Wu Final
$1.43
Assume $1 = C$1.1098 and $1 = £.6018. Also assume you can buy £55 for C$100. How much profit can you earn using triangle arbitrage if you start out with $100? A. $.78 B. $1.04 C. $1.43 D. $1.56 E. $1.54
¥168,170
Assume $1 can buy you either ¥102.38 or £.6027. If a TV in London costs £990, what will that identical TV cost in Tokyo if absolute purchasing power parity exists? A. ¥58,280 B. ¥60,554 C. ¥168,170 D. ¥161,855 E. ¥163,542
A$1.0958
Assume $1 is currently equal to A$1.1024 in the spot market. Also assume the expected inflation rate in Australia is 2.8 percent as compared to 3.4 percent in the U.S. What is the expected exchange rate one year from now if relative purchasing power parity exists? A. A$1.0810 B. A$1.0958 C. A$1.875 D. A$1.985 E. A$1.1005
£.6170
Assume $1 is currently equal to £.6189 in the spot market. Assume the expected inflation rate in the U.K. is 2.8 percent while it is 3.1 percent in the U.S. What is the expected exchange rate one year from now if relative purchasing power parity exists? A. £.6161 B. £.6178 C. £.6239 D. £.6170 E. £.6291
£.5799
Assume $1 is currently equal to £.6211. Also assume the expected inflation rate in the U.K. is 2.6 percent while it is 4.3 percent in the U.S. What is the expected exchange rate four years from now if relative purchasing power parity exists? A. £.5799 B. £.5822 C. £.6105 D. £.6623 E. £.6644
$.0246
Assume the current spot rate is C$1.0875 and the one-year forward rate is C$1.0724. The nominal risk-free rate in Canada is 4 percent while it is 3 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S. A. $.0018 B. $.0246 C. $.0029 D. $.0310 E. $.0035
$.0023
Assume the current spot rate is C$1.1103 and the one-year forward rate is C$1.1025. The nominal risk-free rate in Canada is 3.5 percent while it is 4 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S. A. $.0023 B. $.0006 C. $.0008 D. $.0015 E. $.0018
€.9239 / SF1
Assume the direct quote on the euro is 1.23 and the indirect quote on the Swiss franc is .88. What is the cross-rate for euros in terms of Swiss francs? A. €.1.0824 / SF1 B. €.1.3977 / SF1 C. €.9239 / SF1 D. €1 / SF1 E. €.7154/ SF1
4.04 percent
Assume the spot rate for the British pound currently is £.6369 per $1. Also assume the one-year forward rate is £.6421 per $1. A risk-free asset in the U.S. is currently earning 3.2 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free British security? A. 4.18 percent B. 4.57 percent C. 3.67 percent D. 4.04 percent E. 4.92 percent
2.14 percent
Assume the spot rate for the Japanese yen currently is ¥102.32 per $1 and the one-year forward rate is ¥102.69 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security? A. 1.63 percent B. 2.01 percent C. 2.14 percent D. 2.96 percent E. 1.01 percent
C$1.1058
Assume the spot rate on the Canadian dollar is C$1.0926. The risk-free nominal rate in the U.S. is 3.8 percent while it is 4.1 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition? A. C$1.1058 B. C$1.1012 C. C$1.0267 D. C$1.0519 E. C$1.0795
C$1.0979
Assume the spot rate on the Canadian dollar is C$1.0947. The risk-free nominal rate in the U.S. is 3.8 percent while it is 4.1 percent in Canada. What one-year forward rate will create interest rate parity? A. C$1.1362 B. C$1.1429 C. C$1.0979 D. C$1.0799 E. C$1.0915
Appreciate; depreciate
Assume the spot rate on the Japanese yen is ¥110.05 while it is C$1.1379 on the Canadian dollar. The respective three-month forward rates are ¥111.75 and C$1.1339. The value of the U.S. dollar will _____ with respect to the yen and will _____ with respect to the Canadian dollar. A. Appreciate; appreciate B. Appreciate; depreciate C. Depreciate; appreciate D. Depreciate; depreciate E. Depreciate; remain constant
3.25 percent
Assume the spot rate on the pound is £ .5920 and the 6-month forward rate is .5929. Also assume interest rate parity holds and the current six-month risk-free rate in the United States is 3.1 percent. What must the six-month risk-free rate be in Great Britain? A. 3.25 percent B. 2.87 percent C. 2.94 percent D. 3.10 percent E. 3.52 percent
$100 converted into Canadian dollars last year would now be worth $96.26.
Assume you can exchange $100 today for C$109.58 or for 1,304 Mexican pesos. Assume that last year, $100 was equivalent to C$105.48 or 1,310 Mexican pesos. Which one of the following statements is correct given this information? A. $100 converted into Canadian dollars last year would now be worth $103.89. B. $100 converted into Mexican pesos last year would now be worth $99.54. C. $100 converted into Mexican pesos last year would now be worth $100.38. D. $100 converted into Canadian dollars last year would now be worth $96.26. E. $100 invested in Canadian dollars last year would now be worth $101.20.
¥78,614
Assume ¥102.36 equal $1. Also assume that SKr6.5103 equal $1. How many Japanese yen can you acquire in exchange for 5,000 Swedish kronor? A. ¥318 B. ¥261 C. ¥78,614 D. ¥33,320 E. ¥49,520
€117.02
Assume €1 = $1.2762 and $1 = S$1.2522. A new coat costs S$187 in Singapore. How much will the identical coat cost in euros if absolute purchasing power parity exists? A. €97.23 B. €117.02 C. €119.05 D. €190.58 E. €183.48
C$1.3602 = €1
Currently, $1 will buy C$1.1028 while $1.2334 will buy €1. What is the exchange rate between the Canadian dollar and the euro? A. C$1 = €.8941 B. C$1 = €.6539 C. C$1 = €1.3602 D. C$1.3602 = €1 E. C$.8941 = €1
$745,598
Lakonishok Equipment has an investment opportunity in Europe. The project costs €9.5 million and is expected to produce cash flows of €2.7 million in year 1, €3.1 million in year 2, and €2.8 million in year 3. The current spot exchange rate is $1.23 / €. The current risk-free rate in the United States is 3.2 percent, compared to that in Europe of 3.5 percent. The appropriate discount rate for the project is estimated to be 18 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €6.5 million. What is the NPV of the project? A. -$1,448,215 B. $745,598 C. -$878,787 D. $879,402 E. $1,316,519
1.6 percent
Suppose the current spot rate for the Norwegian krone is $1 = NKr5.5923. The expected inflation rate in Norway is 2.2 percent and in the U.S. 1.8 percent. A risk-free asset in the U.S. is yielding 3.4 percent. What approximate real rate of return should you expect on a risk-free Norwegian security? A. .4 percent B. 1.6 percent C. 2.0 percent D. 3.8 percent E. 3.0 percent
4.6 percent
Suppose the current spot rate for the Norwegian krone is $1 = NKr5.9433. The expected inflation rate in Norway is 3.1 percent and in the U.S. it is 1.7 percent. A risk-free asset in the U.S. is yielding 3.2 percent. What risk-free rate of return should you expect on a Norwegian security? A. 5.1 percent B. 4.0 percent C. 4.4 percent D. 5.9 percent E. 4.6 percent
NKr6.0138
Suppose the spot and six-month forward rates on the Norwegian krone are NKr5.94 and NKr6.05 respectively. The annual risk-free rate in the United States is 4.5 percent, and the annual risk-free rate in Norway is 7 percent. What would the six-month forward rate have to be on the Norwegian krone to prevent arbitrage? A. NKr6.0138 B. NKr6.0072 C. NKr6.0103 D. NKr6.0174 E. NKr6.0067
-.20 percent
Suppose the spot and three-month forward rates for the yen are ¥102.32 and ¥102.27, respectively. What is the approximate annual percent difference between the inflation rate in Japan and in the U.S.? A. 1.93 percent B. -1.21 percent C. 1.67 percent D. -.20 percent E. 2.28 percent
Premium; appreciate
Suppose the spot exchange rate is C$1.064 and the six-month forward rate is C$1.071. The U.S. dollar is selling at a _____ relative to the Canadian dollar and the U.S. dollar is expected to _____ relative to the Canadian dollar. A. Discount; appreciate B. Discount; depreciate C. Premium; appreciate D. Premium; depreciate E. Premium; remain constant
...$.0072
Suppose the spot exchange rates are ¥102 = $1 and £1 = $1.57. Also suppose the cross-rate is ¥159= £1. What is the arbitrage profit per one U.S. dollar? A. $.0164 B. $.0106 C. $.0057 D. $.0072 E. $.0148
$653,430
Suppose your company imports computer motherboards from Singapore. The exchange rate is currently S$1.2537 / US$. You have just placed an order for 30,000 motherboards at a cost to you of 170.90 Singapore dollars each. You will pay for the shipment when it arrives in 120 days. You can sell the motherboards for $148 each. What will your profit be if the exchange rate goes up by 8 percent over the next 120 days? A. $913,564 B. $808,121 C. $216,407 D. $653,430 E. $502,400
C$251.97
The camera you want to buy costs $230 in the U.S. How much will the identical camera cost in Canada if the exchange rate is C$1 = $.9128? Assume absolute purchasing power parity exists. A. C$209.94 B. C$242.19 C. C$243.52 D. C$248.60 E. C$251.97
1.9 percent
The expected inflation rate in Finland is 3.3 percent while it is 2.4 percent in the U.S. A risk-free asset in the U.S. is yielding 4.3 percent. What approximate real rate of return should you expect on a risk-free Finnish security? A. .9 percent B. 1.9 percent C. 2.1 percent D. 2.5 percent E. 1.0 percent
loss of ₤.86
Today, you can exchange $1 for £.5926. Last week, £1 was worth $1.6729 How much profit or loss would you now have in pounds if you had converted £100 into dollars last week and back into pounds this week? A. loss of ₤.86 B. loss of ₤.39 C. loss of ₤.07 D. profit of ₤1.03 E. profit of ₤1.59
E(St) = S0 [1 + (RFC - RUS)]t.
41. Uncovered interest parity is defined as: A. E(St) = S0 [1 + (hFC - hUS)]t. B. E(St) = S0 [1 + (RFC - RUS)]t. C. E(St) = S0 [1 - (RFC - RUS)]t. D. E(St) = S0 [1 + (RUS - RFC)]t. E. E(St) = S0 [1 + (RFC + RUS)]t.
€1,952.67
51. (p. 75) How many euros can you get for $2,500 if one euro is worth $1.2803? A. €1,638.09 B. €1,952.67 C. €2,676.67 D. €3,361.91 E. €3,200.75
£7.28 loss
57. You have £100. A friend of yours wants to exchange C$175 for your £100. What will be your profit or loss if you accept your friend's offer, if you can exchange C$1 for $.9134 and exchange £1 for $1.7240? A. £7.28 loss B. £3.29 loss C. £2.51 loss D. £1.20 profit E. £2.51 profit
233.84
93. (p. 90) Assume the spot exchange rate for the Hungarian forint is HUF221. Also assume the inflation rate in the United States is 1.6 percent per year while it is 3.5 percent in Hungary. What is the expected exchange rate 3 years from now? A. 208.64 B. 226.67 C. 233.84 D. 234.09 E. 219.90
C$1.1391
A risk-free asset in the U.S. is currently yielding 4 percent while a Canadian risk-free asset is yielding 2 percent. Assume the current spot rate is C$1.2103. What is the approximate three-year forward rate if interest rate parity holds? A. C$1.1391 B. C$1.1744 C. C$1.2241 D. C$1.2295 E. C$1.2470
-$19,062
You are analyzing a project with an initial cost of £130,000. The project is expected to return £20,000 the first year, £50,000 the second year, and £90,000 the third and final year. There is no salvage value. The current spot rate is £.6211. The nominal risk-free return is 5.5 percent in the U.K. and 6 percent in the U.S. The return relevant to the project is 14 percent in the U.S. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars? A. -$19,062 B. -$5,409 C. $5,505 D. $9,730 E. $18,947
$26,509
You are analyzing a project with an initial cost of £50,000. The project is expected to return £12,000 the first year, £36,000 the second year, and £40,000 the third and final year. There is no salvage value. Assume the current spot rate is £.6346. The nominal return relevant to the project is 12 percent in the U.S. The nominal risk-free rate in the U.S. is 3.4 percent while it is 4.1 percent in the U.K. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars? A. $23,611 B. $26,509 C. $26,930 D. $29,639 E. $30,796
$42,777
You are considering a project in South Africa which has an initial cost of R385,000. The project is expected to return a one-time payment of R428,900 four years from now. The risk-free rate of return is 3.5 percent in the U.S. and 2.4 percent in South Africa. The inflation rate is 4 percent in the U.S. and 3 percent in South Africa. Currently, you can buy R10.48 for $1. How much will the payment of R428,900 be worth in U.S. dollars four years from now? A. $42,777 B. $40,560 C. $47,251 D. $46,926 E. $44,357
$73,530
You are expecting a payment of NKr450,000 three years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Norway. The inflation rate is 2.5 percent in the U.S. and 3 percent in Norway. Currently, you can buy NKr5.94 for $1. How much will the payment three years from now be worth in U.S. dollars? A. $75,758 B. $73,530 C. $81,511 D. $78,077 E. $69,888
$3,866
You are planning a trip to Australia. A. $3,866 B. $4,498 C. $3,631 D. $4,452 E. $4,088
$10,556
You just returned from some extensive traveling throughout the Americas. You started your trip with $20,000 in your pocket. You spent 3.1 million pesos while in Chile and 548,200 pesos in Colombia. Then on the way home, you spent 47,500 pesos in Mexico. Assume the exchanges rates you encountered were $1 = Ps562 in Chile; $1 = Ps1,928 in Colombia; and $.0767 = Ps1 in Mexico. How many dollars did you have left by the time you returned to the U.S.? A. $11,113 B. $10,556 C. $4,117 D. $4,244 E. $8,575
1.37 percent
You observe that the inflation rate in the United States is .78 percent per year and that T-bills currently yield 2.94 percent annually. Using the approximate international Fisher effect, what do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 3.53 percent per year? A. 4.22 percent B. 1.37 percent C. 2.24 percent D. 1.87 percent E. .88 percent
Rs10,823,812
You want to import $180,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.01663? A. Rs11,887,424 B. Rs10,238,911 C. Rs10,823,812 D. Rs8,367,594 E. Rs8,415,096
C$24,650
You want to invest in a project in Canada. The project has an initial cost of C$828,000 and is expected to produce cash inflows of C$355,000 a year for three years. The project will be worthless after the first three years. The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S. The applicable interest rate for the project in Canada is 12 percent. The current spot rate is C$1 = $.9126. What is the net present value of this project in Canadian dollars? A. -C$1,889 B. -C$7,924 C. C$24,650 D. C$116,139 E. C$167,528
SKr978,177
You want to invest in a riskless project in Sweden. The project has an initial cost of SKr3.86 million and is expected to produce cash inflows of SKr1.76 million a year for three years. The project will be worthless after three years. The expected inflation rate in Sweden is 3.2 percent while it is 2.8 percent in the U.S. A risk-free security is paying 4.1 percent in the U.S. The current spot rate is $1 = SKr7.7274. What is the net present value of this project in Swedish krona if the international Fisher effect applies? A. SKr1,087,561 B. SKr701,458 C. SKr823,333 D. SKr958,029 E. SKr978,177