Chapter 21 The bank quotes a forward rate of ¥105.46/$ to buy the required yen

Fundamentals of Corporate Finance 3e Test Bank

54.

Baljit, Inc. purchased machinery from a Japanese firm and will have to pay ¥278.45 million in

90 days. The bank quotes a forward rate of ¥105.46/$ to buy the required yen. What is the cost

to Baljit in U.S. dollars? (Round your final answer to the nearest dollar.)

A)

$2,640,338

B)

$2,784,500

C)

$2,936,534

D)

$2,714,300

Ans:

A

Cost of machinery = ¥278.45 million

Forward rate = ¥105.46/$

Cost of equipment in dollars = ¥278,450,000 / ¥105.46/$ = $2,640,337.57 or $2,640,338

55.

John Travers is planning a holiday to Thailand but is concerned that the U.S. dollar will

decline in value before he makes his trip. His travel agent has planned a trip for him for a total

cost of 41,250 Thai baht. John plans to purchase the bahts forward and is given a dollar

estimate of $1,247.17 based on the 30-day forward quote. What is the forward rate?

A)

THB41.2500/$

B)

THB33.0749/$

C)

$0.0242/THB

D)

$1.2471/THB

Fundamentals of Corporate Finance 3e Test Bank

56.

A local bank has requested foreign exchange quotes for the Swedish krona from Citibank.

Citibank quotes a bid rate of $0.1652/SK and an ask rate of $0.1667/SK. What is the bid-ask

spread? (Round your final percentage answer to one decimal place.)

A)

1.2%

B)

2.1%

C)

0.9%

D)

0.65%

Ans:

C

57.

A foreign exchange dealer is willing to buy the New Zealand dollar (NZ$) at $0.7621/NZ$ and

will sell it at a rate of $0.7714/NZ$. What is the bid-ask spread on the Danish krone? (Round

your final percentage answer to two decimal place places.)

A)

0.26%

B)

2.13%

C)

0.96%

D)

1.21%

Ans:

D

Fundamentals of Corporate Finance 3e Test Bank

58.

Banco Herrero wants to make a bid-ask spread of 0.55 percent on its foreign exchange

transactions. If the ask rate on the Mexican peso (MP) is MP10.4192/$, what does the bid rate

have to be? (Do not round your intermediate calculation. Round your final answer to four

decimal places.)

A)

MP10.3619/$

B)

MP10.4192/$

C)

MP10.4249/$

D)

MP10.2165/$

Ans:

A

Fundamentals of Corporate Finance 3e Test Bank

59.

Bartman, Corp. observes that the Swiss franc (SF) is being quoted at $0.6164/SF, while the

Swedish krona (SK) is quoted at $0.1981/SK. What is the SK/SF cross rate? (Round your final

answer to four decimal places.)

A)

SK0.3214/SF

B)

SK3.1116/SF

C)

SK0.4183/SF

D)

SK2.1467/SF

Ans:

B

60.

Xecor Pharma just received revenues of A$2,372,300 in Australian dollars (A$). The only

quotes management received are A$2.0651/£ and $1.8538/£. What is the U.S. dollar value of

the company’s revenues? (Do not round your intermediate calculation. Round your final answer

to the nearest dollar.)

A)

$4,397,770

B)

$4,899,037

C)

$2,129,567

D)

$9,081,834

Ans:

C

Fundamentals of Corporate Finance 3e Test Bank

61.

Trident Corp. recently purchased machinery parts worth 23.5 million Mexican Pesos (MP).

Management needs to find out the U.S. dollar cost of the payables. It has access to two quotes

for Canadian dollars (C$): C$1.0774/$ and C$0.0981/MP. What will it cost Trident to purchase

23.5 million Mexican pesos? (Do not round your intermediate calculations. Round your final

answer to the nearest dollar.)

A)

$2,531,890

B)

$2,305,350

C)

$2,139,735

D)

$1,987,325

Ans:

C

Foreign currency payables = MP 23.5 million

AICPA: Industry/Global Perspective

62.

Dresdner Bank has offered the following exchange rate quotes on Indian rupees (Rs)

Rs.83.7612/£ and $1.8654/£. What is the cross rate between the Indian rupees and the U.S.

dollar?(Round your final answer to four decimal places)

A)

Rs.44.9025/$

B)

Rs.49.9375/$

C)

Rs.51.2134/$

D)

Rs.36,7122/$

Ans:

A

Fundamentals of Corporate Finance 3e Test Bank

63.

The spot rate on the London market was £0.5434/$, while the 90-day forward rate was

£0.5519/$. What is the annualized forward premium or discount on the U.S. dollar for the

period? (Round your final answer to one decimal place.)

A)

1.6% premium

B)

6.3% premium

C)

6.3% discount

D)

1.6% discount

Ans:

B

forward premium of 6.3 percent against the British pound.

Fundamentals of Corporate Finance 3e Test Bank

64.

Bank of America quoted the 180-day forward rate on the Japanese yen at $0.009702/¥. The

spot rate was quoted at $0.009466/¥. What is the forward premium or discount on the Japanese

yen? (Round your final answer to the nearest percentage.)

A)

7% premium

B)

7% discount

C)

5% premium

D)

5% discount

Ans:

C

Fundamentals of Corporate Finance 3e Test Bank

65.

State Bank of India has offered a spot rate quote on Indian rupees (Rs.) of Rs. 42.47/$. The

Indian rupee is quoted at a 30-day forward discount of 7.65 percent against the dollar. What is

the 30-day forward quote?

A)

Rs.43.5622/$

B)

Rs.41.5687/$

C)

Rs.45.1226/$

D)

Rs.42.7407/$

Fundamentals of Corporate Finance 3e Test Bank

66.

Tamcon Industries has purchased equipment from a Brazilian firm for a total cost of 1,272,500

Brazilian reals (BR). The firm has to pay in 30 days. Citicorp has given the firm a 30-day

forward quote of $0.6123/BR. Assume that on the day the payment is due, the spot rate is at

$0.6317/BR. How much would Tamcon save by hedging with a forward contract? (Round your

final answer to the nearest dollar.)

A)

$24,687

B)

$803,838

C)

$779,152

D)

$31,278

Ans:

A

Fundamentals of Corporate Finance 3e Test Bank

67.

Kapona Industries has purchased equipment from a Korean firm for a total cost of 11,500,000

Korean won. The firm has to pay in 90 days. J. P. Morgan has given the firm a 90-day forward

quote of $0.0009791/won. Assume that on the day the payment is due, the spot rate is at

$0.001004/ won. How much would Kapona save by hedging with a forward contract? (Round

your final answer to the nearest dollar.)

A)

$687

B)

$338

C)

$152

D)

$286

Ans:

D

Fundamentals of Corporate Finance 3e Test Bank

68.

Carrington Industries sold equipment to a Mexican firm. Payment of 41,275,000 pesos will be

due in 30 days. Carrington has the option of selling the pesos at a 30-day forward rate of

$0.09739/peso. If it waits 30 days to sell the pesos, the expected spot rate is $0.09596/peso.

How much additional dollar revenue will Carrington get by selling forward the pesos? (Round

your final answer to the nearest dollar.)

A)

$24,687

B)

$83,838

C)

$59,023

D)

$31,278

Ans:

C

Fundamentals of Corporate Finance 3e Test Bank

69.

Palermo, Corp. sold equipment to a French firm. Payment of €4,275,000 will be due in 90 days.

Palermo has the option of selling the euros at a 90-day forward rate of $1.5922/€. If it waits 90

days to sell the euros, the expected spot rate is $1.5645/€. How much dollar revenue will

Palermo lose by not selling forward the euros? (Round your final answer to the nearest dollar.)

A)

$124,687

B)

$118,418

C)

$159,023

D)

$131,278

Ans:

B

AICPA: Industry/Global Perspective

70.

When performing capital budgeting analysis on international projects, managers

A)

find it more difficult to estimate the incremental cash flows for foreign projects.

B)

have to deal with foreign exchange rate risk on international capital investments.

C)

must incorporate a country risk premium when evaluating foreign business activities.

D)

All of these

Ans:

D

Fundamentals of Corporate Finance 3e Test Bank

AICPA: Industry/Global Perspective

71.

The ways that a foreign government can affect the risk of a foreign project include

A)

change tax laws in a way that adversely impacts the firm.

B)

impose laws related to labor, wages, and prices that are more restrictive than those

applicable for domestic firms.

C)

disallow any remittance of funds from the subsidiary to the parent firm for either a

limited period of time or the duration of the project.

D)

All of these

Ans:

D

72.

The ways that a foreign government can adversely affect the risk of a foreign project include all

EXCEPT

A)

change tax laws in a way that adversely impacts the firm.

B)

impose laws related to labor, wages, and prices that are more restrictive than those

applicable for domestic firms.

C)

remove tariffs and quotas on any imports.

D)

disallow any remittance of funds from the subsidiary to the parent firm for either a

limited period of time or the duration of the project.

Ans:

C

Fundamentals of Corporate Finance 3e Test Bank

AICPA: Industry/Global Perspective

73.

Country risk should be incorporated into the international capital budgeting analysis by

A)

adjusting the firm’s discount rate for the additional risk.

B)

increasing cash flow estimates from the project.

C)

including the country risk premium to sunk costs.

D)

None of these

Ans:

A

AICPA: Industry/Global Perspective

74.

The Euromarkets are

A)

vast, largely unregulated money and capital markets existing in Tokyo, Hong Kong, and

Singapore.

B)

vast, regulated money and capital markets with major financial centers in the United

Kingdom.

C)

vast, regulated money and capital markets with major financial centers in the euro zone.

D)

None of these

Ans:

A

75.

The Eurocurrency market is the

A)

medium-term portion of the Euromarket.

B)

short-term portion of the Euromarket.

C)

long-term portion of the Euromarket.

D)

None of these

Ans:

B

Fundamentals of Corporate Finance 3e Test Bank

AICPA: Industry/Global Perspective

76.

Which of the following statements about Eurocredits is true?

A)

The international banking system gathers funds from businesses and governments in the

Eurocurrency market and then allocates funds to banks that have the most profitable

lending opportunities.

B)

Eurocredits are denominated in all major Eurocurrencies, although the dollar is the

overwhelming favorite.

C)

Eurocredits are short- to medium-term loans made to multinational corporations and

governments of medium to high credit quality.

D)

All of these

Ans:

D

AICPA: Industry/Global Perspective

77.

Long-term debt sold by a foreign firm to investors in a foreign country and denominated in that

country’s currency is called a _____ .

A)

Eurobond

B)

municipal bond

C)

foreign bond

D)

currency bond

Ans:

C

Fundamentals of Corporate Finance 3e Test Bank

78.

Long-term debt instruments sold by firms to investors in countries other than the country in

whose currency the bonds are denominated are called _____.

A)

Samurai bonds

B)

Eurobonds

C)

foreign bonds

D)

currency bonds

79.

Which of the following statements about Eurobonds is NOT true?

A)

Multinational firms can use Eurobonds to finance international or domestic projects.

B)

Eurobonds are bearer bonds.

C)

Eurobonds are bonds that have to be registered.

D)

Eurobonds also pay interest annually.

Ans:

C

Fundamentals of Corporate Finance 3e Test Bank

80.

Zylex Corporation’s German unit is looking to borrow €4.5 million from Deutsche Bank.

Deutsche Bank quotes a rate of three-month LIBOR plus 0.5 percent for the 90-day loan.

Currently, the three-month LIBOR is 4.175 percent. If the exchange rate on the payoff date is

€0.8334/$, what is the dollar cost of the loan? (Round your final answer to two decimal places.)

A)

$63,107.45

B)

$126,214.90

C)

$39,143.76

D)

$56,357.99

Ans:

A

Fundamentals of Corporate Finance 3e Test Bank

81.

What are the six factors that can cause international business transactions to differ from

domestic deals?

Fundamentals of Corporate Finance 3e Test Bank

82.

How does the goal of a firm vary across countries?

Fundamentals of Corporate Finance 3e Test Bank

83.

Describe the global debt markets.