Question 1

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Accepted Answer

A)  change in book value when the market value of an asset remains constant
B)  unrealised foreign exchange gains
C)  daily fluctuations in the spot rate
D)  changes in relative economic conditions between two countries
E)  increases in the forward rate as the time to settlement increasesF) A) and C)
G) B) and E)

Question 2

Which one of the following is the risk arising from changes in value caused by political actions?

Accepted Answer

A)  LIBOR risk
B)  cross-rate risk
C)  translation risk
D)  exchange rate risk
E)  political riskF) A) and D)
G) D) and E)

Question 3

Exchange rate risk is defined by your textbook as the risk related to:

Accepted Answer

A)  trading in the foreign exchange markets with the sole purpose of arbitrage
B)  investing in a foreign currency for the sole purpose of profiting on rate fluctuations
C)  having international operations in a world where relative currency values fluctuate
D)  trading among three or more currencies within a single day
E)  holding a foreign currency as an investment over a period of timeF) All of the above
G) B) and C)

Question 4

Which one of the following is an example of the political risks associated with foreign operations?

Accepted Answer

A)  changes in foreign tax laws
B)  technological changes
C)  exchange rate fluctuations
D)  translation exposure to exchange rate risk
E)  changes in relative wage rates between the home country and the foreign countryF) A) and B)
G) A) and C)

Question 5

The current spot rate between Australia and the US is US$0.6789 per AUD$1.The expected inflation rate in the US is 2.1 per cent.The expected inflation rate in Australia is 2.6 per cent.If relative purchasing power parity exists,what will the exchange rate be next year?

Accepted Answer

A)  AUD$1 = US$1.5601
B)  AUD$1 = US$0.6755
C)  AUD$1 = US$1.4804
D)  AUD$1 = US$0.6410
E)  AUD$1 = US$0.7110F) B) and E)
G) B) and D)

Question 6

The spot rate for euro is 0.5849 euros for one Australian dollar,and the one year forward rate is €0.5720 = A$1.The risk-free rate in the Eurozone is 4.10%.If interest rate parity exists,a one-year risk-free security is yielding ___ % per annum.

Accepted Answer

A)  4.50%
B)  6.36%
C)  7.15%
D)  5.12%
E)  6.80%F) B) and C)
G) A) and B)

Question 7

Which one of the following terms is defined as having international operations in a world where relative currency values change?

Accepted Answer

A)  exchange rate risk
B)  absolute purchasing power parity
C)  political risk
D)  relative purchasing power parity
E)  interest rate parityF) C) and D)
G) A) and D)

Question 8

Suppose that you could buy 27 Russian roubles or 108 Japanese yen last year for US$1.Today,US$1 will buy you 28 roubles or 104 yen.Over the past year:

Accepted Answer

A)  the US dollar appreciated against both the rouble and the yen
B)  the US dollar depreciated against the Russian rouble
C)  the Japanese yen depreciated against the US dollar
D)  the US dollar appreciated against the Japanese yen
E)  the Russian rouble depreciated against the US dollarF) None of the above
G) All of the above

Question 9

Currently,you can exchange A$100 for €75.42.The inflation rate in Europe is expected to be 3.8 per cent as compared to 2.1 per cent in Australia.Assuming that relative purchasing power parity exists,what should the exchange rate be 4 years from now?

Accepted Answer

A)  €0.7670
B)  €0.8068
C)  €0.7414
D)  €0.7042
E)  €0.7778F) C) and D)
G) A) and E)

Question 10

The market where euros,pesos,dollars,and pounds are traded is referred to as which one of the following?

Accepted Answer

A)  ADR market
B)  LIBOR market
C)  euromarket
D)  foreign exchange market
E)  gilt marketF) C) and E)
G) A) and E)

Question 11

Eurobonds are best defined as international bonds issued in _____ and denominated in _____.

Accepted Answer

A)  multiple countries;multiple currencies
B)  a single country;a single currency
C)  multiple countries;a single currency
D)  euroland;euros
E)  a single country;multiple currenciesF) B) and E)
G) C) and D)

Question 12

An agreement to exchange currencies at some time in the future is referred to as which one of the following?

Accepted Answer

A)  gilt
B)  spot trade
C)  forward exchange rate
D)  hedge
E)  forward tradeF) C) and D)
G) B) and E)

Question 13

The concept that exchange rates vary to keep purchasing power constant among currencies is referred to as:

Accepted Answer

A)  universal parity
B)  exchange rate equilibrium
C)  purchasing power equilibrium
D)  exchange rate parity
E)  purchasing power parityF) B) and D)
G) A) and C)

Question 14

Which one of the following states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Accepted Answer

A)  arbitrage equilibrium
B)  relative purchasing power parity
C)  cross rate parity
D)  interest rate parity
E)  absolute purchasing power parityF) C) and E)
G) C) and D)

Question 15

Which one of the following statements is correct?

Accepted Answer

A)  New Zealand uses the same currency as Australia and that is the A$.
B)  Exchange rates are adjusted each morning and held constant until the next morning.
C)  All of South America uses the peso as their currency.
D)  The foreign exchange market is the largest financial market in the world.
E)  The four most common currencies traded in the foreign exchange market are the US dollar,franc,euro,and peso.F) A) and D)
G) D) and E)

Question 16

Which one of the following must be significantly eliminated if interest rate parity is to exist?

Accepted Answer

A)  absolute purchasing power parity
B)  short-run exposure to exchange rate risk
C)  covered interest arbitrage opportunities
D)  relative purchasing power parity
E)  translation exposureF) D) and E)
G) A) and E)

Question 17

You are planning a trip to the UK and plan on spending 3600 pounds.How many dollars will this trip cost you if the exchange rate per one Australian dollar is 0.6789 pounds?

Accepted Answer

A)  $2444.04
B)  $5302.70
C)  $6044.04
D)  $3892.16
E)  $5890.01F) All of the above
G) B) and C)

Question 18

You have just agreed to a forward trade that will be settled six months from now.When will the exchange rate for this transaction be determined?

Accepted Answer

A)  whenever the spot rate six months from today is known
B)  six months from now
C)  today
D)  anytime you prefer within the next 6 months
E)  three months from today because that is the half-way pointF) C) and D)
G) A) and C)

Question 19

Interest rate parity defines the relationships among which of the following?

Accepted Answer

A)  real interest and inflation rates
B)  real and nominal interest rates across countries
C)  spot exchange rates,future exchange rates,interest rates,and inflation rates
D)  spot exchange rates,forward exchange rates,nominal interest rates,and real interest rates
E)  forward exchange rates,relative interest rates,and spot exchange ratesF) C) and D)
G) A) and C)

Question 20

Currently,you can exchange €100 for A$132.66.The inflation rate in Europe is expected to be 3.1 per cent as compared to 3.6 per cent in Australia.Assuming that relative purchasing power parity exists,what should the exchange rate be 5 years from now?

Accepted Answer

A)  €0.7351
B)  €0.7367
C)  €0.7298
D)  €0.7405
E)  €0.7423F) B) and C)
G) C) and D)

Exam 18: International Aspects of Financial Management

Eurobonds are best defined as international bonds issued in _____ and denominated in _____.

Correct AnswerverifiedShow Answer

Which one of the following is an example of the political risks associated with foreign operations?

Correct AnswerverifiedShow Answer

The current spot rate between Australia and the US is US$0.6789 per AUD$1.The expected inflation rate in the US is 2.1 per cent.The expected inflation rate in Australia is 2.6 per cent.If relative purchasing power parity exists,what will the exchange rate be next year?

Correct AnswerverifiedShow Answer

Which one of the following must be significantly eliminated if interest rate parity is to exist?

Correct AnswerverifiedShow Answer

The spot rate for euro is 0.5849 euros for one Australian dollar,and the one year forward rate is €0.5720 = A$1.The risk-free rate in the Eurozone is 4.10%.If interest rate parity exists,a one-year risk-free security is yielding ___ % per annum.

Correct AnswerverifiedShow Answer

Which one of the following states that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate?

Correct AnswerverifiedShow Answer

Short-run exposure to exchange rate risk is best illustrated by which one of the following?

Correct AnswerverifiedShow Answer

Which one of the following terms is defined as having international operations in a world where relative currency values change?

Correct AnswerverifiedShow Answer

Currently,you can exchange A$100 for €75.42.The inflation rate in Europe is expected to be 3.8 per cent as compared to 2.1 per cent in Australia.Assuming that relative purchasing power parity exists,what should the exchange rate be 4 years from now?

Correct AnswerverifiedShow Answer

The market where euros,pesos,dollars,and pounds are traded is referred to as which one of the following?

Correct AnswerverifiedShow Answer

Interest rate parity defines the relationships among which of the following?

Correct AnswerverifiedShow Answer

The concept that exchange rates vary to keep purchasing power constant among currencies is referred to as:

Correct AnswerverifiedShow Answer

Suppose that you could buy 27 Russian roubles or 108 Japanese yen last year for US$1.Today,US$1 will buy you 28 roubles or 104 yen.Over the past year:

Correct AnswerverifiedShow Answer

An agreement to exchange currencies at some time in the future is referred to as which one of the following?

Correct AnswerverifiedShow Answer

Which one of the following is the risk arising from changes in value caused by political actions?

Correct AnswerverifiedShow Answer

Exchange rate risk is defined by your textbook as the risk related to:

Correct AnswerverifiedShow Answer

Currently,you can exchange €100 for A$132.66.The inflation rate in Europe is expected to be 3.1 per cent as compared to 3.6 per cent in Australia.Assuming that relative purchasing power parity exists,what should the exchange rate be 5 years from now?

Correct AnswerverifiedShow Answer

You have just agreed to a forward trade that will be settled six months from now.When will the exchange rate for this transaction be determined?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

You are planning a trip to the UK and plan on spending 3600 pounds.How many dollars will this trip cost you if the exchange rate per one Australian dollar is 0.6789 pounds?

Correct AnswerverifiedShow Answer

Eurobonds are best defined as international bonds issued in _ and denominated in _.

Correct Answer
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