Cornett Test Bank Chapter 19 International Corporate Finance

Finance, 5e (Cornett)

Chapter 19 International Corporate Finance

1) Which of these seeks to reduce, or even eliminate, trade restrictions and tariffs to ease trade between countries?

A) Commerce bureaus

B) Tariff agreements

C) Trade agreements

D) Economic analysts

2) Which of these is the trade agreement between South American countries to create their own free trade zone?

A) South American Union

B) South American Free Trade Agreement (SAFTA)

C) South American Monetary Fund (SAMF)

D) Mercosur

3) Which of these is a political and economic union of 27 European countries?

A) European Union

B) European Free Trade Agreement (EFTA)

C) European Monetary Fund (EMF)

D) Mercosur

4) Which of these is an international organization that deals with international trade rules and helps settle disputes between its member governments?

A) World Trade Union

B) World Free Trade Agreement

C) International Monetary Fund

D) World Trade Organization

5) Which of these is an organization of 189 countries that monitors currency exchange, examines financial stability, and watches the global financial system?

A) World Monetary Union

B) World Monetary Organization

C) International Monetary Fund

D) International Monetary Union

6) Which of these is a company that operates production and/or sales facilities in multiple countries?

A) World trade corporation

B) Multinational corporation

C) Free trade corporation

D) Managed-floating corporation

7) Which of these is defined as long-term investment in capital in a business operation located in an economy other than that in which the company is based?

A) Managed-floating corporation

B) Multinational investment

C) Multinational corporation

D) Foreign direct investment

8) Which of these is defined as the price of one currency in terms of another?

A) Exchange rate

B) Spot transaction

C) Indirect exchange quote

D) Direct exchange quote

9) Which of these is defined as exchanging one currency for another today?

A) Exchange rate

B) Spot transaction

C) Indirect quote

D) Direct quote

10) Which of these is defined as the amount of foreign currency it takes to buy one unit of domestic currency?

A) Exchange rate

B) Spot transaction

C) Indirect quote

D) Direct quote

11) Which of these is defined as the amount of domestic currency it takes to buy one unit of foreign currency?

A) Exchange rate

B) Spot transaction

C) Indirect quote

D) Direct quote

12) Which of these is defined as the currency exchange rate between two foreign currencies, each of which is not the currency of the domestic country?

A) Exchange rates

B) Spot rates

C) Indirect rates

D) Cross rates

13) Which of these is defined as the practice of simultaneously purchasing and selling an asset in different forms or markets to take advantage of an imbalance in price?

A) Arbitrage

B) Spot transaction

C) Indirect quote

D) Cross quote

14) Which of these is defined as the possibility that the spot currency exchange rate will change and reduce the value of foreign assets and cash flows?

A) Foreign rate risk

B) Exchange rate risk

C) Spot rate risk

D) Value rate risk

15) Which of these is defined as an exchange rate regime where the currency is completely determined by the foreign-exchange market through supply and demand?

A) Foreign market regime

B) Freely floating regime

C) Currency market regime

D) Managed-floating regime

16) Which of these is defined as an exchange rate regime where the country's central bank allows its currency price to float freely between an upper and lower bound and may buy and sell large amounts of it in order to provide price support or resistance?

A) Foreign market regime

B) Freely floating regime

C) Currency market regime

D) Managed-floating regime

17) Which of these is defined as an exchange rate regime where a currency's price is fixed to the value of another currency or to a basket of other currencies?

A) Fixed peg arrangement

B) Freely floating regime

C) Currency market regime

D) Managed-floating regime

18) Which of these is defined as a contractual agreement that states the exchange rate to be used at a future exchange date?

A) Fixed peg rate

B) Forward exchange rate

C) Managed exchange rate

D) Future strategy rate

19) Which of the following is NOT an example of how a company could hedge to reduce currency risk?

A) Buying futures contracts

B) Buying options

C) Currency swaps

D) Fixed peg arrangements

20) Which of the following is a theory that the difference in interest rates between two countries is equal to the difference between the forward currency exchange rate and the spot exchange rate?

A) Purchasing power parity

B) Interest rate parity

C) Law of one price

D) Currency swap parity

21) Which of the following is the theory relating the expected adjustment needed in the future spot exchange rate between countries to the inflation rate in each country?

A) Purchasing power parity

B) Interest rate parity

C) Law of one price

D) Currency swap parity

22) Which of the following is an economic principle that states all identical goods in different markets must have the same price?

A) Purchasing power parity

B) Interest rate parity

C) Law of one price

D) Price swap parity

23) Which of the following is the definition of political risk?

A) The possibility that changes in the corporation will occur that reduce the profitability of doing business in that country.

B) The possibility that changes in the political environment will occur that reduce the profitability of doing business in that country.

C) The possibility that changes in the business environment will occur that increase the profitability of doing business in that country.

D) The possibility that international rules will occur that reduce the profitability of doing business in one particular country.

24) Purchasing power parity (PPP) may not hold exactly because of which of the following?

A) Shipping costs

B) Insurance costs

C) Trading costs

D) All of the options are transaction costs that may not allow PPP to hold exactly.

25) Convert the following direct quote to a dollar indirect quote: 1 Danish krone = $0.1755

A) 0.1755 krone

B) 0.8245 krone

C) 1.1755 krone

D) 5.698 krone

26) Convert the following direct quote to a dollar indirect quote: 1 Indian rupee = $0.02250

A) 0.02250 rupee

B) 0.9775 rupee

C) 1.0225 rupee

D) 44.44 rupee

27) Convert the following direct quote to a dollar indirect quote: 1 Israeli shekel = $0.2351

A) 0.2351 shekel

B) 0.7649 shekel

C) 1.2351 shekel

D) 4.2535 shekel

28) Convert the following direct quote to a dollar indirect quote: 1 Korean won = $0.001045

A) 0.1045 won

B) 1.001045 won

C) 9.5694 won

D) 956.9378 won

29) Convert the following direct quote to a dollar indirect quote: 1 Malaysian ringget = $0.2875

A) 0.2875 ringget

B) 1.2875 ringget

C) 3.4783 ringget

D) 4.4783 ringget

30) Convert the following direct quote to a dollar indirect quote: 1 Thai baht = $0.03057

A) 0.03057 baht

B) 1.03057 baht

C) 0.96943 baht

D) 32.7118 baht

31) Convert the following indirect quote to a dollar direct quote: $1 = 15,990 Vietnam dong

A) $0.00006254

B) $159.90

C) $6.2539

D) $1.00625

32) Convert the following indirect quote to a dollar direct quote: $1 = 2,150.4 Venezuelan bolivar

A) $0.00046503

B) $4.65

C) $1.465

D) $2.1504

33) Convert the following indirect quote to a dollar direct quote: $1 = 7.2501 South African rand

A) $0.1379

B) $0.72501

C) $1.00

D) $1.1379

34) Convert the following indirect quote to a dollar direct quote: $1 = 3.8249 Saudi Arabian riyal

A) $0.2614

B) $4.8249

C) $0.38249

D) $1.00

35) Convert the following indirect quote to a dollar direct quote: $1 = 48.210 Philippine peso

A) $0.0207

B) $1.0207

C) $4.8210

D) $0.4821

36) Convert the following indirect quote to a dollar direct quote: $1 = 0.5467 Latvian lat

A) $1.5467

B) $0.15467

C) $0.018292

D) $1.8292

37) Compute the amount of foreign currency that can be purchased for $200,000: 1 Danish krone = $0.1755

A) 200,000 krone

B) 11,396 krone

C) 35,100 krone

D) 1,139,601.14 krone

38) Compute the amount of foreign currency that can be purchased for $400,000: 1 Indian rupee = $0.02250

A) 400,000 rupee

B) 360,000,000 rupee

C) 9,000 rupee

D) 17,777,777.78 rupee

39) Compute the amount of foreign currency that can be purchased for $750,000: 1 Israeli shekel = $0.2351

A) 926,325 shekel

B) 750,000 shekel

C) 176,325 shekel

D) 3,190,131.859 shekel

40) Compute the amount of foreign currency that can be purchased for $600,000: 1 Korean won = $0.001045

A) 627,000 won

B) 627 won

C) 5,741,640 won

D) 574,162,679.4 won

41) Compute the amount of foreign currency that can be purchased for $1,000,000: 1 Malaysian ringget = $0.2875

A) 287,500 ringget

B) 1,287,500 ringget

C) 3,478,260.87 ringget

D) 4,478,300 ringget

42) Compute the amount of foreign currency that can be purchased for $1,300,000: 1 Thai baht = $0.03057

A) 39,741 baht

B) 1,339,741 baht

C) 1,260,259 baht

D) 42,525,351.65 baht

43) Compute the number of dollars that can be bought with 2 million of foreign currency units: $1 = 15,990 Vietnam dong

A) $125.0782

B) $3,198.00

C) $12,507.82

D) $198.7577

44) Compute the number of dollars that can be bought with 5 million of foreign currency units: $1 = 2,150.4 Venezuelan bolivar

A) $2,325.1488

B) $232,514.88

C) $7,325,000

D) $43,008,000.00

45) Compute the number of dollars that can be bought with 8 million of foreign currency units: $1 = 7.2501 South African rand

A) $1,103,433.056

B) $5,800,080.00

C) $8,000,000.00

D) $9,103,200.00

46) Compute the number of dollars that can be bought with 1 million of foreign currency units: $1 = 3.8249 Saudi Arabian riyal

A) $261,444.7437

B) $4,824,900.00

C) $382,490.00

D) $1,000,000

47) Compute the number of dollars that can be bought with 2 million of foreign currency units: $1 = 48.210 Philippine peso

A) $41,485.16905

B) $1,959,439.60

C) $414,851.6905

D) $4,148,516.905

48) Compute the number of dollars that can be bought with 1.5 million of foreign currency units: $1 = 0.5467 Latvian lat

A) $969,806.68520

B) $9,698,066.852

C) $82,003,061.45

D) $2,743,735.138

49) If the price of silver in England is £7.10 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5275?

A) $7.6275 per ounce

B) $7.429 per ounce

C) $3.74525 per ounce

D) $13.4597 per ounce

50) If the price of silver in England is £6.85 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.5426?

A) $7.3926 per ounce

B) $7.921 per ounce

C) $3.7168 per ounce

D) $12.6244 per ounce

51) If the price of copper in Europe is €2.22 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.7802?

A) $3.0002 per ounce

B) $3.514 per ounce

C) $1.7320 per ounce

D) $2.8454 per ounce

52) A financial manager has determined that the appropriate discount rate for a foreign project is 15 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rates in the United States and in the foreign country are expected to be 5 percent and 7 percent, respectively.

A) 13 percent

B) 17 percent

C) 18 percent

D) 20 percent

53) A financial manager has determined that the appropriate discount rate for a foreign project is 16 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rates in the United States and in the foreign country are expected to be 4 percent and 8 percent, respectively.

A) 16 percent

B) 20 percent

C) 12 percent

D) 24 percent

54) A financial manager has determined that the appropriate discount rate for a foreign project is 15 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rates in the United States and in the foreign country are expected to be 8 percent and 4 percent, respectively.

A) 11 percent

B) 19 percent

C) 21 percent

D) 12 percent

55) Given these two exchange rates, $1 = 11.25 Mexican peso and $1 = €0.7521, compute the cross rate between the Mexican peso and the euro. State this exchange rate in pesos and in euros.

A) 0.0669 euros, 14.9589 pesos

B) 1.3296 euros, 0.0889 pesos

C) 14.9589 euros, 0.0669 pesos

D) 0.0889 euros, 1.3296 pesos

56) Given these two exchange rates, $1 = 1.3254 Australian dollars and $1 = £0.5233, compute the cross rate between the Australian dollars and the pound. State this exchange rate in Australian dollars and in pounds.

A) A$2.5329, 0.3948 pounds

B) A$0.3948, 2.5329 pounds

C) A$0.3948, 0.6936 pounds

D) A$0.6936, 0.3948 pounds

57) In the late 1990s, many East Asian currencies suddenly and dramatically devalued. What is the percentage change in value of a $10 million investment in Indonesia when the exchange rate changes from $1 = 3,000 rupiah to $1 = 10,000 rupiah?

A) 30 percent

B) 10 percent

C) 70 percent

D) 90 percent

58) In the late 1990s, many East Asian currencies suddenly and dramatically devalued. What is the percentage change in the value of a $75 million investment in Indonesia when the exchange rate changes from $1 = 1,000 rupiah to $1 = 7,000 rupiah?

A) 14.29 percent

B) 85.71 percent

C) 12.5 percent

D) 87.5 percent

59) What is the percentage change in the value of a $50 million investment in Russia when the exchange rate changes from $1 = 7 rubles to $1 = 12 rubles?

A) 41.67 percent

B) 58.33 percent

C) 36.84 percent

D) 63.16 percent

60) If the spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.5215, and if the interest rate in the United States is 8 percent and in New Zealand is 4 percent, then what should be the three-month forward exchange rate?

A) $0.6637

B) $0.6572

C) $0.6825

D) $0.6329

61) Assume the spot rate between the U.S. dollar and the Taiwan dollar is $1 = TWD32.456. If the interest rate in the United States is 4 percent and in Taiwan is 3 percent, then what should be the one-month forward exchange rate?

A) $0.0308

B) $0.0311

C) $1.0097

D) $1.0008

62) If the current spot rate between the U.S. dollar and the Swedish krona was $1 = 7.5423 krona, and if the inflation rate in the United States was 5 percent and in Sweden it was 2 percent, then what would be the expected spot rate in one year?

A) $0.1366

B) $0.1326

C) $7.7487

D) $0.1356

63) If the current spot rate between the U.S. dollar and the Netherland Antilles guilder was $1 = 1.68 guilder, and if the inflation rate in the United States was 1 percent and in the Netherland Antilles it was 6 percent, then what would be the expected spot rate in one year?

A) $0.5952

B) $0.5654

C) $0.6250

D) $0.6571

64) If the current spot rate between the U.S. dollar and the Netherland Antilles guilder was $1 = 1.54 guilder, and if the inflation rate in the United States was 2 percent and in the Netherland Antilles it was 8 percent, then what would be the expected spot rate in one year?

A) $0.6104

B) $0.6494

C) $1.4476

D) $0.6133

65) A U.S. firm is expecting cash flows of 15 million Mexican pesos and 20 million Indian rupees. The current spot exchange rates are: $1 = 11.501 pesos and $1 = 45.525 rupees. If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.265 pesos and $1 = 45.005 rupees, then what is the difference in dollars received that was caused by the delay?

A) $0.03 million more

B) $0.03 million less

C) $16.94 million more

D) $16.94 million less

66) A U.S. firm is expecting cash flows of 5 million Mexican pesos and 10 million Indian rupees. The current spot exchange rates are: $1 =11.255 pesos and $1 = 44.864 rupees. If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 10.080 pesos and $1 = 44.125 rupees, then what is the difference in dollars received that was caused by the delay?

A) $56,000 more

B) $56,000 less

C) $13.265 million more

D) $9.275 million more

67) A U.S. firm is expecting to pay cash flows of 20 million Egyptian pounds and 25 million Qatar rials. The current spot exchange rates are: $1 = 5.829 pounds and $1 = 3.645 rials. If these cash flows are delayed one year and the expected spot rates at that time will be $1 = 5.895 pounds and $1 = 3.899 rials, then what is the difference in dollars paid that was caused by the delay?

A) $0.485 million less

B) $0.485 million more

C) $7.67 million more

D) $7.67 million less

68) Assume the U.S. dollar spot exchange rate with the Canadian dollar is $1 = CA$1.125. The U.S. dollar and Swiss Franc exchange rate is $1 = 1.235. If the cross rate between the franc and Canadian dollar is 1 franc = CA$0.9820, then show that an arbitrage is possible. What positions should be taken to profit from the mispricing?

A) Start with U.S. dollars, buy francs and convert them to Canadian dollars, then convert back to U.S. dollars.

B) Start with francs, buy U.S. dollars and convert them to Canadian dollars, then convert back to francs.

C) Start with Canadian dollars, buy francs and convert to U.S. dollars, then convert back to Canadian dollars.

D) Start with U.S. dollars, buy Canadian dollars and convert to francs, then convert back to U.S. dollars.

69) The U.S. dollar spot exchange rate with the Australian dollar is $1 = AU$1.2835. The U.S. dollar and euro exchange rate is $1 = €0.7605. If the cross-rate between the euro and Australian dollar is €1 = AU$1.610 then show that an arbitrage is possible. What positions should be taken to profit from the mispricing?

A) Starting with U.S. dollars, buy Australian dollars and convert them to euros, then convert back to U.S. dollars.

B) Starting with U.S. dollars, buy euros and convert them to Australian dollars, then convert back to U.S. dollars.

C) Starting with euros, buy U.S. dollars and covert them to Australian dollars, then convert back to euros.

D) Starting with Australian dollars, buy euros and convert them to U.S. dollars, then convert back to Australian dollars.

70) The U.S. dollar spot exchange rate with the Australian dollar is $1 = AU$1.2219. The U.S. dollar and euro exchange rate is $1 = €0.7595. If the cross-rate between the euro and Australian dollar is €1 = AU$1.575 then show that an arbitrage is possible. What positions should be taken to profit from the mispricing?

A) Starting with U.S. dollars, buy Australian dollars and convert them to euros, then convert back to U.S. dollars.

B) Starting with U.S. dollars, buy euros and convert them to Australian dollars, then convert back to U.S. dollars.

C) Starting with euros, buy U.S. dollars and convert them to Australian dollars, then convert back to euros.

D) Starting with Australian dollars, buy euros and convert them to U.S. dollars, then convert back to Australian dollars.

71) Convert the following direct quote to dollar indirect quote: 1 Danish krone = $0.1991.

A) 5.0226 krone

B) 5.1137 krone

C) 5.2814 krone

D) 5.3097 krone

72) Convert the following direct quote to dollar indirect quote: 1 Indian rupee = $0.2110.

A) 5.0226 rupee

B) 4.7393 rupee

C) 4.8814 rupee

D) 4.9097 rupee

73) Convert each of the following direct quotes to dollar indirect quotes:

1 Korean won = $0.001556

1 Malaysian ringgit = $0.3419

1 Thai baht = $0.03999

$1 equals:

A) 642.67 won; 2.9248 ringget; 28.01 baht

B) 662.67 won; 2.9248 ringget; 28.01 baht

C) 642.67 won; 2.7408 ringget; 25.01 baht

D) 642.67 won; 2.9248 ringget; 25.01 baht

74) Convert each of the following indirect quotes to dollar direct quotes:

$1 = 805 Vietnam dong

$1 = 2,349.6 Venezuelan bolivar

$1 = 7.0523 South African rand

$1 equals:

A) 0.0012 dong; 0.0004 bolivar; 0.1418 rand

B) 0.0072 dong; 0.004 bolivar; 0.1418 rand

C) 0.0012 dong; 0.004 bolivar; 0.1478 rand

D) 0.0022 dong; 0.0004 bolivar; 0.1418 rand

75) Convert each of the following indirect quotes to dollar direct quotes:

$1 = 3.05 Saudi Arabian riyal

$1 = 41.45 Philippine peso

$1 = 0.52 Latvian lat

$1 equals:

A) 0.33 riyal; 0.02 peso; 1.92 lat

B) 0.33 riyal; 0.02 peso; 1.95 lat

C) 0.38 riyal; 0.05 peso; 1.92 lat

D) 0.38 riyal; 0.02 peso; 1.95 lat

76) Convert each of the following indirect quotes to dollar direct quotes:

$1 = 3.95 Saudi Arabian riyal

$1 = 41.45 Philippine peso

$1 = 0.58 Latvian lat

$1 equals:

A) 0.22 riyal; 0.02 peso; 1.75 lat

B) 0.25 riyal; 0.02 peso; 1.72 lat

C) 0.38 riyal; 0.05 peso; 1.72 lat

D) 0.38 riyal; 0.02 peso; 1.95 lat

77) Compute the amount of each foreign currency that can be purchased for $5,000:

a. 1 Danish krone = $0.18

b. 1 Indian rupee = $0.15

c. 1 Israeli shekel = $0.37

$5,000 equals:

A) 17,777.78 krone; 33,333.33 rupee; 18,513.51 shekel

B) 17,777.78 krone; 33,333.33 rupee; 13,513.51 shekel

C) 27,777.78 krone; 38,333.33 rupee; 13,513.51 shekel

D) 27,777.78 krone; 33,333.33 rupee; 13,513.51 shekel

78) Compute the number of dollars that can be bought with 2 million of each foreign currency units:

$1 = 19,005 Vietnam dong

$1 = 2,949.6 Venezuelan bolivar

$1 = 7.9523 South African rand

A) $108.24; $678.06; $251,489.57

B) $105.24; $678.06; $251,499.57

C) $108.24; $675.06; $251,499.57

D) $105.24; $675.06; $251,489.57

79) Compute the number of dollars that can be bought with 1 million of each foreign currency units:

$1 = 3.9 Saudi Arabian riyal

$1 = 0.52 Philippine peso

$1 = 0.75 Latvian lat

A) $258,410.26; $1,923,076.92; $1,333,888.33

B) $256,410.26; $1,928,076.92; $1,333,333.33

C) $256,410.26; $1,923,076.92; $1,333,333.33

D) $258,410.26; $1,928,076.92; $1,333,333.33

80) If the price of silver in England is £6.25 per ounce, what is the expected price of silver in the United States if the spot exchange rate is $1 = £0.55?

A) $11.36

B) $13.25

C) $10.17

D) $14.06

81) If the price of copper in Europe is €2.72 per ounce, what is the expected price of copper in the United States if the spot exchange rate is $1 = €0.8623?

A) $3.15

B) $3.84

C) $4.17

D) $2.98

82) A financial manager has determined that the appropriate discount rate for a foreign project is 17 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rates in the United States and in the foreign country are expected to be 3 percent and 8 percent, respectively.

A) 17 percent

B) 20 percent

C) 22 percent

D) 25 percent

83) Given these two exchange rates, $1 = 12.5 Mexican peso and $1 = €0.75, compute the cross-rate between the Mexican peso and the euro. State this exchange rate in pesos.

A) 19.14 pesos

B) 17.62 pesos

C) 16.67 pesos

D) 18.03 pesos

84) Given these two exchange rates, $1 = 1.32 Australian dollars and $1 = £0.56, compute the cross-rate between the Australian dollar and the pound. State this exchange rate in Australian dollars.

A) A$2.49

B) A$2.36

C) A$2.91

D) A$2.17

85) The Russian financial crisis of 1998 caused Russia's currency to be dramatically devalued. What is the percentage change in value of a $100 million investment in Russia when the exchange rate changes from $1 = 6 rubles to $1 = 25 rubles?

A) −49 percent

B) −57 percent

C) −69 percent

D) −76 percent

86) The spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.6607. If the interest rate in the United States is 6 percent and in New Zealand is 4 percent, then what should be the three-month forward exchange rate?

A) $0.5368 per NZD

B) $0.6051 per NZD

C) $0.7614 per NZD

D) $0.8075 per NZD

87) The current spot rate between the U.S. dollar and the Swedish krona is $1 = 7.5500 krona. If the inflation rate in the United States is 4 percent and in Sweden is 1 percent, then what is the expected spot rate in one year?

A) $0.1908 per krona

B) $0.2116 per krona

C) $0.1529 per krona

D) $0.1364 per krona

88) A U.S. firm is expecting cash flows of 20 million Mexican pesos and 35 million Indian rupees. The current spot exchange rates are: $1 = 11.792 pesos and $1 = 49.204 rupees. If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.118 pesos and $1 = 41.075 rupees, then what is the difference in dollars received that was caused by the delay?

A) $0.03 million

B) $0.15 million

C) $0.24 million

D) $0.32 million

89) A U.S. firm is expecting to pay cash flows of 15 million Egyptian pounds and 25 million Qatar rials. The current spot exchange rates are: $1 = 5.25 pounds and $1 = 3.75 rials. If these cash flows are delayed one year and the expected spot rates at that time will be $1 = 5.62 pounds and $1 = 4.00 rials, then what is the difference in dollars paid that was caused by the delay?

A) $0.68 million

B) $0.84 million

C) $1.08 million

D) $0.6 million

90) The U.S. dollar spot exchange rate with the Canadian dollar is $1 = CA$1.12. The U.S. dollar and Swiss franc exchange rate is $1 =1.275. If the cross-rate between the franc and Canadian dollar is 1 franc = CA$0.9750, which of the following statements is correct?

A) Starting with U.S. dollars, buy Swiss francs and convert them to Canadian dollars, and then convert back to U.S. dollars.

B) Starting with Canadian dollars, buy Swiss francs and convert them to U.S. dollars, and then convert back to Swiss francs.

C) Starting with Swiss francs, buy Canadian dollars and convert them to Swiss francs, and then convert back to U.S. dollars.

D) Starting with Canadian dollars, buy U.S. dollars and convert them to Swiss francs, and then convert back to U.S. dollars.

91) An exchange rate regime where the country's central bank allows its currency price to float freely between an upper and lower bound and may buy or sell large amounts of it in order to provide price support or resistance is referred to as:

A) forward exchange regime.

B) purchasing parity regime.

C) freely floating regime.

D) managed floating regime.

92) All of the following are political risks to the assets and cash flows of multinational corporations EXCEPT:

A) government seizure of a company's assets in the country.

B) enactment of new taxation.

C) expropriation with minimal compensation.

D) improving exchange rates to stimulate foreign investment.

93) All of the following are ways that a multinational corporation can minimize the impact of political risk EXCEPT:

A) using local financing.

B) purchasing country risk insurance.

C) paying off government officials.

D) All of the options are ways that a multinational corporation can minimize the impact of political risk.

94) The concept of interest parity describes:

A) why spot and forward rates differ.

B) how inflation causes exchange rates to change.

C) why identical products should have the same price.

D) none of the options.

95) If gold is selling in the U.S. for $1,015 per ounce and if 1 peso = $0.35, then gold should sell for ________ in Mexico.

A) $2,900

B) 355.25 pesos

C) 2,900 pesos

D) $355.25

96) If the law of one price does not hold, then:

A) investors will not be compensated for their risk.

B) inflation rates will be very volatile.

C) arbitrageurs can make large profits.

D) None of the options will occur.

97) China's exchange rate is a:

A) freely floating regime.

B) managed floating regime.

C) fixed peg arrangement.

D) none of the options.

98) China's exchange rate is pegged to the:

A) U.S. dollar.

B) price of a barrel of oil.

C) euro.

D) none of the options.

99) Arbitrage profit can be made by:

A) selling assets in future markets and buying them in the spot markets.

B) buying assets in markets with high interest rates and selling them in a local market.

C) buying assets in a "cheap" market and selling them in another market where the price is higher.

D) none of the options.

100) When Starbucks opens a location in Mexico City, this is an example of:

A) foreign direct investment.

B) arbitrage opportunity.

C) management of capital budgeting issues.

D) none of the options.

101) All of the following are ways to conduct international business EXCEPT:

A) direct ownership investment.

B) import/export operations.

C) partnership arrangements.

D) all of the options.

102) All of the following are examples of factors that affect trading activity between countries EXCEPT:

A) charging a 0.75 percent import tax on steel imported from China into the United States.

B) charging a $3 tariff per barrel of crude oil imported in the United States.

C) restricting the importation of produce into the United States from South America.

D) all of the options are factors that affect trading activity between countries.

103) Trade agreements are intended to:

A) reduce or eliminate trade restrictions and tariffs between countries

B) reduce or eliminate import and/or export limitations between countries

C) avoid retaliatory barriers between two countries

D) all of the above

104) An international organization that monitors exchange rates and balance of payments and oversees the global financial system is the ________.

A) World Trade Organization (WTO)

B) International Monetary Fund (IMF)

C) European Union (EU)

D) North American Free Trade Agreement (NAFTA)

105) A golf club costs $100 in the United States. The same club costs AU$129 in Australia. Assume that purchasing power parity holds. What is the exchange rate between the U.S. and Australian dollars?

A) $1 U.S. = AU$1.25

B) $1 U.S. = AU$0.7752

C) AU$1 = $0.7752 U.S.

D) AU$1 = $1.50 U.S.

106) A golf club costs $112 in the United States. The same club costs AU$78 in Australia. Assume that purchasing power parity holds. What is the exchange rate between the U.S. and Australian dollars?

A) $1 U.S. = AU$1.37

B) $1 U.S. = AU$1.44

C) AU$1 = $1.37 U.S.

D) AU$1 = $1.44 U.S.

107) Firms can expand internationally through several methods that require increasingly higher participation in capital at risk and potential for profits and include which of the following?

A) import/export

B) partnering through sales subsidiary, licensing or franchising, or joint venture

C) direct ownership

D) all of the above

108) A large amount of foreign direct investment into a country will most likely result in:

A) more jobs.

B) higher inflation.

C) higher tariffs.

D) lower taxes.

109) Risks inherent in making investments in foreign countries include:

A) the value of their investment changes as the exchange rates change.

B) cash flows to be received in the future may be worth less when actually received if the foreign exchange rate fluctuates dramatically.

C) political risks due to an unstable government.

D) All of the options are risks inherent in making investments in foreign countries.

110) ________ is a theory relating the expected adjustment needed in the future spot exchange rate between countries to the inflation rate in each economy.

A) purchase power parity

B) law of one price

C) interest rate parity

D) hedging

111) Some political risks to the assets and cash flows of multinational corporations include:

A) government seizure of a company's assets in the country; and enactment of a new taxation

B) expropriation with minimal compensation; and limiting or blocking the conversion of local currency to the MNC's domestic currency

C) both a and b

D) none of the above

112) Tools that multinationals can use to help them reduce the risks inherent in making investments in foreign countries include:

A) options.

B) hedges.

C) swaps.

D) All of the options are tools that multinationals can use to help them reduce the risks inherent in making investments in foreign countries.

113) Over the past decade, China has acquired hundreds of billions of U.S. dollars due to the trade imbalance between the two countries. The Chinese government has used many of these dollars to purchase Treasury bonds. What would be the effect if China suddenly decided to sell the majority of these Treasury bonds and exchange the dollars for pesos?

A) The price of Treasury bonds would rise, the yield on the Treasury bonds would fall, the dollar would weaken, and the peso would strengthen.

B) The price of Treasury bonds would rise, the yield on the Treasury bonds would fall, the dollar would strengthen, and the peso would weaken.

C) The price of Treasury bonds would fall, the yield on the Treasury bonds would rise, the dollar would weaken, and the peso would strengthen.

D) The price of Treasury bonds would fall, the yield on the Treasury bonds would fall, the dollar would strengthen, and the peso would weaken.

114) If the spot rate between the U.S. dollar and the Brazilian real is $1 = 2.0895 real and the 3-month forward rate is $1 = 2.1725 real, is the forward real selling at a discount or a premium?

A) Discount

B) Premium

C) Unable to determine with the cross-rates

115) If the spot rate between the U.S. dollar and the Mexican peso is $1 = 2.45 peso and the 3-month forward rate is $1 = 2.05 pesos, is the forward peso selling at a discount or a premium?

A) Discount

B) Premium

C) Unable to determine with the cross-rates

116) Suppose exchange rates between the U.S. dollar and the Mexican peso is 12.90 peso = $1 and the exchange rate between the U.S. dollar and the euro is $1 = 0.90 euros. What is the cross-rate of the Mexican peso to the euro?

A) 16.03

B) 17.21

C) 15.26

D) 14.33

117) International capital budgeting will require that managers:

A) recognize all of the risks as well as the rewards.

B) increase the discount rate to account for any added risks associated with that country.

C) convert all incremental cash flows to the domestic currency or convert the domestic discount rate to an equivalent rate in the foreign country.

D) All of the options are required.

118) If fewer dollars will buy a unit of foreign currency, then the dollar is:

A) strengthening.

B) weakening.

C) violating the law of purchasing power parity.

D) not in equilibrium.

119) If fewer dollars will buy a unit of foreign currency, then the foreign currency is:

A) strengthening.

B) weakening.

C) violating the law of purchasing power parity.

D) not in equilibrium.

120) If more dollars are required to buy a unit of foreign currency, then the dollar is:

A) strengthening.

B) weakening.

C) violating the law of one price.

D) not in equilibrium.

121) If you are told that $1 will buy 25 Korean wons, then you were given a(n):

A) indirect quote.

B) direct quote.

C) cross-rate.

D) none of the options.

122) A golf club costs $100 in the United States. The same club costs AU$143 in Australia. Assume that purchasing power parity holds. What is the exchange rate between the U.S. and Australian dollars?

A) AU$1 = $1.43 U.S.

B) AU$1 = $1.25 U.S.

C) AU$1 = $0.6993 U.S.

D) AU$1 = $0.7752U.S.

123) A golf club costs $143 in the United States. The same club costs AU$100 in Australia. Assume that purchasing power parity holds. What is the exchange rate between the U.S. and Australian dollars?

A) AU$1 = $1.43 U.S.

B) AU$1 = $1.25 U.S.

C) AU$1 = $0.6993 U.S.

D) AU$1 = $0.7752U.S.

124) If the spot rate between the U.S. dollar and the Brazilian real is $1 = 2.5698 real and the 3-month forward rate is $1 = 2.9841 real, is the forward real selling at a discount or a premium?

A) Discount

B) Premium

C) Unable to determine with the cross-rates

125) If the spot rate between the U.S. dollar and the Mexican peso is $1 = 12.9841 peso and the 3-month forward rate is $1 = 12.5698 pesos, is the forward peso selling at a discount or a premium?

A) Discount

B) Premium

C) Unable to determine with the cross-rates

126) Suppose exchange rates between the U.S. dollar and the Mexican peso is 11.45 peso = $1 and the exchange rate between the U.S. dollar and the euro is $1 = 1.0866 euros. What is the cross-rate of the Mexican peso to the euro?

A) 9.49

B) 10.54

C) 12.44

D) 12.54

127) Given these two exchange rates, $1 = 14.96 Mexican peso and $1 = €0.67, compute the cross-rate between the Mexican peso and the euro. State this exchange rate in pesos.

A) 10.02 pesos

B) 15.63 pesos

C) 18.69 pesos

D) 22.32 pesos

128) Given these two exchange rates, $1 = 1.43 Australian dollars and $1 = £0.69, compute the cross-rate between the Australian dollar and the pound. State this exchange rate in Australian dollars.

A) A$2.07

B) A$2.12

C) A$2.36

D) A$4.83

129) A financial manager has determined that the appropriate discount rate for a foreign project is 12 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rates in the United States and in the foreign country are expected to be 3 percent and 10 percent, respectively.

A) 15 percent

B) 19 percent

C) 22 percent

D) 25 percent

130) Convert each of the following indirect quotes to dollar direct quotes:

$1 = 118.115 Yen

$1 = 0.9203 Euro

$1 = 1.0052 Swiss franc

$1 equals:

A) 0.0085 Yen; 1.0866 Euro; 0.9948 franc

B) 0.8500 Yen; 1.0866 Euro; 0.9948 franc

C) 1.1812 Yen; 0.9203 Euro; 1.0052 franc

D) 1.1812 Yen; 1.0866 Euro; 0.9948 franc

131) Convert each of the following indirect quotes to dollar direct quotes:

$1 = 4.01 Saudi Arabian riyal

$1 = 62.05 Philippine peso

$1 = 0.76 Latvian lat

$1 equals:

A) 0.25 riyal; 0.02 peso; 1.32 lat

B) 0.45 riyal; 0.07 peso; 1.32 lat

C) 0.45 riyal; 0.06 peso; 1.76 lat

D) 0.45 riyal; 0.07 peso; 1.76 lat