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Exam 18: Multinational Financial Management

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Question 31

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Which of the following statements is NOT CORRECT?

A) Foreign bonds and Eurobonds are two important types of international bonds.
B) Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold.
C) The term Eurobond applies only to foreign bonds denominated in U.S.currency.
D) A foreign bond might pay a higher nominal interest rate than a U.S.bond.
E) Any bond sold outside the country of the borrower is called an international bond.

F) B) and E)
G) A) and D)

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Question 32

Multiple Choice

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Tashakori Trucking, a U.S.-based company, is considering expanding its operations into a foreign country.The required investment at Time = 0 is $10 million.The firm forecasts total cash inflows of $4 million per year for 2 years, $6 million for the next 2 years, and then a possible terminal value of $8 million.In addition, due to political risk factors, Tashakori believes that there is a 50% chance that the gross terminal value will be only $2 million and a 50% chance that it will be $8 million.However, the government of the host country will block 20% of all cash flows.Thus, cash flows that can be repatriated are 80% of those projected.Tashakori's cost of capital is 15%, but it adds one percentage point to all foreign projects to account for exchange rate risk.Under these conditions, what is the project's NPV?

A) $1.01 million
B) $2.77 million
C) $3.09 million
D) $5.96 million
E) $7.39 million

F) B) and D)
G) B) and C)

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Question 33

Multiple Choice

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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?

Suppose 1 U.S.dollar equals 1.60 Canadian dollars in the spot market.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?

Exchange rate quotations consist solely of direct quotations.

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will

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?

Suppose a carton of hockey pucks 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 pucks in the United States?

If 1.64 Canadian dollars can purchase one U.S.dollar, how many U.S.dollars can you purchase for one Canadian dollar?