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Exam 31: International Corporate Finance

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Question 31

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Assume that you can buy 245 Canadian dollars with 100 British pounds.How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S.dollars?

A) $0.86
B) $0.93
C) $1.09
D) $1.37
E) $1.55

F) A) and E)
G) B) and E)

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Question 32

Multiple Choice

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You are expecting a payment of 500,000PLN 3 years from now.The risk-free rate of return is 4 percent in the U.S.and 2 percent in Poland.The inflation rate is 4 percent in the U.S.and 1 percent in Poland.Currently,you can buy 380PLN for 100USD.How much will the payment 3 years from now be worth in U.S.dollars?

A) $138,700
B) $138,900
C) $139,800
D) $142,300
E) $144,169

F) A) and C)
G) A) and B)

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Question 33

Multiple Choice

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The spot rate for the British pound currently is £.55 per $1.The one-year forward rate is £.58 per $1.A risk-free asset in the U.S.is currently earning 3 percent.If interest rate parity holds,approximately what rate can you earn on a one-year risk-free British security?

Today,you can exchange $1 for £.5428.Last week,£1 was worth $1.88.If you had converted £100 into dollars last week you would now have a:

A foreign bond issued in Japan and denominated in yen is called a(n) :

The current spot rate is C$1.362 and the one-year forward rate is C$1.371.The nominal risk-free rate in Canada is 6 percent while it is 3.5 percent in the U.S.Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

International bonds issued in multiple countries but denominated in a single currency are called:

The current spot rate for the Norwegian krone is $1 = NKr6.83.The expected inflation rate in Norway is 2 percent and in the U.S.4 percent.A risk-free asset in the U.S.is yielding 5 percent.What risk-free rate of return should you expect on a Norwegian security?

Currently,$1 will buy C$1.36 while $1.10 will buy €1.What is the exchange rate between the Canadian dollar and the euro?

The international Fisher effect says that _____ rates are equal across countries.

The foreign exchange market is where:

The exchange rate on a spot trade is called the _____ exchange rate.

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

The theory that real interest rates are equal across countries is called:

The condition stating that the current forward rate is an unbiased predictor of the future spot exchange rate is called:

You are analyzing a very low-risk project with an initial cost of £120,000.The project is expected to return £40,000 the first year,£50,000 the second year and £60,000 the third and final year.The current spot rate is £.54.The nominal return relevant to the project is 4 percent in the U.K.and 3 percent in the U.S.Assume that uncovered interest rate parity exists.What is the net present value of this project in U.S.dollars?

Triangle arbitrage: I.is a profitable situation involving three separate currency exchange transactions. II.helps keep the currency market in equilibrium. III.opportunities can exist in either the spot or the forward market. IV.only involves currencies other than the U.S.dollar.

The expected inflation rate in Finland is 2 percent while it is 4 percent in the U.S.A risk-free asset in the U.S.is yielding 5.5 percent.What real rate of return should you expect on a risk-free Finnish security?

Assume that $1 can buy you either ¥107 or £.55.If a TV in London costs £500,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Today,you can get either 140 Canadian dollars or 1,140 Mexican pesos for 100 U.S.dollars.Last year,100 U.S.dollars was worth 139 Canadian dollars and 1,160 Mexican pesos.Which one of the following statements is correct given this information?