1
International Finance Final Exam/ Actual Exam Questions
with Correct Verified Answers/ Rated A+
The ascendance of the dollar reflects several key factors, such as - ANS - the mature and open capital
markets of the U.S. economy.
When Honda, a Japanese auto maker, built a factory in Ohio, - ANS - it was engaged in foreign direct
investment.
The choice between the alternative exchange rate regimes (fixed or floating) is likely to involve a trade-
off between - ANS - national monetary policy autonomy and international economic integration.
Which of the following statements regarding triangular arbitrage true? - ANS - It can involve trading out
of the US dollar into a second currency, then trading it for a third currency, which is in turn traded for US
dollars.
The purpose is to earn an arbitrage profit via trading among three currencies, where the direct cross-
exchange rate between the second and the third currency is not in alignment with the implied cross-
exchange rate.
Production of goods and services has become globalized to a large extent as a result of - ANS -
multinational corporations' efforts to source inputs and locate production anywhere where costs are
lower and profits higher.
The two primary reasons for an interest rate swap are - ANS - to better match maturities of assets and
liabilities; to obtain cost savings via the quality spread differential
An example(s) of a political risk is - ANS - both the expropriation of assets and adverse changes in tax
rules are correct.
, 2
Generally speaking, liberalization of financial markets when combined with a weak, underdeveloped
domestic financial system tends to - ANS - create an environment susceptible to currency and financial
crises.
If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and ask
prices are - ANS - €0.6623 and €0.6667.
The theory of comparative advantage - ANS - claims that economic well-being is enhanced if each
country's citizens produce that which they have a comparative advantage in producing relative to the
citizens of other countries, and then trade production.
The forward price - ANS - all of the options
Most governments at least try to make it difficult for people to cross their borders illegally. This barrier to
the free movement of labor is an example of - ANS - a market imperfection.
Privatization refers to the process of - ANS - a country divesting itself of the ownership and operation of a
business venture by turning it over to the free market system.
If the United States imports more than it exports, then - ANS - one can infer that the U.S. dollar would be
under pressure to depreciate against other currencies.
the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus.
Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes:
Swiss franc/dollar = SFr1.6043/$
Australian dollar/U.S. dollar = A$1.8296/$
Australian dollar/Swiss franc = A$1.1494/SFr
Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes? If
there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how much
would he profit if he has $1,000,000 available for this purpose? - ANS - Sell dollars to get Swiss francs:
Sell $1,000,000 to get $1,000,000 × SFr1.6043/$ = SFr1,604,300.
, 3
ii. Sell Swiss francs to buy Australian dollars: Sell SFr1,604,300 to buy SFr1,604,300 × A$1.1494/SFr =
A$1,843,982.42.
iii. Sell Australian dollars for dollars: Sell A$1,843,982.42 for A$1,843,982.42/A$1.8296/$ =
$1,007,860.96.
Thus, your arbitrage profit is $1,007,860.96 − $1,000,000 = $7,860.96.
Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year later, the
stock rises to £60. You are happy with your 20 percent return on the stock, but when you sell the stock
and exchange your £60 for dollars, you only get $45 since the pound has fallen to £1 = $0.75. This loss of
value is an example of - ANS - exchange rate risk.
Country. U.S. $ equiv. Currency per U.S. $
Tuesday Monday Tuesday. Monday
U.K.(Pound)£62,500. 1.6000. 1.6100. 0.6250. 0.6211
1 Month Forward. 1.6100. 1.6300. 0.6211. 0.6173
3 Months Forward. 1.6300. 1.6600. 0.6173. 0.6024
6 Months Forward. 1.6600. 1.7200. 0.6024. 0.581412
12 Months Forward. 1.7200. 1.8000. 0.5814. 0.5556
Using the table shown, what is the most current spot exchange rate shown for British pounds? Use a
direct quote from a U.S. perspective. - ANS - $1.60 = £1.00
The main cost of European monetary union is - ANS - the loss of national monetary and exchange rate
policy independence.
A country experiencing a significant balance-of-payments surplus would be likely to - ANS - expand
imports, offering marketing opportunities for foreign enterprises, and encourage imposing foreign
exchange restrictions.
When individual investors become aware of overseas investment opportunities and are willing to
diversify their portfolios internationally, - ANS - they benefit from an expanded opportunity set.
International Finance Final Exam/ Actual Exam Questions
with Correct Verified Answers/ Rated A+
The ascendance of the dollar reflects several key factors, such as - ANS - the mature and open capital
markets of the U.S. economy.
When Honda, a Japanese auto maker, built a factory in Ohio, - ANS - it was engaged in foreign direct
investment.
The choice between the alternative exchange rate regimes (fixed or floating) is likely to involve a trade-
off between - ANS - national monetary policy autonomy and international economic integration.
Which of the following statements regarding triangular arbitrage true? - ANS - It can involve trading out
of the US dollar into a second currency, then trading it for a third currency, which is in turn traded for US
dollars.
The purpose is to earn an arbitrage profit via trading among three currencies, where the direct cross-
exchange rate between the second and the third currency is not in alignment with the implied cross-
exchange rate.
Production of goods and services has become globalized to a large extent as a result of - ANS -
multinational corporations' efforts to source inputs and locate production anywhere where costs are
lower and profits higher.
The two primary reasons for an interest rate swap are - ANS - to better match maturities of assets and
liabilities; to obtain cost savings via the quality spread differential
An example(s) of a political risk is - ANS - both the expropriation of assets and adverse changes in tax
rules are correct.
, 2
Generally speaking, liberalization of financial markets when combined with a weak, underdeveloped
domestic financial system tends to - ANS - create an environment susceptible to currency and financial
crises.
If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and ask
prices are - ANS - €0.6623 and €0.6667.
The theory of comparative advantage - ANS - claims that economic well-being is enhanced if each
country's citizens produce that which they have a comparative advantage in producing relative to the
citizens of other countries, and then trade production.
The forward price - ANS - all of the options
Most governments at least try to make it difficult for people to cross their borders illegally. This barrier to
the free movement of labor is an example of - ANS - a market imperfection.
Privatization refers to the process of - ANS - a country divesting itself of the ownership and operation of a
business venture by turning it over to the free market system.
If the United States imports more than it exports, then - ANS - one can infer that the U.S. dollar would be
under pressure to depreciate against other currencies.
the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus.
Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes:
Swiss franc/dollar = SFr1.6043/$
Australian dollar/U.S. dollar = A$1.8296/$
Australian dollar/Swiss franc = A$1.1494/SFr
Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes? If
there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how much
would he profit if he has $1,000,000 available for this purpose? - ANS - Sell dollars to get Swiss francs:
Sell $1,000,000 to get $1,000,000 × SFr1.6043/$ = SFr1,604,300.
, 3
ii. Sell Swiss francs to buy Australian dollars: Sell SFr1,604,300 to buy SFr1,604,300 × A$1.1494/SFr =
A$1,843,982.42.
iii. Sell Australian dollars for dollars: Sell A$1,843,982.42 for A$1,843,982.42/A$1.8296/$ =
$1,007,860.96.
Thus, your arbitrage profit is $1,007,860.96 − $1,000,000 = $7,860.96.
Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year later, the
stock rises to £60. You are happy with your 20 percent return on the stock, but when you sell the stock
and exchange your £60 for dollars, you only get $45 since the pound has fallen to £1 = $0.75. This loss of
value is an example of - ANS - exchange rate risk.
Country. U.S. $ equiv. Currency per U.S. $
Tuesday Monday Tuesday. Monday
U.K.(Pound)£62,500. 1.6000. 1.6100. 0.6250. 0.6211
1 Month Forward. 1.6100. 1.6300. 0.6211. 0.6173
3 Months Forward. 1.6300. 1.6600. 0.6173. 0.6024
6 Months Forward. 1.6600. 1.7200. 0.6024. 0.581412
12 Months Forward. 1.7200. 1.8000. 0.5814. 0.5556
Using the table shown, what is the most current spot exchange rate shown for British pounds? Use a
direct quote from a U.S. perspective. - ANS - $1.60 = £1.00
The main cost of European monetary union is - ANS - the loss of national monetary and exchange rate
policy independence.
A country experiencing a significant balance-of-payments surplus would be likely to - ANS - expand
imports, offering marketing opportunities for foreign enterprises, and encourage imposing foreign
exchange restrictions.
When individual investors become aware of overseas investment opportunities and are willing to
diversify their portfolios internationally, - ANS - they benefit from an expanded opportunity set.
