MBA Finance Questions With All Correct Answers
A Eurodollar is a U.S. dollar deposited in a bank outside the United States.
(T/F) correct answer -True
If an investor can obtain more of a foreign currency for a dollar in the forward
market than in the spot market, then the forward currency is said to be selling
at a discount to the spot rate. (T/F) correct answer -True
The United States and most other major industrialized nations currently
operate under a system of floating exchange rates. (T/F) correct answer -
True
Exchange rates influence a multinational firm's inventory policy because
changing currency values can affect the value of inventory. (T/F) correct
answer -True
Exchange rate risk is the risk that the cash flows from a foreign project, when
converted to the parent company's currency, will be worth less than was
originally projected because of exchange rate changes. (T/F) correct answer
-True
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? correct answer -1 British pound equals 2.6244 Swiss
francs
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? correct answer -2.04
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 the forward rate for the Israeli
shekel is selling at a ________________ to the spot rate. correct answer -
discount of 8%
,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? correct answer -$10,250
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? correct answer -1 U.S. dollar = 1.5961 Canadian dollars
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? correct answer -155.5 yen
A product sells for $750 in the United States. The exchange rate is $1 to 1.65
Swiss francs. If purchasing power parity (PPP) holds, what is the price of the
product in Switzerland? correct answer -1,237.50 Swiss francs
Stover Corporation, a U.S. based importer, makes a purchase of crystal
glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at
the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90
days, and the U.S. 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 1.682 francs. If the spot rate in
90 days is actually 1.638 francs, about how much will the U.S. firm have saved
or lost in U.S. dollars by hedging its exchange rate exposure? correct answer
-$638
If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you
purchase for one Canadian dollar? correct answer -0.61
Which of the following statements is NOT CORRECT?
-Foreign bonds are bonds sold by a foreign borrower but denominated in the
currency of the country in which the issue is sold.
-Foreign bonds and Eurobonds are two important types of international
bonds.
,-Any bond sold outside the country of the borrower is called an international
bond.
-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.
correct answer -The term Eurobond applies only to foreign bonds
denominated in U.S. currency.
(Assuming no manipulation of currency flows by either country) A foreign
currency will, on average, depreciate against the U.S. dollar at a percentage
rate approximately equal to the amount by which its inflation rate exceeds
that of the United States. (T/F) correct answer -True
If the inflation rate in the United States is greater than the inflation rate in
Britain, other things held constant, the British pound will correct answer -
Appreciate against the U.S. dollar.
Multinational financial management usually requires that financial analysts
consider the effects of changing currency values. (T/F) correct answer -
True
LIBOR is an acronym for London Interbank Offer Rate, which is an average of
interest rates offered by London banks to smaller U.S. corporations. (T/F)
correct answer -False
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? correct answer
-0.86
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? correct answer -1 pound = $1.6582
Suppose the exchange rate between U.S. dollars and Swiss francs is SF 0.68 =
$1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 =
, 1.76 euros. What is the cross-rate of Swiss francs to euros? Show your answer
to 2 decimal places. correct answer -0.39
If one Swiss franc can purchase $0.68 U.S. dollars, how many Swiss francs can
one U.S. dollar buy? Show your answer to 2 decimal places. correct answer
-1.47
If a dollar will buy fewer units of a foreign currency in the forward market
than in the spot market, then the forward currency is said to be selling at a
premium to the spot rate. (T/F) correct answer -True
Which of the following is NOT a reason why companies move into
international operations?
-Because important raw materials are located abroad.
-To increase their inventory levels.
-To develop new markets for the firm's products.
-To better serve their primary customers.
-To take advantage of lower production costs in regions where labor costs are
relatively low. correct answer -To increase their inventory levels.
Because political risk is seldom negotiable, it cannot be explicitly addressed in
multinational corporate financial analysis. (T/F) correct answer -False
If the United States is running a deficit trade balance with China, then in a free
market we would expect the value of the Chinese yuan to depreciate against
the U.S. dollar. (T/F) correct answer -False
If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can
one U.S. dollar buy? correct answer -1.41
A product sells for $1,182 in the United States. The exchange rate is $1 to 0.65
Swiss francs. If purchasing power parity (PPP) holds, what is the price of the
product in Switzerland? Show your answers to 2 decimal places, list only the
number, do not use a , in your answer. correct answer -768.30
Individuals and corporations can buy or sell forward currencies to hedge their
exchange rate exposure. Essentially, the process involves simultaneously
selling the currency expected to appreciate in value and buying the currency
expected to depreciate. (T/F) correct answer -False
A Eurodollar is a U.S. dollar deposited in a bank outside the United States.
(T/F) correct answer -True
If an investor can obtain more of a foreign currency for a dollar in the forward
market than in the spot market, then the forward currency is said to be selling
at a discount to the spot rate. (T/F) correct answer -True
The United States and most other major industrialized nations currently
operate under a system of floating exchange rates. (T/F) correct answer -
True
Exchange rates influence a multinational firm's inventory policy because
changing currency values can affect the value of inventory. (T/F) correct
answer -True
Exchange rate risk is the risk that the cash flows from a foreign project, when
converted to the parent company's currency, will be worth less than was
originally projected because of exchange rate changes. (T/F) correct answer
-True
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? correct answer -1 British pound equals 2.6244 Swiss
francs
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? correct answer -2.04
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 the forward rate for the Israeli
shekel is selling at a ________________ to the spot rate. correct answer -
discount of 8%
,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? correct answer -$10,250
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? correct answer -1 U.S. dollar = 1.5961 Canadian dollars
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? correct answer -155.5 yen
A product sells for $750 in the United States. The exchange rate is $1 to 1.65
Swiss francs. If purchasing power parity (PPP) holds, what is the price of the
product in Switzerland? correct answer -1,237.50 Swiss francs
Stover Corporation, a U.S. based importer, makes a purchase of crystal
glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at
the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90
days, and the U.S. 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 1.682 francs. If the spot rate in
90 days is actually 1.638 francs, about how much will the U.S. firm have saved
or lost in U.S. dollars by hedging its exchange rate exposure? correct answer
-$638
If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you
purchase for one Canadian dollar? correct answer -0.61
Which of the following statements is NOT CORRECT?
-Foreign bonds are bonds sold by a foreign borrower but denominated in the
currency of the country in which the issue is sold.
-Foreign bonds and Eurobonds are two important types of international
bonds.
,-Any bond sold outside the country of the borrower is called an international
bond.
-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.
correct answer -The term Eurobond applies only to foreign bonds
denominated in U.S. currency.
(Assuming no manipulation of currency flows by either country) A foreign
currency will, on average, depreciate against the U.S. dollar at a percentage
rate approximately equal to the amount by which its inflation rate exceeds
that of the United States. (T/F) correct answer -True
If the inflation rate in the United States is greater than the inflation rate in
Britain, other things held constant, the British pound will correct answer -
Appreciate against the U.S. dollar.
Multinational financial management usually requires that financial analysts
consider the effects of changing currency values. (T/F) correct answer -
True
LIBOR is an acronym for London Interbank Offer Rate, which is an average of
interest rates offered by London banks to smaller U.S. corporations. (T/F)
correct answer -False
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? correct answer
-0.86
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? correct answer -1 pound = $1.6582
Suppose the exchange rate between U.S. dollars and Swiss francs is SF 0.68 =
$1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 =
, 1.76 euros. What is the cross-rate of Swiss francs to euros? Show your answer
to 2 decimal places. correct answer -0.39
If one Swiss franc can purchase $0.68 U.S. dollars, how many Swiss francs can
one U.S. dollar buy? Show your answer to 2 decimal places. correct answer
-1.47
If a dollar will buy fewer units of a foreign currency in the forward market
than in the spot market, then the forward currency is said to be selling at a
premium to the spot rate. (T/F) correct answer -True
Which of the following is NOT a reason why companies move into
international operations?
-Because important raw materials are located abroad.
-To increase their inventory levels.
-To develop new markets for the firm's products.
-To better serve their primary customers.
-To take advantage of lower production costs in regions where labor costs are
relatively low. correct answer -To increase their inventory levels.
Because political risk is seldom negotiable, it cannot be explicitly addressed in
multinational corporate financial analysis. (T/F) correct answer -False
If the United States is running a deficit trade balance with China, then in a free
market we would expect the value of the Chinese yuan to depreciate against
the U.S. dollar. (T/F) correct answer -False
If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can
one U.S. dollar buy? correct answer -1.41
A product sells for $1,182 in the United States. The exchange rate is $1 to 0.65
Swiss francs. If purchasing power parity (PPP) holds, what is the price of the
product in Switzerland? Show your answers to 2 decimal places, list only the
number, do not use a , in your answer. correct answer -768.30
Individuals and corporations can buy or sell forward currencies to hedge their
exchange rate exposure. Essentially, the process involves simultaneously
selling the currency expected to appreciate in value and buying the currency
expected to depreciate. (T/F) correct answer -False
