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Exam 22: International Financial Management

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Question 21

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Suppose that currently, 1 British pound equals 1.98 Canadian dollars and 1 Canadian dollar equals 1.04 Swiss francs. What is the cross exchange rate between the pound and the franc?

A) 1 British pound equals 3.2400 Swiss francs
B) 1 British pound equals 2.0592 Swiss francs
C) 1 British pound equals 1.9037 Swiss francs
D) 1 British pound equals 1.0000 Swiss francs

E) All of the above
F) A) and D)

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Question 22

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On average, foreign currency will depreciate against the Canadian dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of Canada.

A) True
B) False

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Question 23

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If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then what is the forward rate for the Israeli shekel selling at?

The interest rate paid on Eurocurrency deposits depends on the particular bank's lending rate and on rates available on its domestic money market instruments.

Suppose 1 year ago, Hein Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was £1 = 2 Canadian dollars. This year the exchange rate is £1 = 1.82 Canadian dollars. The inventory in Britain is still valued at 240,000 pounds. What is the gain or loss in inventory value in Canadian dollars as a result of the change in exchange rates?

Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms.

The threat of expropriation creates an incentive for the multinational firm to minimize inventory holdings in certain countries and to bring in goods only as needed.

When our Canadian dollar appreciates against another country's currency, we may purchase more of the foreign currency with a dollar.

Because political risk is seldom negotiable, it cannot be explicitly addressed in international corporate financial analysis.

What does international financial management require?

Exchange rate quotations consist solely of direct quotations.

Multinational financial management requires that financial analysts consider the effects of changing currency values.

Which of the following are reasons that companies move into international operations?

Suppose a Canadian firm buys $200,000 worth of television tubes from a Norwegian manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received) . The rising Canadian deficit has caused the dollar to depreciate against the krone recently. The current exchange rate is 5.50 krones per Canadian dollar. The 90-day forward rate is 5.45 krones/dollar. The firm goes into the forward market today and buys enough Norwegian krones at the 90-day forward rate to completely cover its trade obligation. Assume the spot rate in 90 days is 5.30 krones per Canadian dollar. How much in Canadian dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge?

If one US dollar buys 1.0613 Canadian dollars, how many US dollars can you purchase for one Canadian dollar?

A Eurocanadian is Canadian dollar deposited in a bank outside Canada.

Exchange rates influence a multinational firm's inventory policy because changing currency values can affect the value of inventory.

Legal and economic differences among countries, although important, do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries.

LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to smaller North American corporations.

Stover Corporation, a Canadian importer, makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or $38,610, at the spot rate of 1.035 francs per dollar. The terms of the purchase are net 90 days, and the Canadian firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.099 francs. If the spot rate in 90 days is actually 1.062 francs, how much will the Canadian firm have saved or lost in Canadian dollars by hedging its exchange rate exposure?