Question 16

WEBS are _____________.

Accepted Answer

WEBS are equity indices that replicate the price and yield performance of foreign stock portfolios. They are designed to provide investors with a way to invest in foreign markets without directly investing in individual foreign securities. Therefore, option C is the correct choice. The other options are not applicable to the definition of WEBS.

Question 17

In the PRS country composite risk ratings a score of ______ represents the least risky and a score of _____ represents the most risky.

Accepted Answer

According to the given statement, a score of 0 represents the least risky and a score of 100 represents the most risky. Therefore, option D is the correct choice.

Question 18

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤.
-After one year,the exchange rate is unchanged and the share price is ₤55.What is the dollar-denominated return?

Accepted Answer

The answer of Suppose a U.S. investor wishes to invest...

Question 19

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤.
-After one year,the exchange rate is $1.50/₤ and the share price is ₤45.How much of your dollar-denominated return is due to the currency change?

Accepted Answer

To calculate the return due to the currency change, we need to calculate the initial investment in dollars and the final investment in dollars.

Initial investment: 
$7,000 / $1.4/₤ = ₤5,000

Final investment: 
₤45 x $1.5/₤ = $67.5
$67.5 / ₤1.5/₤ = ₤45

The return due to the currency change is: 
($67.5 - $7,000) / $7,000 = 0.9643 or 9.64%

Therefore, the answer is B) 6.43%.

Question 20

Real U.S.interest rates move above Japanese interest rates.If you believe that Japanese interest rates won't move and you believe that interest rate parity will hold then ____________.

Accepted Answer

If U.S. interest rates are higher than Japanese interest rates, investors will likely move their money to the U.S. to take advantage of the higher returns. This will increase the demand for dollars, causing the dollar to appreciate against the yen. So, the dollar per yen exchange rate should rise.

Quiz 19: Globalization and International Investing

The yen per dollar spot rate is 104.The yen per dollar forward rate is 107.If the US risk free rate is 2.4%,what is the likely yen risk free rate?

An importer of televisions from Japan has a contract to purchase a shipment of televisions for 2,000,000 yen.The spot rate increases from 105 yen per dollar to 108 yen per dollar.What is the importer's gain or loss?

The risk free rate in the US is 4.0% and the risk free rate in Japan is 1.2%.If the spot rate of yen to dollars is 105,what is the likely yen per dollar forward rate?

Inclusion of international equities in a U.S.investor's portfolio has historically produced ___________________.

The risk free rate in the US is 2.5% and the risk free rate in Europe is 3.2%.If the spot rate of dollars per euro is 1.32,what is the likely forward rate in terms of dollars per euro?

The dollar per euro spot rate is 1.2 when an importer of French wines places an order.6 months later,when she takes delivery,the spot rate is 1.3 dollars per euro.If her original invoice was for 30,000 euro,what is her gain or loss due to exchange rate risk?

Among emerging countries the largest equity market in 2007 was located in _____________.

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤. -How many shares can the investor purchase?

Which emerging country has the highest percentage growth in market capitalization?

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤. -After one year,the exchange rate is $1.60/₤ and the share price is ₤55.What is the dollar-denominated return?

A country has a PRS political risk rating of 75,a financial score of 40 and an economic score of 35.The country's composite rating is _________.

In the PRS financial risk ratings the U.S.rates poorly because of the U.S.experiences ________. I.large budget deficit II.large trade deficit III.large amount of total debt

You find that the exchange rate quote for the yen is 121 yen per dollar.This is an example of a/an __ quote.You also find that the euro is worth $1.33.This second quote is an example of a/an _ quote.

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤. -After one year,the exchange rate is unchanged and the share price is ₤55.What is the pound-denominated return?

WEBS are _____________.

In the PRS country composite risk ratings a score of __ represents the least risky and a score of _ represents the most risky.

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤. -After one year,the exchange rate is unchanged and the share price is ₤55.What is the dollar-denominated return?

Real U.S.interest rates move above Japanese interest rates.If you believe that Japanese interest rates won't move and you believe that interest rate parity will hold then ____________.