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Exam 17: Multinational financial management

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Question 31

Multiple Choice

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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?

A) -7.92%
B) -4.13%
C) 6.00%
D) 8.25%
E) 12.00%

F) C) and D)
G) All of the above

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Question 32

Multiple Choice

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

A) 0.37
B) 0.61
C) 1.00
D) 1.64
E) 3.28

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

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Question 33

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Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.

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?

Suppose the exchange rate between U.S.dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the U.S.dollar and the euro is $1.00 = 1.64 euros.What is the cross-rate of Swiss francs to euros?

Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return.In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return.In the 90-day forward market, 1 British pound equals $1.65.If interest rate parity holds, what is the spot exchange rate?

Legal and economic differences among countries, although important, do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries.

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