INTERNATIONAL CORPORATE FINANCE
Answers to Concepts Review and Critical Thinking Questions
1. a. The dollar is selling at a premium because it is more expensive in the forward market than in the
spot market (SFr 1.53 versus SFr 1.50).
c. Inflation in Switzerland is higher than in the United States, as are interest rates.
2. The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This is the
relative PPP relationship.
b. The inflation rate in Australia is higher.
4. A Yankee bond is most accurately described by d.
5. It depends. For example, if a country’s currency strengthens, imports become cheaper (good), but its
6. Additional advantages include being closer to the final consumer and, thereby, saving on transportation,
7. One key thing to remember is that dividend payments are made in the home currency. More generally, it
may be that the owners of the multinational are primarily domestic and are ultimately concerned about
8. a. False. If prices are rising faster in Great Britain, it will take more pounds to buy the same amount
of goods that one dollar can buy; the pound will depreciate relative to the dollar.
isn’t reflected in forward rates today will the forward hedge protect you against additional