Chapter 17: Multinational Financial Management
Cross rates
Bloom’s: Evaluation
6/23/2015 3:27 PM
9/3/2015 9:41 AM
35. A currency trader observes the following quotes in the spot market:
1 U.S. dollar =
1.34
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 the nearest whole number.
0.8156
1.1301
0.7370
0.8844
0.9827
e
b.
c.
d.
e.
MODERATE
17-4 Foreign Exchange Rate Quotations
Multiple Choice
FOFM.BRIG.17.17.04 – Foreign Exchange Rate Quotations
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.13 – Multinational financial management
Cross rates
Bloom’s: Evaluation
6/23/2015 3:27 PM
9/3/2015 9:43 AM
36. A currency trader observes the following quotes in the spot market:
1 U.S. dollar =
10.875
Mexican pesos
1 British pound =
7.500
Danish krone
1 British pound =
1.65
U.S. dollars
Given this information, how many Mexican pesos can be purchased for 1 Danish krone?
Chapter 17: Multinational Financial Management
2.3446
2.0097
2.9188
2.0815
2.3925
e
b.
c.
d.
e.
MODERATE
17-4 Foreign Exchange Rate Quotations
37. 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 141 yen per dollar, what would the car be selling for today in U.S.
dollars?
$10,259
$12,980
$12,562
$10,468
$11,515
Chapter 17: Multinational Financial Management
b.
c.
d.
e.
MODERATE
17-4 Foreign Exchange Rate Quotations
38. Suppose one year ago, Hein Company had inventory in Britain valued at 240,000 pounds. The exchange rate for
dollars to pounds was 1£ = 2 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain
is still valued at 240,000 pounds. What is the U.S. dollar gain or loss in inventory value as a result of the change in
exchange rates?
-$43,200.00
-$48,816.00
-$36,288.00
-$50,544.00
-$32,400.00
a
MODERATE
Chapter 17: Multinational Financial Management
39. If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.76 shekels per dollar,
then the forward rate for the Israeli shekel is selling at a(n) ______________ to the spot rate.
3.68% premium
3.72% premium
4.99% discount
4.54% discount
5.58% discount
b.
c.
d.
e.
MODERATE
17-5 Trading in Foreign Exchange
Multiple Choice
FOFM.BRIG.17.17.05 – Trading in Foreign Exchange
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.13 – Multinational financial management
Forward rates – nonalgorithmic
Bloom’s: Application
6/23/2015 3:27 PM
9/3/2015 11:09 AM
40. Suppose one British pound can purchase 1.86 U.S. dollars today in the foreign exchange market, and currency
forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many
dollars will a pound buy in 30 days?
$2.1665
17-4 Foreign Exchange Rate Quotations
Multiple Choice
United States – OH – DISC.FOFM.BRIG.17.13 – Multinational financial management
Inventory and exchge rates
Bloom’s: Application
6/23/2015 3:27 PM
9/3/2015 10:22 AM
Chapter 17: Multinational Financial Management
$2.2082
$1.8957
$2.0832
$2.3540
b.
c.
d.
e.
MODERATE
17-5 Trading in Foreign Exchange
Multiple Choice
FOFM.BRIG.17.17.05 – Trading in Foreign Exchange
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.13 – Multinational financial management
Currency depreciation
Bloom’s: Application
6/23/2015 3:27 PM
9/3/2015 11:11 AM
41. 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 1.615 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.
$1,212.29
$926.47
$985.60
$965.89
$916.61
c
Chapter 17: Multinational Financial Management
b.
c.
d.
e.
MODERATE
17-5 Trading in Foreign Exchange
42. 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 5.68 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.
$4,542.43
$5,899.26
$5,309.33
$5,840.26
$6,725.15
Chapter 17: Multinational Financial Management
43. Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the U.S.,
90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward
market, 1 British pound equals $1.70. If interest rate parity holds, what is the spot exchange rate ($/£)? Do not round the
intermediate calculations and round the final answer to four decimal places.
$1.7084
$1.8280
$1.8109
$1.8793
$2.0159
a
c.
e.
MODERATE
17-5 Trading in Foreign Exchange
Chapter 17: Multinational Financial Management
44. Suppose hockey skates sell in Canada for 113 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?
$60.17
$90.66
$82.64
$93.07
$80.23
e
b.
c.
d.
e.
MODERATE
17-7 Purchasing Power Parity
b.
c.
d.
e.
MODERATE
17-6 Interest Rate Parity
Chapter 17: Multinational Financial Management
45. 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. The exchange rate at that time was 1.441 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.
–11.26%
–10.73%
–9.98%
–9.76%
–10.83%
b.
c.
d.
e.
17–10 Investing Overseas
Chapter 17: Multinational Financial Management
46. A product sells for $750 in the United States. The spot exchange rate is $1 to 1.56 Swiss francs. If purchasing power
parity (PPP) holds, what is the price of the product in Switzerland?
1,462.50
1,392.30
1,228.50
1,170.00
947.70
b.
c.
d.
e.
MODERATE/CHALLENGING
17-7 Purchasing Power Parity
47. A box of candy costs 28.80 Swiss francs in Switzerland and $21.80 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.
1.0701
1.1097
1.3211
1.6382
1.2286
c
Chapter 17: Multinational Financial Management
48. 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 145 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?
–22.14%
–20.31%
–18.08%
–23.77%
–22.55%
b.
c.
d.
e.
17-7 Purchasing Power Parity
Chapter 17: Multinational Financial Management
49. Suppose in the spot market 1 U.S. dollar equals 1.3750 Canadian dollars. 6-month Canadian securities have an
annualized return of 6% (and thus a 6-month periodic return of 3%). 6-month U.S. securities have an annualized return of
6.5% 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.
1.1660
1.1385
1.4540
1.3717
1.2345
MODERATE/CHALLENGING
17-9 International Money and Capital Markets
Chapter 17: Multinational Financial Management
b.
c.
d.
e.
CHALLENGING
17-6 Interest Rate Parity
50. 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 6.5% 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.
14.14%
13.25%
21.21%
Chapter 17: Multinational Financial Management
19.62%
17.67%
e
CHALLENGING
17-9 International Money and Capital Markets
Chapter 17: Multinational Financial Management