INTERNATIONAL FINANCIAL MANAGEMENT
Exercis
Teacher：Yin Wenli
Students: Accounting 08
Term: 10/11-2
Time: 2 hours
Attention:
This exercis may be little harder than the final exam. You CAN u your dictionary in your exam. But you CAN NOT u communication tools, such as mobile phone, textbook, notebook, and other references.
I．Plea fill in the bracket with the best choice. (40 points)
1. Suppo your firm invests $100,000 in a project in Italy. At the time the exchange rate is $ = €. One year later the exchange rate is the same, but the Italian government has expropriated your firm’s asts paying only €80,000 in compensation. This is an example of
a)Exchange rate risk
b)Political risk
c)Market imperfections
d)None of the above, since $100,000 = €80,000×$€
Answer: b) political risk—the government is only giving you back your initial investment, if this was a good investment it should have been worth more than $100,000 a year later. For example if your cost of capital was 8% it should have been worth $108,000.
2. Benefits from adopting a common European currency include
a)Reduced transaction costs
b)Elimination of exchange rate risk
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c)Incread price transparency(透明度) will promote Europe-wide competition
d)All of the above
Answer d)
3. Under a purely flexible exchange rate system
a)Supply and demand t the exchange rates我的使命
b)Governments can t the exchange rate by buying or lling rerves
c)Governments can t exchange rates with fiscal policy
d)B) and c) are correct.
Answer a)
Rationale: under a purely flexible system, the government doesn’t interfere.
4. The foreign exchange market clos
a)Never
b)4:00 . EST (New York time)
c)4:00 . GMT (London time)
d)4:00 . (Tokyo time)
Answer: a)
5. The spot market鼠年寓意
a)Involves the almost-immediate purcha or sale of foreign exchange.
b)Involves the sale of futures, forwards, and options on foreign exchange
c)Takes place only on the physical trading market
d)All of the above.
Answer: a)
Country | U.S. $ equiv. | Currency per U.S. $ |
Tuesday | Monday | Tuesday | Monday |
Britain (Pound) £62,500 | | | | |
1 Month Forward | | | | |
3 Months Forward | | | | |
6 Months Forward | | | | |
12 Months Forward | | 百合花象征什么 | | |
| | | | |
6. Using the table shown, from the U.S. perspective, what is the most current spot exchange rate shown for British pounds? U a indirect quote
a)$ = £
b)灶台图片$ = £
c)$ = £
d)$ = £
Answer: c)
7. The AUD/$ spot exchange rate is $ and the SF/$ is $. The AUD/SF cross exchange rate is:
a)
b)
c)
d)
Answer: c)
Rationale: 8. Yesterday, you entered into a futures contract to buy €62,500 at $ per €. Suppo that the futures price clos today at $. How much have you made/lost?
a)Depends on your margin balance
b)You have made $2,
c)You have lost $2,
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d)You have neither made nor lost money, yet.
Answer: c)
Rationale: You have lost $, 62,500 times for a total loss of $2,500 = $€ × €62,500
9. The nsitivity of the firm’s consolidated financial statements to unexpected changes in the exchange rate is:
a)Transaction exposure
b)Translation exposure
c)Economic exposure
d)None of the above
Answer: b)
10. Suppo that Boeing Corporation exported a Boeing 747 to British Airways and billed £10 million payable in one year. The foreign exchange rates are given as follows:
巩卫The spot exchange rate: | $£ |
The one-year forward exchange rate | $£ |
| |
Assume that Boeing lls a currency forward contract of £10 million for delivery in one year, in exchange for a predetermined amount of . dollar. Which of the following is (or are) true?
On the maturity date of the contract Boeing will:
(i) | have to deliver £10 million to the bank (the counterparty of the contract) |
(ii) | take delivery of $ million |
(iii) | have a zero net pound exposure |
(iv) | have a profit, or a loss, depending on the future changes in the exchange rate, from this British sale |
| |
a) (i) and (iv)
b) (ii) and (iv)
c) (ii), (iii), and (iv)
d) (i), (ii), and (iii)
Answer: d)
11. Your firm has a British customer that is willing to place a $1 million order, but wants to pay in pounds instead of dollars. The spot exchange rate is $ = £ and the one-year forward rate is $ = £. The payment is due in one year. What is the fairest exchange rate to u?
a)$ = £
b)$ = £
c)$ = £
d)none of the above
Answer: c)
Rationale: Payment is due in one year. If they have to pay in dollars, they can hedge with a forward contract at the rate of $ = £
12. To hedge a foreign currency payable,
a)Buy call options on the foreign currency
b)Buy put options on the foreign currency
c)Sell call options on the foreign currency
d)Sell put options on the foreign currency
Answer: a)
水龙头滴水Rationale: d) is wrong becau while you have a risk of unlimited loss from a foreign currency appreciation, you can’t hedge that with finite gains from foreign currency depreciation.
