Question 1

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 = 0.45 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

First, we need to convert the exchange rate between U.S. dollars and Swiss francs to Swiss francs per U.S. dollar:
SF 1.41 = $1.00
1 / (SF 1.41) = $1.00 / SF
0.7092 SF = $1.00

Next, we can use the exchange rates given to find the cross rate of Swiss francs to euros:
0.45 euro = $1.00
0.45 euro / $1.00 = 1 / 0.45 euro/$
1 / 0.45 euro/$ * 0.7092 SF/$ = 1.5752 SF/euro
Rounding to four decimal places, we get:
1.5752 SF/euro ≈ 3.1333 SF/euro.

Therefore, the answer is C.

Question 2

Suppose hockey skates sell in Canada for 114 Canadian dollars,and 1 Canadian dollar equals 0.71 U.S.dollar.If purchasing power parity (PPP)holds,what is the price of hockey skates in the United States?

Accepted Answer

The answer of Suppose hockey skates sell in Canada for...

Question 3

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.68 shekels per dollar,then the forward rate for the Israeli shekel is selling at a(n)______________ to the spot rate.

Accepted Answer

The forward rate is higher than the spot rate, indicating a discount. The percentage discount is calculated as ((5.68 - 5.51) / 5.68) * 100 = 3.09%.

Question 4

Suppose a foreign investor who holds tax-exempt Eurobonds paying 7.25% is considering investing in an equivalent-risk domestic bond in a country with a 28.00% withholding tax on interest paid to foreigners.If 7.25% 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 5

Suppose 6 months ago a Swiss investor bought a 6-month U.S.Treasury bill at a price of $9,708.74,with a maturity value of $10,000.00.The exchange rate at that time was 1.435 Swiss francs per dollar.Today,at maturity,the exchange rate is 1.324 Swiss francs per dollar.What is the annualized rate of return to the Swiss investor? Do not round the intermediate calculations and round the final answer to two decimal places.

Accepted Answer

First, we need to calculate the dollar amount that the Swiss investor received at maturity:

Maturity value = $10,000.00
Exchange rate at maturity = 1.324 Swiss francs per dollar

Maturity value in Swiss francs = $10,000.00 x 1.324 = 13,240 Swiss francs

Next, we need to calculate the Swiss francs that the investor spent to buy the Treasury bill:

Purchase price = $9,708.74
Exchange rate at time of purchase = 1.435 Swiss francs per dollar

Purchase price in Swiss francs = $9,708.74 x 1.435 = 13,924.45 Swiss francs

The investor spent 13,924.45 Swiss francs to buy the Treasury bill and received 13,240 Swiss francs at maturity, which represents a loss of:

Loss = 13,924.45 - 13,240 = 684.45 Swiss francs

To calculate the annualized rate of return, we need to use the following formula:

Annualized rate of return = [(Maturity value / Purchase price)^(1/n) - 1] x 100%

Where n is the number of periods in a year. In this case, n = 2 because the investment lasted for 6 months.

Plugging in the numbers, we get:

Annualized rate of return = [(13,240 / 13,924.45)^(1/2) - 1] x 100% = -0.0993 or -9.93%

Therefore, the answer is B.

Question 6

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?

Accepted Answer

DeGraw Corporation would receive 143.5 million yen. At the new exchange rate of 154.4 yen per dollar, the dollar amount received would be 143,500,000 yen / 154.4 yen/dollar = $929,404.15.

Question 7

Suppose one British pound can purchase 1.74 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 dollar depreciates by 12.00%, then the new exchange rate would be:

1 pound = 1.74 x 1.12 = $1.9488

Therefore, a pound would buy $1.9488 in 30 days. The answer is D.

Question 8

One year ago,a U.S.investor converted dollars to yen and purchased 100 shares of stock in a Japanese company at a price of 3,150 yen per share.The stock's total purchase cost was 315,000 yen.At the time of purchase,in the currency market 1 yen equaled $0.00952.Today,the stock is selling at a price of 3,465 yen per share,and in the currency market $1 equals 135 yen.The stock does not pay a dividend.If the investor were to sell the stock today and convert the proceeds back to dollars,what would be his realized return on his initial dollar investment from holding the stock?

Accepted Answer

1. Initial purchase cost in dollars:
$1 = 105 yen (1/0.00952)
315,000 yen = $3,000
So, the initial purchase cost in dollars was $3,000.

2. Current selling price in dollars:
$1 = 135 yen
3,465 yen = $25.67 (3,465/135)
So, the current selling price in dollars is $25.67.

3. Realized return:
Realized return = (selling price - purchase price)/purchase price
Realized return = ($25.67 - $30)/$30
Realized return = -0.1441 or -14.41%
Therefore, the realized return on the initial dollar investment would be -14.41%, which is option B.

Question 9

Blenman Corporation,based in the United States,arranged a 2-year,$1,000,000 loan to fund a project in Mexico.The loan is denominated in Mexican pesos,carries a 7.50% nominal rate,and requires equal semiannual payments.The exchange rate at the time of the loan was 5.75 pesos per dollar,but it dropped to 5.10 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus,Blenman must convert U.S.funds to Mexican pesos to make its payments.If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period,what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places.

Accepted Answer

The answer of Blenman Corporation,based in the United States,arranged a...

Question 10

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. ​

Accepted Answer

By hedging in the forward market, the firm locks in an exchange rate of 5.45 pesos per dollar for its $200,000 obligation. Without hedging, the firm would have to buy pesos at the spot rate of 5.30 pesos per dollar in 90 days. The calculation for savings is as follows:1. Amount needed in pesos to cover the obligation: $200,000 * 5.52 = 1,104,000 pesos.2. Amount in dollars hedged at the 90-day forward rate: 1,104,000 / 5.45 = $202,568.81.3. Amount in dollars without hedging at the 90-day spot rate: 1,104,000 / 5.30 = $208,301.89.4. Savings by hedging: $208,301.89 - $202,568.81 = $5,733.08.

Question 11

A product sells for $750 in the United States.The spot exchange rate is $1 to 1.67 Swiss francs.If purchasing power parity (PPP)holds,what is the price of the product in Switzerland?

Accepted Answer

According to PPP, the price in Switzerland should be the US price multiplied by the exchange rate: $750 * 1.67 = 1,252.50 Swiss francs.

Question 12

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.

Accepted Answer

Interest rate parity implies that the forward exchange rate should adjust to offset the interest rate differential between two countries. Using the formula: Forward Rate = Spot Rate * (1 + Interest Rate Domestic) / (1 + Interest Rate Foreign), we get 1.3750 * (1 + 0.0325) / (1 + 0.0300) = 1.3717.

Question 13

A currency trader observes the following quotes in the spot market: 1 U.S.dollar =1.28 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

First, we need to find the exchange rate between Swiss francs and U.S. dollars using the given information about British pounds. 1 British pound = 1.65 U.S. dollars and 1 British pound = 2.25 Swiss francs. Therefore, 1 Swiss franc = 1.65 / 2.25 U.S. dollars = 0.7333 U.S. dollars. Then, since 1 U.S. dollar = 1.28 Japanese yen, 1 Swiss franc = 0.7333 * 1.28 Japanese yen = 0.9387 Japanese yen.

Question 14

Suppose one year ago,Hein Company had inventory in Britain valued at 229,000 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 229,000 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 correct answer is A.The U.S. dollar value of the inventory one year ago was 229,000 pounds * 2.00 U.S. dollars per pound = 458,000 U.S. dollars.The U.S. dollar value of the inventory this year is 229,000 pounds * 1.82 U.S. dollars per pound = 416,780 U.S. dollars.The U.S. dollar loss in inventory value is 458,000 U.S. dollars - 416,780 U.S. dollars = $41,220.00.

Question 15

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 16

A box of candy costs 28.80 Swiss francs in Switzerland and $21.50 in the United States.Assuming that purchasing power parity (PPP)holds,how many Swiss francs are required to purchase one U.S.dollar? Do not round the intermediate calculations and round the final answer to four decimal places.

Accepted Answer

According to PPP, the exchange rate between two currencies should adjust until the price of an identical basket of goods is the same in both countries. Therefore, we can set up the following equation:
28.80 CHF = $21.50 x Exchange rate
Exchange rate = 28.80 CHF / $21.50 = 1.3395
Therefore, it takes 1.3395 Swiss francs to purchase one U.S. dollar.

Question 17

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.

Accepted Answer

The spot exchange rate can be calculated using the interest rate parity (IRP) formula, which is: $F = S \times \frac{(1 + i_{foreign})}{(1 + i_{domestic})}$, where $F$ is the forward rate, $S$ is the spot rate, $i_{foreign}$ is the foreign interest rate, and $i_{domestic}$ is the domestic interest rate. Given that the forward rate ($F$) is $1.85, the quarterly (90-day) return for Britain (foreign) is 1.50%, and for the U.S. (domestic) it is 1.00%, we can rearrange the formula to solve for $S$: $S = F \times \frac{(1 + i_{domestic})}{(1 + i_{foreign})}$. Plugging in the given values: $S = 1.85 \times \frac{(1 + 0.01)}{(1 + 0.015)} = 1.85 \times \frac{1.01}{1.015} = 1.85 \times 0.995074$, which equals approximately $1.8592.

Question 18

Suppose that currently,1 British pound equals 1.98 U.S.dollars and 1 U.S.dollar equals 1.90 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 19

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 138 yen per dollar,what would the car be selling for today in U.S.dollars?

Accepted Answer

To find out the current price of the car in US dollars, we need to convert the yen price to dollars using the current exchange rate.

1,476,000 yen ÷ 138 yen/dollar = $10,695.65

Rounding to the nearest dollar, the car would be selling for $10,696 today. Therefore, the best choice is D.

Question 20

Stover Corporation,a U.S.based importer,makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs,or $24,000,at the spot rate of 1.665 Swiss francs per dollar.The terms of the purchase are net 90 days,and the U.S.firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk.Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 Swiss francs.If the spot rate in 90 days is actually 1.609 Swiss francs,how much in U.S.dollars will the U.S.firm have saved or lost by hedging its exchange rate exposure? Do not round the intermediate calculations and round the final answer to the nearest cent.

Accepted Answer

The answer of Stover Corporation,a U.S.based importer,makes a purchase of...

Quiz 18: Multinational Financial Management

Suppose hockey skates sell in Canada for 114 Canadian dollars,and 1 Canadian dollar equals 0.71 U.S.dollar.If purchasing power parity (PPP) holds,what is the price of hockey skates in the United States?

If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.68 shekels per dollar,then the forward rate for the Israeli shekel is selling at a(n) ______________ to the spot rate.

Suppose one British pound can purchase 1.74 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?

A product sells for $750 in the United States.The spot exchange rate is $1 to 1.67 Swiss francs.If purchasing power parity (PPP) holds,what is the price of the product in Switzerland?

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?

A box of candy costs 28.80 Swiss francs in Switzerland and $21.50 in the United States.Assuming that purchasing power parity (PPP) holds,how many Swiss francs are required to purchase one U.S.dollar? Do not round the intermediate calculations and round the final answer to four decimal places.

Suppose that currently,1 British pound equals 1.98 U.S.dollars and 1 U.S.dollar equals 1.90 Swiss francs.How many Swiss francs are needed to purchase 1 pound?

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 138 yen per dollar,what would the car be selling for today in U.S.dollars?