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Foreign Currency

a. True

b. False

       2. The Eurodollar market is essentially a long-term market; most loans and deposits have maturities of longer than one year.

       b.  True

1. False

        3. A foreign currency will, on average, depreciate against the dollar at a percentage rate approximately equal to the amount by which its              inflation rate exceeds that of the United States.

1. True
2. False

4. Which of the following are reasons why companies move into interanational operations?

1. To take advantage of lower production costs in regions of inexpensive labor.
2. To develop new markets for their finished products.
3. To better serve their primary customers.
4. Because important raw materials are located abroad.
5. All of the above.

        5.   If the inflation rate in the United States is greater than the inflation rate in Sweden, other things held constant, the Swedish currency                  will

1. Appreciate against the U. S. dollar.
2. Depreciate against the U.S. dollar.
3. Remain unchanged against the U.S. dollar.
4. Appreciate against the dollar and other major currencies.
5. Appreciate against the dollar and other major currencies.

        6. If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss Francs can one U.S. dollars can you purchase from one German              mark?

1. 0.71
2. 1.41
3. 1.00
4. 2.81
5. 0.50

7. Solartech Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, Solartech agreed to make the bill payable in yen, thus agreeing to take on exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would Solartech actually receive after it exchanged yen for U.S. dollars?

1. $1,000,000
2. $1,025,000
3. $1,075,958
4. $929,404
5. $975,610

        8.   A year ago, MC Hammer Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1     pound equals $2. This year the exchange rate is 1 pound equals $1.82. The inventory in Britain is still valued at 240,000 pounds. What is              the gain or loss in inventory value in the U.S. Dollars as a result of the change in interest rates?

1. -$240,000
2. -$43,200
3. $0
4. $43,000
5. $47,473

        9.  Currently, 1 British Pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 German marks. What is the cross exchange rate between  the pound and the mark?

1. 1 British pound equals 3.24 German marks.
2. 1 British pound equals 2.6244 German marks.
3. 1 British pound equals 1.8588 German Marks.
4. 1 British pound equals 1.0000 German Marks.
5. 1 British pound equals 0.3810 German Marks.

        10.  In the spot market, 1 U.S. market, 1 U.S. dollar equals 1.6 German marks. 6-month German securities have an annualized return of 6%      (and therefore have 6-month periodic return equal to 3 percent). 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 dollar-mark exchange rate in the 180 day forward market?

1. $1=.6235 marks
2. $1=.6265 marks
3. $1=1.000 marks
4. $1=1.5961 marks
5. $1=1.6039 marks

        11.  Suppose a U.S. firms buys $200,000 worth of television tubes from a French manufacturer for delivery in 60 days with payment to be      made in 90 days (30 days after the goods are received). The rising U.S. deficit has caused the dollar to depreciate against the franc recently.         The current exchange rate is 5.50 FF per U.S. dollar. The 90-day forward rate is 5.45FF/dollar. The firm goes into the forward market today         and buys enough French francs at the 90-day forward rate to completely cover its trade obligation. Assume the spot rate in 90days is                 5.30FF/dollar. How much in U.S. dollars did the firm save by eliminating it foreign exchange currency risk with its forward market hedge?

1. $1,834.86
2. $7,547.17
3. $0
4. $5,712.31
5. $4,517.26