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Exam 17: International Business Finance

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Question 61

Multiple Choice

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A corporate investment manager needs to invest $1,000,000 for the next 6 months.The current nominal rate of interest in the United States is 5%,while the nominal rate of interest in Brazil is 8%.Which of the following statements is most correct?

A) The manager should invest the funds in Brazil and make an extra $30,000 for the year.
B) The manager may decide to invest the funds in the United States due to the international Fisher effect, which suggests inflation in Brazil may make the extra interest income worth less in one year.
C) The manager is indifferent between investing the funds in the United States or Brazil because real returns will always be the same in the end.
D) The manager cannot invest in Brazil because his company is investing dollars.

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Question 62

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A major source of long-term capital overseas is in the Eurocurrency market.

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Question 63

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Suppose a U.S.importer purchases an Italian product today but will not pay for it for 90 days.The cost of the product today is 35,000 euros.The spot exchange rate today is .6233 euros per dollar.The importer creates a forward-market hedge.The 90-day forward rate is .6100 euros per dollar.The amount the U.S.importer will pay in 90 days is

A wide bid/ask spread could indicate which of the following?

A Spot transaction occurs when

A multinational corporation is involved in a country whose currency is likely to decline in value.The corporation should

Most major countries in the world have agreed on fixed exchange rates in order to facilitate international trade.

In addition to those risks faced by domestic corporations,multinational corporations face

A U.S.Company has a 40,000 euro loan in Germany that must be paid in 30 days.Assume the 30-day money market rates in the U.S.and Germany are both 2% for lending and 3.5% for borrowing.The current exchange rate is 1.55 dollars per euro.If the company wants to complete a money-market hedge,how many dollars will be needed to purchase euros in the spot market?

If a foreign currency is expected to depreciate with respect to the home currency,the holder of a net liability in foreign currency will profit.

A direct quote of $1.6255 dollars to buy one U.K.pound corresponds to an indirect quote of .6152 pounds per one dollar.

If the exchange rate quotes in two different countries were out of line with each other,an enterprising trader could make a profit by buying in the market where the currency was cheaper and simultaneously selling it in the market where the currency was more expensive.Such a person would be known as a:

What is arbitrage? Assume that the dollar is quoted $1 = £0.625 in New York and the pound sterling is quoted as £1 = $1.63 in London.Is there an arbitrage opportunity? If so,what would an astute trader do? What will happen to the quotes as trades are made at current prices?

Translation exposure is typically dealt with in the following manner

If the exposed position in a foreign currency is offset by borrowing or lending,it is referred to as a

Exchange rate risk

International expansion often occurs because it is generally easier for firms to expand the market for their products rather than to develop new products.

Argentina experienced a period of extremely high inflation relative to its trading partners and Argentina's currency decreased in value.This is an example of purchasing power parity theory.

If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms,which of the below is the correct term for the exchange rate that you will use?

The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.Therefore,pounds in the forward market are selling at a ________ to the current spot rate.