International Finance - Final Exam 2026 Exam
Questions LATEST VERSIONS 90 QUESTIONS AND
CORRECT VERIFIED ANSWERS WITH
RATIONALES (100% CORRECT) A+ GRADED
ASSURED
___ argues that the spot exchange rate should be determined solely by the relative prices of
similar baskets of goods.
The Fisher effect
Purchasing power parity
Interest rate parity - CORRECT ANSWER: Purchasing power parity
A greater percentage of debt will lead to a ___ cost of debt and a ___ WACC.
Greater; lower
Greater; greater
Lower; greater - CORRECT ANSWER: Greater; greater
According to the international Fisher effect, if an investor buys a 5-year US bond with an annual
interest rate of 5% rather than a comparable British bond with an interest rate of 6%, then the
investor must be expecting the ___ to ___ at a rate of at least 1% per year over the next 5 years.
British pound; appreciate
Forward exchange rate; increase
US dollar; appreciate - CORRECT ANSWER: US dollar; appreciate
,Assume that a country is experiencing a balance of trade deficit and then suffers a rapid
depreciation of its currency. J-curve theory suggests that the trade balance will adjust in three
distinct periods in the following order:
Pass-through; quantity adjustment; currency contraction
Currency contraction; pass-through; quantity adjustment
Quantity adjustment; pass-through; currency contraction - CORRECT ANSWER: Currency
contraction; pass-through; quantity adjustment
Assume that a country would generally prefer a stable, fixed exchange rate. In that case, which
of the following statements is NOT true?
Fixed rates are inherently inflationary in that they require the country to follow loose monetary
and fiscal policies.
Fixed exchange rate regimes require that central banks maintain large quantities of international
reserves for use in the occasional defense of the fixed rate.
Stable prices aid in the growth of international trade and lessen exchange rate risks for
businesses. - CORRECT ANSWER: Fixed rates are inherently inflationary in that they require
the country to follow loose monetary and fiscal policies.
Assume that the current exchange rate is 113 yen/$, the price of a Big Mac in the US is $3.41,
and the price of a Big Mac in Japan is 280 yen. Other things being equal, is the Big Mac in Japan
correctly priced, under priced, or over priced? And by what percent? - CORRECT ANSWER:
113 yen x $3.41 = 385.33 yen (this is the correct price)
therefore, the Big Mac in Japan is under priced
under priced by (280/385.33) - 1 = -27%
For a firm that is a classic importer, what is the likely result of translating all nonmonetary assets
at the current exchange rate?
Cumulative translation loss
, Overestimation of exchange rate sensitivity
Underestimation of exchange rate sensitivity - CORRECT ANSWER: Underestimation of
exchange rate sensitivity
For an importer, what is the primary downside of financing international trade with a letter of
credit?
The transaction is not fully secured with the importer providing financing for the seller
A letter of credit is associated with high bank fees
The letter of credit may limit other borrowing capacity - CORRECT ANSWER: A letter of credit
is associated with high bank fees OR
The letter of credit may limit other borrowing capacity
Generally, an MNC will have a ___ cost of capital and a ___ capital budget.
Lower; smaller
Higher; larger
Lower; larger - CORRECT ANSWER: Lower; larger
How is the fixed rate side of a swap typically determined?
The fixed rate is set in an open market at whatever investors are willing to pay
An investment bank will calculate the rate that equilibrates the values of the asset and liability
side of the swap
The rate is set by the Federal Reserve and other central banks - CORRECT ANSWER: An
investment bank will calculate the rate that equilibrates the values of the asset and liability side
of the swap
How often are swaps marked to market?
Questions LATEST VERSIONS 90 QUESTIONS AND
CORRECT VERIFIED ANSWERS WITH
RATIONALES (100% CORRECT) A+ GRADED
ASSURED
___ argues that the spot exchange rate should be determined solely by the relative prices of
similar baskets of goods.
The Fisher effect
Purchasing power parity
Interest rate parity - CORRECT ANSWER: Purchasing power parity
A greater percentage of debt will lead to a ___ cost of debt and a ___ WACC.
Greater; lower
Greater; greater
Lower; greater - CORRECT ANSWER: Greater; greater
According to the international Fisher effect, if an investor buys a 5-year US bond with an annual
interest rate of 5% rather than a comparable British bond with an interest rate of 6%, then the
investor must be expecting the ___ to ___ at a rate of at least 1% per year over the next 5 years.
British pound; appreciate
Forward exchange rate; increase
US dollar; appreciate - CORRECT ANSWER: US dollar; appreciate
,Assume that a country is experiencing a balance of trade deficit and then suffers a rapid
depreciation of its currency. J-curve theory suggests that the trade balance will adjust in three
distinct periods in the following order:
Pass-through; quantity adjustment; currency contraction
Currency contraction; pass-through; quantity adjustment
Quantity adjustment; pass-through; currency contraction - CORRECT ANSWER: Currency
contraction; pass-through; quantity adjustment
Assume that a country would generally prefer a stable, fixed exchange rate. In that case, which
of the following statements is NOT true?
Fixed rates are inherently inflationary in that they require the country to follow loose monetary
and fiscal policies.
Fixed exchange rate regimes require that central banks maintain large quantities of international
reserves for use in the occasional defense of the fixed rate.
Stable prices aid in the growth of international trade and lessen exchange rate risks for
businesses. - CORRECT ANSWER: Fixed rates are inherently inflationary in that they require
the country to follow loose monetary and fiscal policies.
Assume that the current exchange rate is 113 yen/$, the price of a Big Mac in the US is $3.41,
and the price of a Big Mac in Japan is 280 yen. Other things being equal, is the Big Mac in Japan
correctly priced, under priced, or over priced? And by what percent? - CORRECT ANSWER:
113 yen x $3.41 = 385.33 yen (this is the correct price)
therefore, the Big Mac in Japan is under priced
under priced by (280/385.33) - 1 = -27%
For a firm that is a classic importer, what is the likely result of translating all nonmonetary assets
at the current exchange rate?
Cumulative translation loss
, Overestimation of exchange rate sensitivity
Underestimation of exchange rate sensitivity - CORRECT ANSWER: Underestimation of
exchange rate sensitivity
For an importer, what is the primary downside of financing international trade with a letter of
credit?
The transaction is not fully secured with the importer providing financing for the seller
A letter of credit is associated with high bank fees
The letter of credit may limit other borrowing capacity - CORRECT ANSWER: A letter of credit
is associated with high bank fees OR
The letter of credit may limit other borrowing capacity
Generally, an MNC will have a ___ cost of capital and a ___ capital budget.
Lower; smaller
Higher; larger
Lower; larger - CORRECT ANSWER: Lower; larger
How is the fixed rate side of a swap typically determined?
The fixed rate is set in an open market at whatever investors are willing to pay
An investment bank will calculate the rate that equilibrates the values of the asset and liability
side of the swap
The rate is set by the Federal Reserve and other central banks - CORRECT ANSWER: An
investment bank will calculate the rate that equilibrates the values of the asset and liability side
of the swap
How often are swaps marked to market?
