CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
c.
2.0701
d.
2.1218
e.
2.1749
MODERATE
19-4 Foreign Exchange Rate Quotations
FOFM.BRIG.16.19.04 – Foreign Exchange Rate Quotations
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.13 – Multinational financial management
Cross rates
Bloom’s: Evaluation
Multiple Choice: Problem
35. A currency trader observes the following quotes in the spot market:
1 U.S. dollar
1 British pound
1 British pound
Given this information, how many yen can be purchased for 1 Swiss franc?
a.
0.8505
b.
0.8723
c.
0.8947
d.
0.9170
e.
0.9400
c
MODERATE
19-4 Foreign Exchange Rate Quotations
FOFM.BRIG.16.19.04 – Foreign Exchange Rate Quotations
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.13 – Multinational financial management
Cross rates
Bloom’s: Evaluation
Multiple Choice: Problem
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
36. A currency trader observes the following quotes in the spot market:
1 U.S. dollar
1 British pound
1 British pound
Given this information, how many Mexican pesos can be purchased for 1 Danish krone?
a.
2.7490
b.
2.8195
c.
2.8918
d.
2.9641
e.
3.0382
c
MODERATE
19-4 Foreign Exchange Rate Quotations
FOFM.BRIG.16.19.04 – Foreign Exchange Rate Quotations
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.13 – Multinational financial management
Cross rates
Bloom’s: Evaluation
Multiple Choice: Problem
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 144 yen per dollar, what would the car be selling for today in U.S.
dollars?
a.
$ 8,303
b.
$ 9,225
c.
$10,250
d.
$11,275
e.
$12,403
c
MODERATE
19-4 Foreign Exchange Rate Quotations
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
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?
a.
−$38,880.00
b.
−$43,200.00
c.
−$47,520.00
d.
−$52,272.00
e.
−$57,499.20
19-4 Foreign Exchange Rate Quotations
FOFM.BRIG.16.19.04 – Foreign Exchange Rate Quotations
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.13 – Multinational financial management
Inventory and exchg. rates
Bloom’s: Application
Multiple Choice: Problem
39. If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar,
then the forward rate for the Israeli shekel is selling at a(n) ____ to the spot rate.
a.
6.09% premium
b.
6.76% premium
c.
7.51% discount
d.
8.35% discount
e.
9.18% discount
FOFM.BRIG.16.19.04 – Foreign Exchange Rate Quotations
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.13 – Multinational financial management
Exchg. rates and asset val.
Bloom’s: Application
Multiple Choice: Problem
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
40. Suppose one British pound can purchase 1.82 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?
a.
$1.4860
b.
$1.6511
c.
$1.8346
d.
$2.0384
e.
$2.2422
MODERATE
19-5 Trading in Foreign Exchange
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 1.64 Swiss francs, how much in U.S. dollars will the U.S. firm have saved or lost by hedging its exchange rate
exposure?
a.
$399
b.
$444
c.
$493
d.
$548
MODERATE
19-5 Trading in Foreign Exchange
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
e.
$608
e
MODERATE
19-5 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 5.50 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?
a.
$4,897.59
b.
$5,155.36
c.
$5,426.69
d.
$5,712.31
e.
$5,997.92
MODERATE
CHAPTER 19—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 $1.65. If interest rate parity holds, what is the spot exchange rate ($/£)?
a.
$1.4924
b.
$1.6582
c.
$1.8240
d.
$2.0064
e.
$2.2070
MODERATE
19-6 Interest Rate Parity
44. Suppose hockey skates sell in Canada for 105 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?
a.
$60.39
b.
$67.10
19-5 Trading in Foreign Exchange
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
c.
$74.55
d.
$82.01
e.
$90.21
c
MODERATE
19-7 Purchasing Power Parity
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 1.420 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?
a.
−7.93%
b.
−7.13%
c.
−6.42%
d.
−5.78%
e.
−5.20%
a
MODERATE
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
46. A product sells for $750 in the United States. The spot exchange rate is $1 to 1.65 Swiss francs. If purchasing power
parity (PPP) holds, what is the price of the product in Switzerland?
a.
902.14
b.
1,002.38
c.
1,113.75
d.
1,237.50
e.
1,361.25
MODERATE/CHALLENGING
19-7 Purchasing Power Parity
47. A box of candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power
parity (PPP) holds, how many Swiss francs are required to purchase one U.S. dollar?
a.
0.9448
b.
1.0498
c.
1.1664
d.
1.2960
e.
1.4400
e
19–10 Investing Overseas
CHAPTER 19—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 130 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?
a.
−13.51%
b.
−12.87%
c.
−12.26%
d.
−11.67%
e.
−11.12%
19-9 International Money and Capital Markets
19-7 Purchasing Power Parity
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
49. Suppose in the spot market 1 U.S. dollar equals 1.75 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?
a.
1.2727
b.
1.4141
c.
1.5712
d.
1.7458
e.
1.9203
CHALLENGING
19-6 Interest Rate Parity
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT
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 10.0% 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?
a.
17.76%
b.
18.69%
c.
19.67%
d.
20.71%
e.
21.80%
e
CHALLENGING
19-9 International Money and Capital Markets
CHAPTER 19—MULTINATIONAL FINANCIAL MANAGEMENT