INTERNATIONAL FINANCE
Assignment Problems (3)
Name:
Student#:
I. Choose the correct answer for the following questions (only ONE correct
answer) (2 credits for each question, total credits 2 x 25 = 50)
1. Interbank quotations that include the United States dollars are conventionally given
in __________, which state the foreign currency price of one U.S. dollar, such as a
bid price of SFr 0.85/$.
A. indirect quote
B. direct quote
C. American quote
D. European quote
2. The spot exchange rate published in financial newspapers is usually the
__________.
A. nominal exchange rate
B. real exchange rate
C. effective exchange rate
D. equilibrium exchange rate
3. The foreign exchange refers to the __________.
A. foreign bank notes and coins
B. demand deposits in foreign banks
C. foreign securities that can be easily cashed
D. all of the above
4. The functions of the foreign exchange market come down to __________.
A. converting the currency of one country into the currency of another
B. providing some insurance against the foreign exchange risk
C. making the foreign exchange speculation easy
D. Only A and B are true.
5. Which of the following is NOT true regarding the foreign exchange market?
A. It is the place through which people exchange one currency for another.
B. The exchange rate nowadays is mainly determined by the market forces.
C. Most foreign exchange transactions are physically completed in this market.
D. All of the above are true.
6. The world largest foreign exchange markets are __________ respectively.
A. London, New York and Tokyo
B. London, Paris and Frankfurt
C. London, Hong Kong and Singapore
D. London, Zurich and Bahrain
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7. The foreign exchange market is NOT efficient because __________.
A. monetary authorities dominate the foreign exchange market and everybody
knows that by definition, central banks are inefficient
B. commercial banks and other participants of the market do not compete with one
another due to the fact that transaction takes place around the world and not in a
single centralized location
C. foreign exchange dealers have different prices such as bid and ask prices
D. None of the reasons listed are correct because the foreign exchange market is an
efficient market
8. __________ earn a profit by a bid-ask spread on currencies they buy and sell.
__________ on the other hand, earn a profit by bringing together buyers and sellers of
foreign exchanges and earning a commission on each sale and purchase.
A. Foreign exchange brokers; foreign exchange dealers
B. Foreign exchange dealers; foreign exchange brokers
C. arbitragers; speculators
D. commercial banks; central banks
9. Most foreign exchange transactions are through the U.S. dollars. If the transaction
is expressed as the currencies per dollar, this is known as __________ whereas
__________ are expressed as dollars per currency.
A. direct quote; indirect quote
B. indirect quote; direct quote
C. European quote; American quote
D. American quote, European quote
10. From the viewpoint of a Japanese investor, which of the following would be a
direct quote?
A. SFr 1.25/€
B. $1.55/₤
C. ¥ 110/€
D. €0.0091/ ¥
11. Which of the following is true about the foreign exchange market?
A. It is a global network of banks, brokers, and foreign exchange dealers connected
by electronic communications system.
B. The foreign exchange market is usually located in a particular place.
C. The foreign exchange rates are usually determined by the related monetary
authorities.
D. The main participants in this market are currency speculators from different
countries.
12. The extent to which the income from individual transactions is affected by
fluctuations in foreign exchange values is considered to be _________.
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A. Translation exposure
B. economic exposure
C. transaction exposure
D. accounting exposure
13. Which of the following exchange rates is adjusted for price changes?
A. nominal exchange rate
B. real exchange rate
C. effective exchange rate
D. equilibrium exchange rate
14. Suppose the exchange rate of the RMB versus U.S. dollar is ¥6.8523/$ now. If the
RMB were to undergo a 10% depreciation, the new exchange rate in terms of
¥/$ would be:
A. 6.1671
B. 7.5375
C. 6.9238
D. 7.6135
15. At least in a U.S. MNC’s financial accounting statement, if the value of the euro
depreciates rapidly against that of the dollar over a year, this would reduce the dollar
value of the euro profit made by the European subsidiary. This is a typical
__________.
A. transaction exposure
B. translation exposure
C. economic exposure
D. operating exposure
16. A Japanese-based firm expects to receive pound-payment in 6 months. The
company has a (an) __________.
A. economic exposure
B. accounting exposure
C. long position in sterling
D. short position in sterling
17 The exposure to foreign exchange risk known as Translation Exposure may be
defined as __________.
A. change in reported owner’s equity in consolidated financial statements caused
by a change in exchange rates
B. the impact of settling outstanding obligations entered into before change in
exchange rates but to be settled after change in exchange rates
C. the change in expected future cash flows arising from an unexpected change in
exchange rates
D. All of the above
18 When a firm deals with foreign trade or investment, it usually has foreign
exchange risk exposure. So if an American firm expects to receive a dollar-payment
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from a Chinese company in the next 30 days, the U.S. firm has the possible
__________.
A. economic exposure
B. transaction exposure
C. translation exposure
D. none of the above
19. In order to avoid the possible loss because of the exchange rate fluctuations, a
firm that has a __________ position in foreign exchanges can __________ that
position in the forward market.
A. short; sell
B. long; sell
C. long; buy
D. none of the above
20. A forward contract to deliver Japanese yens for Swiss francs could be described
either as __________ or __________,
A. selling yens forward; buying francs forward
B. buying francs forward; buying yens forward
C. selling yens forward; selling francs forward
D. selling francs forward; buying yens forward
21. Dollars are trading at S0SFr/$=SFr0.7465/$ in the spot market. The 90-day forward
rate is F1SFr/$=SFr0.7432/$. So the forward __________ on the dollar in basis points is
__________:
A. discount, 0.0033
B. discount, 33
C. premium, 0.0033
D. premium, 33
22. If the spot rate is $1.35/€, 3-month forward rate is $1.36/€, which of the
following is NOT true?
A. euro is at forward premium by 100 points.
B. dollar is at forward discount by 100 points.
C. dollar is at forward discount by 55 points.
D. euro is at forward premium by 2.96% p.a.
23. If the spot C$/$ rate is 1.0305/15, forward dollar is 25/30 premium, the outright
forward quote in American term should be __________.
A. 1.0330 – 1.0345
B. 1.0280 – 1.0285
C. 0.9681 – 0.9667
D. 0.9728 – 0.9723
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24. If the spot C$/$ rate is 1.0305/15, forward dollar is 25/30 premium, the
$/C$ forward quote in terms of points should be __________.
A. 30/25
B. 25/30
C. – (23/28)
D. – (28/23)
25. The current U.S. dollar exchange rate is ¥85/$. If the 90-day forward dollar rate is
¥90/$, then the yen is selling at a per annum __________ of __________.
A. premium; 5.88%
B. discount; 5.56%
C. premium; 23.52%
D. discount; 22.23%
II. Problems
Questions 1 through 10 are based on the information presented in Table 3.1. (2 credits
for each question, total credits 2 x 10 = 20)
Table 3.1
Country
Exchange rate Exchange rate CPI
Volume of
(2008)
(2009)
(2008) exports to U.S
Germany €0.75/$
€0.70/$
102.5
$200m
Mexico Mex$11.8/$
Mex$12.20/$
110.5
$120m
U.S.
105.3
Volume of
imports from U.S.
$350m
$240m
1. The real exchange rate of the dollar against the euro in 2009 was __________.
2. The real exchange rate of the dollar against the peso in 2009 was __________.
3. The dollar was __________ against the euro in nominal term by __________.
A. appreciated; 6.67%
B. depreciated; 6.67%
C. appreciated; 7.14%
D depreciated; 7.14%
4. The Mexican peso was __________ against the dollar in nominal term by
__________.
A. appreciated; 3.39%
B. depreciated; 3.39%
C. appreciated; 3.28%
D. depreciated; 3.28%
5. The volume of the German foreign trade with the U.S. was __________.
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6. The volume of the Mexican foreign trade with the U.S. was __________.
7. Assume the U.S. trades only with the Germany and Mexico. Now if we want to
calculate the dollar effective exchange rate in 2009 against a basket of currencies of
euro and Mexican peso, the weight assigned to the euro should be __________.
8. The weight assigned to the peso should be __________.
9. Assume the 2008 is the base year. The dollar effective exchange rate in 2009 was
__________.
10. Was the dollar generally stronger or weaker in 2009 according to your
calculation?
11. The following exchange rates are available to you.
Fuji Bank
United Bank of Switzerland
Deutsche Bank
¥80.00/$
SFr0.8900/$
¥95.00/SFr
Assume you have an initial SFr10 million. Can you make a profit via triangular
arbitrage? If so, show steps and calculate the amount of profit in Swiss francs. (8
credits)
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12. If the dollar appreciates 1000% against the ruble, by what percentage does the
ruble depreciate against the dollar? (5 credits)
13. As a percentage of an arbitrary starting amount, about how large would
transactions costs have to be to make arbitrage between the exchange rates SSFr/$ =
SFr1.7223/$, S$/￥ = $0.009711/¥, and S￥/SFr = ¥61.740/SFr unprofitable? Explain. (7
credits)
14. You are given the following exchange rates:
S￥/A$ = 67.05 – 68.75
S￡/A$ = 0.3590 – 0.3670
Calculate the bid and ask rate of S￥/￡: (5 credits)
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15. Suppose the spot quotation on the Swiss franc (CHF) in New York is USD0.9442
– 52 and the spot quotation on the Euro (EUR) is USD1.3460 – 68. Compute the
percentage bid-ask spreads on the CHF/EUR quote. ( 5 credits)
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