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FIN 535 Week 11 Final Exam: International Finance and Risk Management

A week 11 final exam focusing on international finance, risk management techniques, and financial strategies in the global market.

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    FIN 535 Week 11 Final Exam: International Finance and Risk Management F IN 535 Week 11 Final Exam Part 1 Question 1 The international Fisher effect (IFE) suggests that: Answer a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate. a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate. a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate. Question 2 Which of the following theories suggests the percentage change in spot exchange rate of a currency should be equal to the inter est rate differential between two countries? Answer absolute form of PPP. relative form of PPP. international Fisher effect (IFE). interest rate parity (IRP) Question 3 Assume a two - country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries? Answer If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken. If Country A's interest rate exceeds Country B's inflation rate, Country A's c urrency will weaken. If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen. If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency will weaken. Question 4 If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold: Answer

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    the value of the euro would often appreciate against the dollar. the value of the euro would often depreciate against the dollar. the value of the euro would remain constant most of the time. the value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation. Question 5 If today's exchange rate reflects any historical trends in Canadian dollar exchange rate movements, but not all relevant public information, then the Canadian dollar market is: Answer weak - form efficient. semistrong - form efficient. strong - form efficient. semiweak - form efficient. Question 6 Sensitivity analysis allows for all of the following except: Answer accountability for uncertainty. focus on a single point estimate of future exchange rates. development of a range of possible future values. consideration of alternative scenarios. Question 7 If a foreign currency is expected to ____ substantially against the parent's currency, the parent may prefer to ____ the remittance of subsidiary earnings. Answer weaken; delay weaken; expedite appreciate; expedite appreciate; delay Question 8 Which of the following is not one of the major reasons for MNCs to forecast exchange rates? Answer to decide in which foreign market to invest the excess cash. to decide where to borrow at the lowest cost. to determine whether to require the subsidiary to remit the funds o r invest them locally. to speculate on the exchange rate movements. Question 9 Which of the following is not a method of forecasting exchange rate volatility? Answer Using the absolute forecast error as a percentage of the realized value to improve your forecast. Using the volatility of historical exchange rate movements as a forecast for the future.

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    Using a time series of volatility patterns in previous periods. Deriving the exchange rate's implied standard deviation from the currency option pricing model. Question 10 The maximum one - day loss computed for the value - at - risk (VAR) method does not depend on: Answer the expected percentage change in the currency for the next day. the standard deviation of the daily percentage changes in the currency over a previous period. the current level of interest rates. the confidence level used. Question 11 Which of the following is not a form of exposure to exchange rate fluctuations? Answer transaction exposure. credit exposure. economic exposure. translation exposure. Question 12 If a U.S. firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a ____ overall impact of the Swiss franc's depreciation against the dollar on ____. Answer positive; interest expenses positive; gross profit negative; gross profit negative; interest expenses Question 13 U.S. based Majestic Co. se lls products to U.S. consumers and purchases all of materials from U.S. suppliers. Its main competitor is located in Belgium. Majestic Co. is subject to: Answer economic exposure. translation exposure. transaction exposure. no exposure to exchange rate fluctuations. Question 14 In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be: Answer highly positive. highly negative. zero.

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    netrual. Question 15 The ____ does not represent an obligation. Answer long - term forward contract currency swap parallel loan currency option Question 16 A ____ involves an exchange of currencies between two parties, with a promise to re - exchange currencies at a specified exchange rate and future date. Answer long - term forward contract currency option contract parallel loan money market hedge Question 17 A money market hedge on payables would involve, among others, borrowing ____ and investing in the ____. Answer the foreign currency; U.S. the foreign currency; foreign country dollars; foreign country dollars; U.S. Question 18 If a firm does not have foreign subsidiaries, it is not subject to ____. Answer transaction exposure economic exposure transformation exposure. translation exposure Question 19 If a U.S. firm has much more revenue than expenses denominated in euros, the firm will likely ____ if the euro ____. Answer benefit; weakens be unaffected; weakens be unaffected; strengthens benefit; strengthens Question 20

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