Question 1

Suppose one British pound can purchase 1.88 U.S.dollars today in the foreign exchange market,and currency forecasters predict that the U.S.dollar will depreciate by 12.00% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

Accepted Answer

If the U.S. dollar depreciates by 12% against the pound, the new exchange rate will be 1.88 * 1.12 = 2.1056 dollars per pound.

Question 2

A currency trader observes the following quotes in the spot market: 1 U.S.dollar =1.21 Japanese yen
1 British pound =2.25 Swiss francs
1 British pound =1.65 U.S.dollars
Given this information,how many yen can be purchased for 1 Swiss franc? Do not round the intermediate calculations and round the final answer to four decimal places.

Accepted Answer

The answer of A currency trader observes the following quotes...

Question 3

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.

Accepted Answer

The answer of If the spot rate of the Israeli...

Question 4

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

Accepted Answer

The answer of If one U.S.dollar buys 0.67 euro,how many...

Question 5

Suppose that currently,1 British pound equals 1.98 U.S.dollars and 1 U.S.dollar equals 1.65 Swiss francs.How many Swiss francs are needed to purchase 1 pound?

Accepted Answer

The answer of Suppose that currently,1 British pound equals 1.98...

Question 6

Suppose one year ago,Hein Company had inventory in Britain valued at 232,000 pounds.The exchange rate for dollars to pounds was 1£ = 2.00 U.S.dollars.This year the exchange rate is 1£ = 1.82 U.S.dollars.The inventory in Britain is still valued at 232,000 pounds.What is the U.S.dollar gain or loss in inventory value as a result of the change in exchange rates?

Accepted Answer

The inventory value in U.S. dollars one year ago was 232,000 pounds * 2.00 USD/pound = 464,000 USD. This year, the value is 232,000 pounds * 1.82 USD/pound = 422,240 USD. The loss in value is 464,000 USD - 422,240 USD = 41,760 USD.

Question 7

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?

Accepted Answer

According to interest rate parity, the difference in interest rates between two countries should be reflected in the forward exchange rate for their currencies. Therefore, if the Japanese yen is selling at a premium in the forward market, it suggests that Japan's interest rates are lower than those of the US. Similarly, if the British pound is selling at a discount in the forward market, it suggests that Britain's interest rates are higher than those of the US. Therefore, if interest rate parity holds, Britain should have the highest 6-month interest rates and Japan should have the lowest rates. Choice A and B are not correct because they assume that the US has the same or higher interest rates than the other countries, which is not necessarily true. Choice D is incorrect because it suggests that Japan has the highest interest rates, which contradicts the information provided in the question. Choice E is also incorrect because it assumes that Japan has the lowest interest rates, which is not necessarily true.

Question 8

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?

Accepted Answer

DeGraw Corporation would receive 142,000,000 yen. At the new exchange rate of 154.4 yen per dollar, the dollar amount received would be 142,000,000 / 154.4 = $919,689.12.

Question 9

Which of the following statements is NOT CORRECT?

Accepted Answer

The term Eurobond does not apply only to foreign bonds denominated in U.S.currency. In fact, Eurobonds are bonds denominated in a currency other than that of the country where they are issued, and they can be denominated in any currency, not just U.S. dollars. Therefore, statement D is not correct.

Question 10

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 149 yen per dollar,what would the car be selling for today in U.S.dollars?

Accepted Answer

To find out what the car would be selling for today in U.S. dollars, we need to convert the original price in yen to U.S. dollars using the current exchange rate:

1,476,000 yen ÷ 149 yen/dollar = $9,906.04

Therefore, the correct answer is D) $9,906.

Question 11

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

Accepted Answer

To find out how many Swiss francs one U.S. dollar can buy, you divide 1 by the given exchange rate (0.80). So, 1 / 0.80 = 1.25, which means one U.S. dollar can buy 1.25 Swiss francs.

Question 12

If one U.S.dollar sells for 0.41 British pound,how many dollars should one British pound sell for?

Accepted Answer

The answer of If one U.S.dollar sells for 0.41 British...

Question 13

A currency trader observes the following quotes in the spot market: Given this information,how many Mexican pesos can be purchased for 1 Danish krone?

Accepted Answer

The answer of A currency trader observes the following quotes...

Question 14

Suppose 144 yen could be purchased in the foreign exchange market for one U.S.dollar today.If the yen depreciates by 6.0% tomorrow,how many yen could one U.S.dollar buy tomorrow?

Accepted Answer

If the yen depreciates by 6.0%, it means that one U.S. dollar can buy more yen than before. We can calculate this using:

New exchange rate = old exchange rate * (1 - depreciation rate)
New exchange rate = 144 * (1 - 0.06)
New exchange rate = 144 * 0.94
New exchange rate = 135.36 yen per dollar

Therefore, one U.S. dollar could buy 135.36 yen tomorrow, which is closest to choice D (152.6400) but none of the choices exactly match the answer.

Question 15

Suppose the exchange rate between U.S.dollars and Swiss francs is SF 1.41 = $1.00,and the exchange rate between the U.S.dollar and the euro is $1.00 = 0.80 euro.What is the cross rate of Swiss francs to euros? (In other words,how many Swiss francs are needed to purchase one euro?)Do not round the intermediate calculations and round the final answer to four decimal places. ​

Accepted Answer

To find the cross rate of Swiss francs to euros, first find how many dollars are needed to purchase one euro: $1/0.80 euro = $1.25. Then, convert this dollar amount to Swiss francs: $1.25 * SF 1.41 = SF 1.7625.

Question 16

If one U.S.dollar buys 1.58 Canadian dollars,how many U.S.dollars can you purchase for one Canadian dollar?

Accepted Answer

The answer of If one U.S.dollar buys 1.58 Canadian dollars,how...

Question 17

Suppose a foreign investor who holds tax-exempt Eurobonds paying 7.00% is considering investing in an equivalent-risk domestic bond in a country with a 28.00% withholding tax on interest paid to foreigners.If 7.00% after-tax is the investor's required return,what before-tax rate would the domestic bond need to pay to provide the required after-tax return?

Accepted Answer

The answer of Suppose a foreign investor who holds tax-exempt...

Question 18

Today in the spot market $1 = 1.82 Swiss francs and $1 = 130 Japanese yen.In the 90-day forward market,$1 = 1.84 Swiss francs and $1 = 127 Japanese yen.Assume that interest rate parity holds worldwide.Which of the following statements is most CORRECT?

Accepted Answer

Interest rate parity holds that the difference in interest rates between two countries should equal the expected change in exchange rates over the same period. If the forward exchange rate is less than the expected spot exchange rate, then the foreign currency is at a forward premium. If the forward exchange rate is greater than the expected spot exchange rate, then the foreign currency is at a forward discount. In this case, the Swiss franc is at a forward premium while the Japanese yen is at a forward discount. According to interest rate parity, this implies that the interest rates in Switzerland must be lower than in the US while the interest rates in Japan must be higher than in the US. Therefore, option B is the correct answer.

Question 19

If one British pound can purchase $2.30 U.S.dollars,how many British pounds can one U.S.dollar buy?

Accepted Answer

To find how many British pounds one U.S. dollar can buy, take the reciprocal of the exchange rate: 1 / 2.30 = 0.4348.

Question 20

If the inflation rate in the United States is greater than the inflation rate in Britain,other things held constant,the British pound will

Accepted Answer

When the inflation rate in the United States is higher than in Britain, it generally leads to the depreciation of the U.S. dollar relative to the British pound. This is because higher inflation in the U.S. reduces the purchasing power of the dollar, making British goods relatively cheaper and more attractive, thus increasing demand for the pound.

Quiz 18: Multinational Financial Management