Question 1

The following rates are given:
1 euro = 1.90 Australian dollars (AUD) 
1 euro = 1.90 Swiss francs (CHF) 
1 AUD = 0.97 CHF
If you have 100 000 Australian dollars available,how much profit can you earn using the triangle arbitrage?

Accepted Answer

A)  A$1900
B)  A$ nil
C)  A$3093
D)  A$3800
E)  A$3000F) None of the above
G) A) and B)

Question 2

Which of the following are participants in the foreign exchange market?
I.importers,who pay for goods in foreign currencies
II.exporters,who receive payment in foreign currencies
III.domestic share brokers,who service local clients
IV.portfolio managers,who purchase foreign securities

Accepted Answer

A)  II,III and IV only
B)  I and III only
C)  II and IV only
D)  I,III and IV only
E)  I,II and IV onlyF) A) and C)
G) A) and D)

Question 3

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Accepted Answer

A)  average inflation rate of the two countries
B)  difference between the two countries' average inflation and interest rates
C)  difference in the inflation rates of the two countries
D)  difference in the risk-free interest rates in the two countries
E)  average interest rate in the two countriesF) C) and E)
G) All of the above C

Question 4

The London Interbank Offer Rate (LIBOR) is the rate that most _____ banks charge one another for overnight _____ loans.

Accepted Answer

A)  international;Eurodollar
B)  domestic;US dollar
C)  international;gold bullion
D)  foreign;gold bullion
E)  domestic;EurodollarF) A) and D)
G) None of the above

Question 5

The exchange rate is 1.14 Swiss francs per Australian dollar.How many Australian dollars are needed to purchase 2500 Swiss francs?

Accepted Answer

A)  $2192.98
B)  $2646.64
C)  $2850.00
D)  $2021.21
E)  $2918.46F) A) and C)
G) A) and D)

Question 6

A spot trade is defined as an agreement to exchange currencies based on the exchange rate _____ for settlement within _____ business day(s) .

Accepted Answer

A)  today;3
B)  one year from today;2
C)  today;2
D)  one year from today;3
E)  today;1F) B) and E)
G) C) and E)

Question 7

Your favourite golf shoes cost US$89 in the US while the identical shoes cost A$110.00 in Australia.According to purchasing power parity,what is one Australian dollar worth?

Accepted Answer

A)  US$1.3305
B)  US$1.1236
C)  US$0.8091
D)  US$0.8901
E)  US$1.2360F) B) and C)
G) None of the above

Question 8

A vintage Parker,type 65,fountain pen from 1968,popular among collectors,costs 105 British pounds in the United Kingdom,while you can buy the identical pen for 229 Australian dollars in a shop in Melbourne.According to purchasing power parity,the AUD/GBP exchange rate is:

Accepted Answer

A)  A$2.40/£1
B)  A$2.18/£1
C)  A$2.29/£1
D)  A$1.05/£1
E)  A$0.46/£1F) A) and E)
G) A) and C)

Question 9

Ozzie Nuts Pty Ltd import walnuts from California at a landed cost of US$25.00 per case and sell 10 000 cases per year at A$30.00.Currently the exchange rate is AUD$1 = USD$0.9000 and the company's gross profit would be A$22 222 for a year at this exchange rate.Experts are predicting that the exchange rate will fall to USD$0.8300.If the experts are correct,what will happen to Ozzie Nuts' full year gross profit if the selling price remains unchanged?

Accepted Answer

A)  Gross profit will not change.
B)  Gross profit will increase by A$23 428.
C)  Gross profit will fall to A$1205.
D)  The company will make a loss on the transactions.
E)  The company will continue to make a profit.F) A) and B)
G) D) and E)

Question 10

Assume that PE is the euro price of a product,PAU is the Australian price of the identical product,and S0 is the spot exchange rate,quoted as the amount of Euro per Australian dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

Accepted Answer

A)  PAU = S0 + PE
B)  PE = S0 / PAU
C)  PAU = S0 ´ PE
D)  PE = S0 ´ PAU
E)  PAU = S0 / PEF) B) and E)
G) None of the above

Question 11

The current spot rate between the UK and the US is £0.5418 per US$1.The expected inflation rate in the US is 2.5 per cent.The expected inflation rate in the UK is 4.0 per cent.If relative purchasing power parity exists,the exchange rate 3 years from now will be:

Accepted Answer

A)  £0.5927/$1
B)  £0.5623/$1
C)  £0.5665/$1
D)  £0.5995/$1
E)  £0.5601/$1F) A) and D)
G) B) and C) C

Question 12

Which one of the following is the best definition of Eurocurrency?

Accepted Answer

A)  any paper money used by a country that has adopted the euro as its common currency
B)  both paper and coins officially adopted under the euro system of coinage
C)  money deposited in a financial institution outside of the country whose currency is involved
D)  US dollars owned by any country which has adopted the euro as its currency
E)  any exchange of funds between two countries that have adopted the euro as their official currencyF) C) and D)
G) A) and B)

Question 13

A New Zealand company has total assets valued at A$14 000 000,located in Western Australia.This valuation did not change from last year.Last year the exchange rate was A$0.92 per 1 NZ$.Now the exchange rate is A$0.88 per 1 NZ$.By what amount did the assets change in value on the company's New Zealand financial statement?

Accepted Answer

A)  NZ$909 090
B)  NZ$560 000
C)  NZ$589 836
D)  NZ$478 231
E)  NZ$691 700F) A) and C)
G) B) and C)

Question 14

The concept that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

Accepted Answer

A)  exchange rate equilibrium
B)  exchange rate parity
C)  interest rate equilibrium
D)  foreign equalisation
E)  interest rate parityF) None of the above
G) A) and B)

Question 15

The current spot rate between the UK and Australia is AUD$1 = £0.6764.The expected inflation rate in Australia is 1.8 per cent.The expected inflation rate in the UK is 3.4 per cent.If relative purchasing power parity exists,what will the exchange rate be 2 years from now?

Accepted Answer

A)  £0.5331
B)  £0.6549
C)  £0.6982
D)  £.0.6872
E)  £.0.6656F) All of the above
G) A) and E)

Question 16

A particular set of golf clubs in the US costs $990.According to absolute purchasing power parity,what should the identical set of clubs cost in Australia when the spot rate is AUD$1 = 0.9125?

Accepted Answer

A)  $1084.93
B)  $993.83
C)  $903.38
D)  $1000.00
E)  $1200.00F) C) and E)
G) A) and B)

Question 17

Assume a canned soft drink costs $1 in the US and $1.30 in Canada.At the same time,the currency per US dollar is C$1.30.Which one of the following conditions exists in this situation?

Accepted Answer

A)  interest rate parity
B)  relative purchasing power parity
C)  equal spot and forward rates
D)  absolute purchasing power parity
E)  translation exposureF) C) and D)
G) C) and E) D

Question 18

The spot rate for the pound is £0.53 = AU$1 and for the euro is €0.78 = AU$1.What is the £/€ cross rate?

Accepted Answer

A)  £1.4723/€1
B)  £0.6795/€1
C)  £1.4717/€1
D)  £0.6787/€1
E)  £0.6775/€1F) A) and C)
G) None of the above

Question 19

Currently,you can exchange US$1 for £0.53.Assume that the average inflation rate in the US over the next four years will be 4 per cent annually as compared to 5 per cent in the UK Based on relative purchasing power parity,you should expect the _____ over the next 4 years.

Accepted Answer

A)  US dollar to appreciate against all currencies
B)  British pound to appreciate against all currencies
C)  both the US dollar and the British pound to appreciate against all other currencies
D)  US dollar to appreciate against the British pound
E)  British pound to appreciate against the US dollarF) A) and D)
G) A) and E)

Question 20

You are given the exchange rate between the US dollar and the Canadian dollar.You are also given the exchange rate between the US dollar and the Mexican peso.What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Accepted Answer

A)  london Interbank rate
B)  depositary rate
C)  cross-rate
D)  forward rate
E)  swap rateF) A) and D)
G) A) and E)

Exam 18: International Aspects of Financial Management

The following rates are given: 1 euro = 1.90 Australian dollars (AUD) 1 euro = 1.90 Swiss francs (CHF) 1 AUD = 0.97 CHF If you have 100 000 Australian dollars available,how much profit can you earn using the triangle arbitrage?

Correct Answer
verified

Which of the following are participants in the foreign exchange market? I.importers,who pay for goods in foreign currencies II.exporters,who receive payment in foreign currencies III.domestic share brokers,who service local clients IV.portfolio managers,who purchase foreign securities

Correct Answer
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Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Correct Answer
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C

The London Interbank Offer Rate (LIBOR) is the rate that most _ banks charge one another for overnight _ loans.

Correct Answer
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The exchange rate is 1.14 Swiss francs per Australian dollar.How many Australian dollars are needed to purchase 2500 Swiss francs?

Correct Answer
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A spot trade is defined as an agreement to exchange currencies based on the exchange rate _ for settlement within _ business day(s) .

Correct Answer
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Your favourite golf shoes cost US$89 in the US while the identical shoes cost A$110.00 in Australia.According to purchasing power parity,what is one Australian dollar worth?

Correct Answer
verified

A vintage Parker,type 65,fountain pen from 1968,popular among collectors,costs 105 British pounds in the United Kingdom,while you can buy the identical pen for 229 Australian dollars in a shop in Melbourne.According to purchasing power parity,the AUD/GBP exchange rate is:

Correct Answer
verified

Correct Answer
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Assume that P_E is the euro price of a product,P_AU is the Australian price of the identical product,and S₀ is the spot exchange rate,quoted as the amount of Euro per Australian dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

Correct Answer
verified

The current spot rate between the UK and the US is £0.5418 per US$1.The expected inflation rate in the US is 2.5 per cent.The expected inflation rate in the UK is 4.0 per cent.If relative purchasing power parity exists,the exchange rate 3 years from now will be:

Correct Answer
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C

Which one of the following is the best definition of Eurocurrency?

Correct Answer
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Correct Answer
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The concept that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

Correct Answer
verified

The current spot rate between the UK and Australia is AUD$1 = £0.6764.The expected inflation rate in Australia is 1.8 per cent.The expected inflation rate in the UK is 3.4 per cent.If relative purchasing power parity exists,what will the exchange rate be 2 years from now?

Correct Answer
verified

A particular set of golf clubs in the US costs $990.According to absolute purchasing power parity,what should the identical set of clubs cost in Australia when the spot rate is AUD$1 = 0.9125?

Correct Answer
verified

Assume a canned soft drink costs $1 in the US and $1.30 in Canada.At the same time,the currency per US dollar is C$1.30.Which one of the following conditions exists in this situation?

Correct Answer
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D

The spot rate for the pound is £0.53 = AU$1 and for the euro is €0.78 = AU$1.What is the £/€ cross rate?

Correct Answer
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Currently,you can exchange US$1 for £0.53.Assume that the average inflation rate in the US over the next four years will be 4 per cent annually as compared to 5 per cent in the UK Based on relative purchasing power parity,you should expect the _____ over the next 4 years.

Correct Answer
verified

You are given the exchange rate between the US dollar and the Canadian dollar.You are also given the exchange rate between the US dollar and the Mexican peso.What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Correct Answer
verified

Exam 18: International Aspects of Financial Management

The following rates are given: 1 euro = 1.90 Australian dollars (AUD) 1 euro = 1.90 Swiss francs (CHF) 1 AUD = 0.97 CHF If you have 100 000 Australian dollars available,how much profit can you earn using the triangle arbitrage?

Correct AnswerverifiedShow Answer

Which of the following are participants in the foreign exchange market? I.importers,who pay for goods in foreign currencies II.exporters,who receive payment in foreign currencies III.domestic share brokers,who service local clients IV.portfolio managers,who purchase foreign securities

Correct AnswerverifiedShow Answer

Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?

Correct AnswerverifiedC

The London Interbank Offer Rate (LIBOR) is the rate that most _____ banks charge one another for overnight _____ loans.

Correct AnswerverifiedShow Answer

The exchange rate is 1.14 Swiss francs per Australian dollar.How many Australian dollars are needed to purchase 2500 Swiss francs?

Correct AnswerverifiedShow Answer

A spot trade is defined as an agreement to exchange currencies based on the exchange rate _____ for settlement within _____ business day(s) .

Correct AnswerverifiedShow Answer

Your favourite golf shoes cost US$89 in the US while the identical shoes cost A$110.00 in Australia.According to purchasing power parity,what is one Australian dollar worth?

Correct AnswerverifiedShow Answer

A vintage Parker,type 65,fountain pen from 1968,popular among collectors,costs 105 British pounds in the United Kingdom,while you can buy the identical pen for 229 Australian dollars in a shop in Melbourne.According to purchasing power parity,the AUD/GBP exchange rate is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that PE is the euro price of a product,PAU is the Australian price of the identical product,and S0 is the spot exchange rate,quoted as the amount of Euro per Australian dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

Correct AnswerverifiedShow Answer

The current spot rate between the UK and the US is £0.5418 per US$1.The expected inflation rate in the US is 2.5 per cent.The expected inflation rate in the UK is 4.0 per cent.If relative purchasing power parity exists,the exchange rate 3 years from now will be:

Correct AnswerverifiedC

Which one of the following is the best definition of Eurocurrency?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The concept that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:

Correct AnswerverifiedShow Answer

The current spot rate between the UK and Australia is AUD$1 = £0.6764.The expected inflation rate in Australia is 1.8 per cent.The expected inflation rate in the UK is 3.4 per cent.If relative purchasing power parity exists,what will the exchange rate be 2 years from now?

Correct AnswerverifiedShow Answer

A particular set of golf clubs in the US costs $990.According to absolute purchasing power parity,what should the identical set of clubs cost in Australia when the spot rate is AUD$1 = 0.9125?

Correct AnswerverifiedShow Answer

Assume a canned soft drink costs $1 in the US and $1.30 in Canada.At the same time,the currency per US dollar is C$1.30.Which one of the following conditions exists in this situation?

Correct AnswerverifiedD

The spot rate for the pound is £0.53 = AU$1 and for the euro is €0.78 = AU$1.What is the £/€ cross rate?

Correct AnswerverifiedShow Answer

Currently,you can exchange US$1 for £0.53.Assume that the average inflation rate in the US over the next four years will be 4 per cent annually as compared to 5 per cent in the UK Based on relative purchasing power parity,you should expect the _____ over the next 4 years.

Correct AnswerverifiedShow Answer

You are given the exchange rate between the US dollar and the Canadian dollar.You are also given the exchange rate between the US dollar and the Mexican peso.What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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C

The London Interbank Offer Rate (LIBOR) is the rate that most _ banks charge one another for overnight _ loans.

Correct Answer
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Correct Answer
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A spot trade is defined as an agreement to exchange currencies based on the exchange rate _ for settlement within _ business day(s) .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Assume that P_E is the euro price of a product,P_AU is the Australian price of the identical product,and S₀ is the spot exchange rate,quoted as the amount of Euro per Australian dollar.Given this,which one of the following correctly expresses absolute purchasing power parity?

Correct Answer
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Correct Answer
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C

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D

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