IHI 62

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Question 1
Suppose that currently, 1 British pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?
1 British pound equals 3.2400 Swiss francs
1 British pound equals 2.6244 Swiss francs
1 British pound equals 1.8588 Swiss francs
1 British pound equals 1.0000 Swiss francs
1 British pound equals 0.3810 Swiss francs

Question 2
Which of the following statements is NOT CORRECT?
Any bond sold outside the country of the borrower is called an international bond.
Foreign bonds and Eurobonds are two important types of international bonds.
Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold.
The term Eurobond applies only to foreign bonds denominated in U.S. currency.
A foreign bond might pay a higher nominal interest rate than a U.S. bond.
Question 3
Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What is the cross-rate of Swiss francs to euros?
0.43
0.86
1.41
1.64
2.27

Question 4
Which of the following is NOT a reason why companies move into international operations?
To take advantage of lower production costs in regions where labor costs are relatively low.
To develop new markets for the firm’s products.
To better serve their primary customers.
Because important raw materials are located abroad.
To increase their inventory levels.

Question 5
If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?
0.37
0.61
1.00
1.64
3.28

Question 6
If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will
Appreciate against the U.S. dollar.
Depreciate against the U.S. dollar.
Remain unchanged against the U.S. dollar.
Appreciate against other major currencies.
Appreciate against the dollar and other major currencies.
Question 7
Suppose one British pound can purchase 1.82 U.S. dollars today in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?
1.12
1.63
1.82
2.04
3.64

Question 8
Suppose in the spot market 1 U.S. dollar equals 1.60 Canadian dollars. 6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%). 6-month U.S. securities have an annualized return of 6.5% and a periodic return of 3.25%. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market?
1 U.S. dollar = 0.6235 Canadian dollars
1 U.S. dollar = 0.6265 Canadian dollars
1 U.S. dollar = 1.0000 Canadian dollars
1 U.S. dollar = 1.5961 Canadian dollars
1 U.S. dollar = 1.6039 Canadian dollars

Question 9
Suppose 6 months ago a Swiss investor bought a 6-month U.S. Treasury bill at a price of $9,708.74, with a maturity value of $10,000. The exchange rate at that time was 1.420 Swiss francs per dollar. Today, at maturity, the exchange rate is 1.324 Swiss francs per dollar. What is the annualized rate of return to the Swiss investor?
-7.92%
-4.13%
6.00%
8.25%
12.00%

Question 10
In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars?
$5.964
$8,200
$10,250
$12,628
$13,525
Question 11
Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?
$14.79
$63.00
$74.55
$85.88
$147.88
Question 12
Suppose a foreign investor who holds tax-exempt Eurobonds paying 9% is considering investing in an equivalent-risk domestic bond in a country with a 28% withholding tax on interest paid to foreigners. If 9% after-tax is the investor’s required return, what before-tax rate would the domestic bond need to pay to provide the required after-tax return?
9.00%
10.20%
11.28%
12.50%
13.57%
Question 13
Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.65. If interest rate parity holds, what is the spot exchange rate?
1 pound = $1.8000
1 pound = $1.6582
1 pound = $1.0000
1 pound = $0.8500
1 pound = $0.6031
Question 14
A box of candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP) holds, what is the current exchange rate?
1 U.S. dollar equals 0.69 Swiss francs
1 U.S. dollar equals 0.85 Swiss francs
1 U.S. dollar equals 1.21 Swiss francs
1 U.S. dollar equals 1.29 Swiss francs
1 U.S. dollar equals 1.44 Swiss francs
Question 15
Suppose 144 yen could be purchased in the foreign exchange market for one U.S. dollar today. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?
155.5 yen
144.0 yen
133.5 yen
78.0 yen
72.0 yen