1. Spears Co. will receive SF1,000,000 in 30 days.

Use the following information to determine the total dollar amount received (after accounting for the option premium if the firm purchases and e!ercises a put option" #!ercise price 'remium Spot rate #!pected spot rate in 30 days 30*day forward rate a. +. c. d. e. %&30,000. %&10,000. %&00,000. %),0,000. %)-0,000. $ $ $ $ $ %.&1 %.0( %.&0 %.)& %.&(

(. .f U.S. inflation suddenly increased while #uropean inflation stayed the same, there would +e" a. an increased U.S. demand for euros and an increased supply of euros for sale. +. a decreased U.S. demand for euros and an increased supply of euros for sale. c. a decreased U.S. demand for euros and a decreased supply of euros for sale. d. an increased U.S. demand for euros and a decreased supply of euros for sale. 3. /he Single #uropean 0ct of 1,-1" a. reduced competition in most industries. +. eliminated competition in many industries. c. reduced efficiency in most industries. d. increased competition in most industries. 2. 3hen computing the weighted average cost of capital, the weighting should +e proportional +ased on the 444444 rather than the 44444 value of the firm. a. +oo5, mar5et +. hypothetical, +oo5 c. mar5et, analyst6s d. mar5et, +oo5 ). 3hen the dollar strengthens, the reported consolidated earnings of U.S.*+ased 78Cs are 4444444 affected +y translation e!posure. 3hen the dollar wea5ens, the reported consolidated earnings are 4444444444 affected. a. favora+ly9 favora+ly affected +ut +y a smaller degree +. favora+ly9 favora+ly affected +y a higher degree c. unfavora+ly9 favora+ly affected d. favora+ly9 unfavora+ly affected &. 3hich one of the following areas is NOT a way companies often respond to e!change rate ris5 when they alter their product strategy: a. shifting the firm6s manufacturing +ase to another country +. the timing of new*product introduction c. changing the si;e of its product line d. product innovation with advanced technology 1. /he real cost of hedging paya+les with a forward contract e<uals" a. the nominal cost of hedging minus the nominal cost of not hedging. +. the nominal cost of not hedging minus the nominal cost of hedging. c. the nominal cost of hedging divided +y the nominal cost of not hedging. d. the nominal cost of not hedging divided +y the nominal cost of hedging.

-. 3hich of the following would li5ely have the least direct influence on a country6s current account: a. inflation. +. national income. c. e!change rates. d. tariffs. e. a ta! on income earned from foreign stoc5s. ,. =ver time, international trade (e!ports plus imports as a percentage of >?' has" a. increased for most ma@or countries. +. decreased for most ma@or countries. c. stayed a+out constant for most ma@or countries. d. increased for a+out half the ma@or countries and decreased for the others. 10. 0 perfect hedge (full coverage on translation e!posure can usually +e achieved when" a. using the money mar5et hedge. +. using the forward hedge. c. using the futures hedge. d. none of the a+ove, since a perfect hedge is nearly impossi+le. 11. 0 recent study +y 7cAinsey B Co. found that investors assign a higher value to firms that e!hi+it 44444444 corporate governance standards and are li5ely to 44444444 ethical constraints. a. high9 not o+ey +. high9 o+ey c. low9 not o+ey d. low9 o+ey 1(. .f the current 1-0*day inter*+an5 #urodollar rate is 1)C (all rates are stated on an annuali;ed +asis. and ne!t periodDs E.F=G is 13C, then a #urocurrency loan priced at E.F=G plus 1C will cost a. 1&C this period and 1&C ne!t period +. 1)C this period and 12C ne!t period c. 1&C this period and 12C ne!t period d. 1)C this period and 1)C ne!t period 13. 4444444is not a factor that affects the +idHas5 spread. a. =rder costs +. .nventory costs c. Iolume d. 0ll of the a+ove factors affect the +idHas5 spread 12. 0ssume the Canadian dollar is e<ual to %.-- and the 'eruvian Sol is e<ual to %.3). /he value of the 'eruvian Sol in Canadian dollars is" a. a+out .3&(1 Canadian dollars. +. a+out .3,11 Canadian dollars. c. a+out (.3& Canadian dollars. d. a+out (.)1 Canadian dollars. 1). 4444444 is not a +an5 characteristic important to customers in need of foreign e!change. a. Juote competitiveness +. Speed of e!ecution c. Forecasting advice d. 0dvice a+out current mar5et conditions e. 0ll of the a+ove are important +an5 characteristics to customers in need of foreign e!change.

1&. 3hich of the following is not an advantage resulting from the 0sian crisis that would favor direct foreign investment in 0sia: a. strong local demand for products. +. low production costs. c. wea5 local currencies. d. all of the a+ove are advantages. 11. E.F=G is" 0 the interest rate commonly charged for loans +etween +an5s. F the average inflation rate in #uropean countries. C the ma!imum loan rate ceiling on loans in the international money mar5et. ? the ma!imum deposit rate ceiling on deposits in the international money mar5et. # the ma!imum interest rate offered on +onds that are issued in Eondon. 1-. Futures contracts are typically 44444449 forward contracts are typically 4444444. 0 sold on an e!change9 sold on an e!change F offered +y commercial +an5s9 sold on an e!change C sold on an e!change9 offered +y commercial +an5s ? offered +y commercial +an5s9 offered +y commercial +an5s 1,. /he value of the 0ustralian dollar (0% today is %0.13. Kesterday, the value of the 0ustralian dollar was %0.&,. /he 0ustralian dollar 44444444 +y 4444444C. 0 depreciated9 ).-0 F depreciated9 2.00 C appreciated9 ).-0 ? appreciated9 2.00 (0. 0n increase in U.S. interest rates relative to >erman interest rates would li5ely 44444444 the U.S. demand for euros and 444444444 the supply of euros for sale. 0 reduce9 increase F increase9 reduce C reduce9 reduce ? increase9 increase (1. Faylor Fan5 +elieves the 8ew Lealand dollar will appreciate over the ne!t five days from %.2- to %.)0. /he following annual interest rates apply" Currency ?ollars 8ew Lealand dollar (8L% Eending Gate 1.10C &.-0C Forrowing Gate 1.)0C 1.()C

Faylor Fan5 has the capacity to +orrow either 8L%10 million or %) million. .f Faylor Fan56s forecast if correct, what will its dollar profit +e from speculation over the five*day period (assuming it does not use any of its e!isting consumer deposits to capitali;e on its e!pectations : 0 %)(1,3(). F %)00,)(0. C %102,(&(. ? %213,21,. # %(0-,022. ((. 0ssume that Fritish corporations +egin to purchase more supplies from the U.S. as a result of several la+or stri5es +y Fritish suppliers. /his action reflects" 0 an increased demand for Fritish pounds. F a decrease in the demand for Fritish pounds. C an increase in the supply of Fritish pounds for sale. ? a decrease in the supply of Fritish pounds for sale.

(3. 3hich of the following is an e!ample of economic e!posure +ut not an e!ample of transaction e!posure: 0 0n increase in the dollar6s value hurts a U.S. firm6s domestic sales +ecause foreign competitors are a+le to increase their sales to U.S. customers. F 0n increase in the pound6s value increases the U.S. firm6s cost of Fritish pound paya+les. C 0 decrease in the peso6s value decreases a U.S. firm6s dollar value of peso receiva+les. ? 0 decrease in the Swiss franc6s value decreases the dollar value of interest payments on a Swiss deposit sent to a U.S. firm +y a Swiss +an5. (2. 0ssume no transactions costs e!ist for any futures or forward contracts. /he price of Fritish pound futures with a settlement date 1-0 days from now will" 0 definitely +e a+ove the 1-0*day forward rate. F definitely +e +elow the 1-0*day forward rate. C +e a+out the same as the 1-0*day forward rate. ? none of the a+ove9 there is no relation +etween the futures and forward prices. (). Aalons, .nc. is a U.S.*+ased 78C that fre<uently imports raw materials from Canada. Aalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. 3hich of the following is not an appropriate hedging techni<ue under these circumstances: 0 purchase Canadian dollars forward. F purchase Canadian dollar futures contracts. C purchase Canadian dollar put options. ? purchase Canadian dollar call options. (&. 0 firm will li5ely +enefit most from diversifying if" 0 the correlations +etween country economies are high. F the correlations +etween country economies are low. C the varia+ility of all country economy levels is high. ? F and C (1. 0ssume that a +an5Ds +id rate on Swiss francs is %.2) and its as5 rate is %.21. .ts +id*as5 percentage spread is" 0 a+out 2.22C. F a+out 2.(&C. C a+out 2.03C. ? a+out 2.11C. (-. /hornton, .nc. needs to invest five million 8epalese rupees in its 8epalese su+sidiary to support local operations. /hornton would li5e its su+sidiary to repay the rupees in one year. /hornton would li5e to engage in a swap transaction. /hus, /hornton would" 0 convert the rupees to dollars in the spot mar5et today and convert rupees to dollars in one year at today6s forward rate. F convert the dollars to rupees in the spot mar5et today and convert dollars to rupees in one year at the prevailing spot rate. C convert the dollars to rupees in the spot mar5et today and convert rupees to dollars in one year at today6s forward rate. ? convert the dollars to rupees in the spot mar5et today and convert rupees to dollars in one year at the prevailing spot rate.

(,. 0n increase in the current account deficit will place 4444444 pressure on the home currency value, other things e<ual. 0 upward F downward C no ? upward or downward (depending on the si;e of the deficit 30. Forward contracts"

0 contain a commitment to the owner, and are standardi;ed. F contain a commitment to the owner, and can +e tailored to the desire of the owner. C) contain a right +ut not a commitment to the owner, and can +e tailored to the desire of the owner. ? contain a right +ut not a commitment to the owner, and are standardi;ed. 31. 4444444444444 are most commonly classified as a direct foreign investment. 0 Foreign ac<uisitions F 'urchases of international stoc5s C Eicensing agreements ? #!porting transactions 3(. 3hich of the following is true: 0 7ost forward contracts +etween firms and +an5s are for speculative purposes. F 7ost future contracts represent a conservative approach +y firms to hedge foreign trade. C /he forward contracts offered +y +an5s have maturities for only four possi+le dates in the future. ? none of the a+ove 33. 3hich one of the following is an advantage of international investing: a. you can invest in industries that donDt e!ist in the United States +. you can invest in companies that have lower price*earnings ratios c. you can invest in companies that are, on average, more profita+le than similar U.S. firms d. you can invest in companies with lower mar5et*+oo5 value ratios

32. /o force the value of the pound to appreciate against the dollar, the Federal Geserve should" 0 sell dollars for pounds in the foreign e!change mar5et and the #uropean Central Fan5 (#CF should sell dollars for pounds in the foreign e!change mar5et. F sell pounds for dollars in the foreign e!change mar5et and the #uropean Central Fan5 (#CF should sell dollars for pounds in the foreign e!change mar5et. C sell pounds for dollars in the foreign e!change mar5et and the #uropean Central Fan5 (#CF should not intervene. ? sell dollars for pounds in the foreign e!change mar5et and the #uropean Central Fan5 (#CF should sell pounds for dollars in the foreign e!change mar5et. 3). Consider two countries that trade with each other, called M and K. .nflation in Country M will have a greater impact on inflation in Country K under the 4444444 system. 8ow, consider two other countries that trade with each other, called 0 and F. Unemployment in Country 0 will have a greater impact on unemployment in Country F under the 4444444 system. 0 floating rate9 fi!ed rate F floating rate9 floating rate C fi!ed rate9 fi!ed rate ? fi!ed rate9 floating rate 3&. /he value of the Canadian dollar, Napanese yen, and 0ustralian dollar with respect to the U.S. dollar are part of a" 0 pegged system. F fi!ed system. C managed float system. ? crawling peg system. 31. .f the Fed desires to wea5en the dollar without affecting the dollar money supply, it should" 0 e!change dollars for foreign currencies, and sell some of its e!isting /reasury security holdings for dollars. F e!change foreign currencies for dollars, and sell some of its e!isting /reasury security holdings for dollars.

C e!change dollars for foreign currencies, and +uy e!isting /reasury securities with dollars. ? e!change foreign currencies for dollars, and +uy e!isting /reasury securities with dollars. 3-. ?ue to 4444444, mar5et forces should realign the relationship +etween the interest rate differential of two currencies and the forward premium (or discount on the forward e!change rate +etween the two currencies. 0 forward realignment ar+itrage F triangular ar+itrage C covered interest ar+itrage ? locational ar+itrage 3,. .f the interest rate is lower in the U.S. than in the United Aingdom, and if the forward rate of the Fritish pound is the same as its spot rate" 0 U.S. investors could possi+ly +enefit from covered interest ar+itrage. F Fritish investors could possi+ly +enefit from covered interest ar+itrage. C neither U.S. nor Fritish investors could +enefit from covered interest ar+itrage. ? 0 and F 20. Fased on interest rate parity, the larger the degree +y which the foreign interest rate e!ceeds the U.S. interest rate, the" 0 larger will +e the forward discount of the foreign currency. F larger will +e the forward premium of the foreign currency. C smaller will +e the forward premium of the foreign currency. ? smaller will +e the forward discount of the foreign currency.