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Exam 20: International Corporate Finance

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Question 31

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Financial Accounting Standards Board Statement Number 52 requires that most assets and liabilities be translated at the current exchange rate.Gains and losses are recorded:

A) as a footnote to the statements.
B) as an extraordinary item against income.
C) as a normal part of income.
D) against shareholder's equity.
E) only on the income tax statements.

F) None of the above
G) B) and E)

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Question 32

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Describe the foreign currency and home currency approaches to capital budgeting.Which is better? Which approach would you recommend a U.S.firm use? Justify your answer.

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In the home currency approach,you must f...

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Question 33

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International bonds issued in a single country and denominated in that country's currency are called:

A new sweater costs 1,449.95 Russian rubles.How much will the identical sweater cost in euros if absolute purchasing power parity exists and the following exchange rates apply?

Suppose that the one-year forward rate on pounds is $1.75/ $\le$ .Given no arbitrage opportunities,this implies that traders expect:

A foreign bond issued in the United States and denominated in dollars is called a(n) :

Today,you can exchange $1 for $\le$ .5528.Last week, $\le$ 1 was worth $1.88.If you had converted $\le$ 100 into dollars last week you would now have a:

The most important complication of international finance is:

Currently,$1 will buy C$1.16 while $1.10 will buy €1.What is the exchange rate between the Canadian dollar and the euro?

A security issued in the United States that represents shares of a foreign stock and allows that stock to be traded in the United States is called a(n) :

A risk-free asset in the U.S.is currently yielding 3% while a Canadian risk-free asset is yielding 2%.The current spot rate is C$.75 is equal to $1.What is the approximate two-year forward rate if interest rate parity holds?

How many euros can you get for $2,500 given the following exchange rates?

Which one of following statements is not correct?

When the German mark is quoted as 1.923 marks to the dollar,this quote is a(n) :

Spot trades must be settled:

Which of the following statements are correct concerning the foreign exchange market? I.The trading floor of the foreign exchange market is located in London,England. II.The foreign exchange market is the world's largest financial market. III.The four primary currencies that are traded in the foreign exchange market are the U.S.dollar,the British pound,the Canadian dollar,and the euro. IV.Importers and exporters are key players in the foreign exchange market.

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

You want to invest in a riskless project in Sweden.The project has an initial cost of SKr2.1 million and is expected to produce cash inflows of SKr810,000 a year for 3 years.The project will be worthless after the first 3 years.The expected inflation rate in Sweden is 2% while it is 5% in the U.S.A risk-free security is paying 6 percent in the U.S.The current spot rate is $1 = SKr7.55.What is the net present value of this project in Swedish krona using the foreign currency approach? Assume that the international Fisher effect applies.

The home currency approach:

The forward rate market is dependent upon: