FIN 565 final exam 100% answers
FIN 565 Week 8 Final Exam (Collection)
(Version 1)
Question 1.1. (TCO A) A high home inflation rate relative to other countries would the
home country's current account balance, other things being equal. A high growth in the
home income level relative to other countries would the home country's current account
balance, other things being equal. (Points : 5)
increase; increase
increase; decrease
decrease; decrease
decrease; increase
Question 2.2. (TCO A) Assume the Canadian dollar is equal to $0.98 and the Brazilian real
is equal to $0.28. The value of the Brazilian real in Canadian dollars is (Points : 5)
about 0.3500 Canadian
dollars. about 0.2857
Canadian dollars. about
3.5714 Canadian dollars.
about 1.0204 Canadian
dollars.
Question 3.3. (TCO B) Assume that IRP holds and the euro's interest rate is 9%, whereas the
U.S. interest rate is 12%. Then, the euro's interest rate increases to 11%, whereas the U.S.
interest rate remains the same. As a result of the increase in the interest rate on euros, the
euro's forward will in order to maintain IRP. (Points : 5)
discount; increase
discount; decrease
premium; increase
premium; decrease
Question 4.4. (TCO C) A strong dollar is normally expected to cause (Points :
5) high unemployment and high inflation in the United States.
high unemployment and low inflation in the United
States. low unemployment and low inflation in the United
States. low unemployment and high inflation in the
United States.
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Question 5.5. (TCO D) Assume no transactions costs exist for any futures or forward
contracts. The price of British pound futures with a settlement date 180 days from now will
(Points : 5)
definitely be above the 180-day forward rate.
be about the same as the 180-day forward
rate. definitely be below the 180-day forward
rate.
None of the above
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Question 6.6. (TCO H) Other things being equal, the financial leverage of MNCs will be higher
if the governments of their home countries are likely to rescue them (in the event
of failure) and if their home countries are likely to experience a recession. (Points : 5)
less; more
less; less
more; less
more; more
Question 7.7. (TCO E) Other things being equal, firms from a particular home country will
engage in more international acquisitions if they expect foreign currencies to against
their home currency and if their cost of capital is relatively . (Points : 5)
appreciate; low
appreciate; high
depreciate; high
depreciate; low
Question 8.8. (TCO F) The agency costs of an MNC are likely to be lower if it (Points : 5)
scatters its subsidiaries across many foreign countries.
uses a centralized management style.
scatters its subsidiaries across many foreign countries and increases its volume of
international business.
increases its volume of international business.
Question 9.9. (TCO I) With a(n) , the exporter ships the goods to the importer while
still retaining actual title to the merchandise. (Points : 5)
letter of credit
arrangement open account
arrangement draft
arrangement consignment
arrangement
Question 10.10. (TCO G) If a U.S. firm's expenses are more susceptible to exchange
rate movements than revenue, the firm will if the dollar . (Points : 5)
benefit; weakens
be unaffected; strengthens
be unaffected; weakens
benefit; strengthens
This study source was downloaded by 100000832558064 from CourseHero.com on 01-19-2022 13:38:55 GMT -06:00
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, FIN 565 final exam 100% answers
1. TCO D) A firm wants to use an option to hedge NZ$12.5 million in
receivables from New Zealand firms. The premium is $0.02. The
exercise price is $0.50. If the option is exercised, what is the total
amount of dollars received (after accounting for the premium paid)?
(Points : 12)
Received from exercising option = NZ $12.5 million * $0.50 = $6,250,000
Premium paid for options = NZ $12.5 million * $0.02 = $250,000
Amount of dollars received = $6,250,000 - $250,000 = $6000
2. (TCO B) Assume the following
information. You have $300,000 to invest.
The spot bid rate for the euro is $1.08.
The spot ask quote for the euro is
$1.10.
The 180-day forward rate (bid) of the euro is
$1.08. The 180-day forward rate (ask) of the euro
is $1.10. The 180-day interest rate in the U.S. is
6%.
The 180-day interest rate in Europe is 8%.
If you conduct CIA, what amount will you have after 180
days? Show your work. (Points : 12)
Using spot ask quote to convert US dollar into euro: $300,000/$1.10 = 272,727.27 euro
=> The amount of euro at the end of 180 days = 272,727.27 * (1+ 0.08) = 294,545.45 euro
Using forward bid quote to convert euro back into US dollar: 294,545.45 * $1.08 = $318,109.09
Question 3. 3. (TCO D) You purchase a call option on pounds for a premium of $0.03 per unit,
with an exercise price of $1.64; the option will not be exercised until the expiration date, if at
all. If the spot rate on the expiration date is $1.65, what is your net profit per unit? Show
your work. (Points : 12)
xercise Price = $1.64
Spot Price = $1.65
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FIN 565 Week 8 Final Exam (Collection)
(Version 1)
Question 1.1. (TCO A) A high home inflation rate relative to other countries would the
home country's current account balance, other things being equal. A high growth in the
home income level relative to other countries would the home country's current account
balance, other things being equal. (Points : 5)
increase; increase
increase; decrease
decrease; decrease
decrease; increase
Question 2.2. (TCO A) Assume the Canadian dollar is equal to $0.98 and the Brazilian real
is equal to $0.28. The value of the Brazilian real in Canadian dollars is (Points : 5)
about 0.3500 Canadian
dollars. about 0.2857
Canadian dollars. about
3.5714 Canadian dollars.
about 1.0204 Canadian
dollars.
Question 3.3. (TCO B) Assume that IRP holds and the euro's interest rate is 9%, whereas the
U.S. interest rate is 12%. Then, the euro's interest rate increases to 11%, whereas the U.S.
interest rate remains the same. As a result of the increase in the interest rate on euros, the
euro's forward will in order to maintain IRP. (Points : 5)
discount; increase
discount; decrease
premium; increase
premium; decrease
Question 4.4. (TCO C) A strong dollar is normally expected to cause (Points :
5) high unemployment and high inflation in the United States.
high unemployment and low inflation in the United
States. low unemployment and low inflation in the United
States. low unemployment and high inflation in the
United States.
This study source was downloaded by 100000832558064 from CourseHero.com on 01-19-2022 13:38:55 GMT -06:00
https://www.coursehero.com/file/17551111/FIN-565-final-exam-100-answers/
, FIN 565 final exam 100% answers
Question 5.5. (TCO D) Assume no transactions costs exist for any futures or forward
contracts. The price of British pound futures with a settlement date 180 days from now will
(Points : 5)
definitely be above the 180-day forward rate.
be about the same as the 180-day forward
rate. definitely be below the 180-day forward
rate.
None of the above
This study source was downloaded by 100000832558064 from CourseHero.com on 01-19-2022 13:38:55 GMT -06:00
https://www.coursehero.com/file/17551111/FIN-565-final-exam-100-answers/
, FIN 565 final exam 100% answers
Question 6.6. (TCO H) Other things being equal, the financial leverage of MNCs will be higher
if the governments of their home countries are likely to rescue them (in the event
of failure) and if their home countries are likely to experience a recession. (Points : 5)
less; more
less; less
more; less
more; more
Question 7.7. (TCO E) Other things being equal, firms from a particular home country will
engage in more international acquisitions if they expect foreign currencies to against
their home currency and if their cost of capital is relatively . (Points : 5)
appreciate; low
appreciate; high
depreciate; high
depreciate; low
Question 8.8. (TCO F) The agency costs of an MNC are likely to be lower if it (Points : 5)
scatters its subsidiaries across many foreign countries.
uses a centralized management style.
scatters its subsidiaries across many foreign countries and increases its volume of
international business.
increases its volume of international business.
Question 9.9. (TCO I) With a(n) , the exporter ships the goods to the importer while
still retaining actual title to the merchandise. (Points : 5)
letter of credit
arrangement open account
arrangement draft
arrangement consignment
arrangement
Question 10.10. (TCO G) If a U.S. firm's expenses are more susceptible to exchange
rate movements than revenue, the firm will if the dollar . (Points : 5)
benefit; weakens
be unaffected; strengthens
be unaffected; weakens
benefit; strengthens
This study source was downloaded by 100000832558064 from CourseHero.com on 01-19-2022 13:38:55 GMT -06:00
https://www.coursehero.com/file/17551111/FIN-565-final-exam-100-answers/
, FIN 565 final exam 100% answers
1. TCO D) A firm wants to use an option to hedge NZ$12.5 million in
receivables from New Zealand firms. The premium is $0.02. The
exercise price is $0.50. If the option is exercised, what is the total
amount of dollars received (after accounting for the premium paid)?
(Points : 12)
Received from exercising option = NZ $12.5 million * $0.50 = $6,250,000
Premium paid for options = NZ $12.5 million * $0.02 = $250,000
Amount of dollars received = $6,250,000 - $250,000 = $6000
2. (TCO B) Assume the following
information. You have $300,000 to invest.
The spot bid rate for the euro is $1.08.
The spot ask quote for the euro is
$1.10.
The 180-day forward rate (bid) of the euro is
$1.08. The 180-day forward rate (ask) of the euro
is $1.10. The 180-day interest rate in the U.S. is
6%.
The 180-day interest rate in Europe is 8%.
If you conduct CIA, what amount will you have after 180
days? Show your work. (Points : 12)
Using spot ask quote to convert US dollar into euro: $300,000/$1.10 = 272,727.27 euro
=> The amount of euro at the end of 180 days = 272,727.27 * (1+ 0.08) = 294,545.45 euro
Using forward bid quote to convert euro back into US dollar: 294,545.45 * $1.08 = $318,109.09
Question 3. 3. (TCO D) You purchase a call option on pounds for a premium of $0.03 per unit,
with an exercise price of $1.64; the option will not be exercised until the expiration date, if at
all. If the spot rate on the expiration date is $1.65, what is your net profit per unit? Show
your work. (Points : 12)
xercise Price = $1.64
Spot Price = $1.65
This study source was downloaded by 100000832558064 from CourseHero.com on 01-19-2022 13:38:55 GMT -06:00
https://www.coursehero.com/file/17551111/FIN-565-final-exam-100-answers/
