What forward rate would cause you to be indifferent between investing your money in the U.S. bond and investing in South Africa? Note that at this forward rate, interest rate parity holds.

		R 6.8019
		R 7.0341
		R 7.2390
		None of the above

1 points

QUESTION 12

Based on the preceding hedged transaction, did interest rate parity hold?

		Yes, a gain is realized on the hedging transaction
		No, a gain is realized on the hedging transaction
		No, a loss is realized on the hedging transaction
		Yes, a loss is realized on the hedging transaction
		Yes, neither a gain nor a loss is realized on the hedging transaction

1 points

QUESTION 13

Suppose the spot exchange rate (direct quote) for the Brazilian real is $0.5555 per real. Interest rates on U.S. and Brazilian government bonds are shown below:

Maturity	rUS	rBRZL
1	3.0%	11.30%
2	3.5%	11.70%
3	4.0%	11.80%

Use the interest rate parity to calculate the expected forward exchange rates for the Brazilian real for years 1 and 3. The expected forward exchange rate for year 2 is $0.4769.

		$0.5141; $0.4472
		$0.5155; $0.4472
		$0.5144; $0.4443
		None of the above

1 points

QUESTION 14

Suppose the spot exchange rate (direct quote) for the Brazilian real is $0.5555 per real. Interest rates on U.S. (rUS)and Brazilian (rBRZL) government bonds are shown below:

Maturity	rUS	rBRZL
1	3.0%	11.30%
2	3.5%	11.70%
3	4.0%	11.80%

You wish to invest in a 3-year project in Salvador, Brazil. The initial cost of the project is 5 million real. Expected net cash flows (NCF) are as follows: NCF1 = 3 million real, NCF2 = 4 million real, and NCF3 = 6 million real. Cost of capital for the project is 15%. Again, the expected forward exchange rate for year 2 is $0.4769. Calculate the NPV for the project. (Caution! If your calculated forward rates are incorrect, your NPV would also be incorrect. So please be careful with your calculations.)

		$1.7702 million
		$0.5155 million
		$1.4443 million
		$4.2122 million

1 points

QUESTION 15

It costs a U.S. firm located in Hammond, Indiana $1.45 to make and ship a product to Holland. Suppose the direct quote for the euro is $1.12. How much should the U.S. firm sell the product in Holland in order to have a 50 percent markup?

		1.051
		1.942
		2.175
		1.576
		None of the above

1 points

QUESTION 16

If the U.S. firm described above is afraid the euro will _____ when it comes time to bring home its profits, it could hedge this ____ risk by ____ euro futures or forward contracts.

		Weaken; exchange rate; selling
		Strengthen; exchange rate; buying
		Weaken; commodity price; selling
		Strengthen; exchange rate; selling
		Weaken; exchange rate; buying
		None of the above is correct

1 points

QUESTION 17

Which of the following countries uses the euro currency? [I] United Kingdom, [II] Luxembourg, [III] Denmark, [IV] Malta, [V] Cyprus, [VI] Norway, [VII] Sweden, [VIII] Finland, [IX] Lithuania

		All of the countries
		I, III, VI, VII, IX
		I, IV, V, VIII, IX
		II, IV, V, VIII, IX
		None of the above

1 points

QUESTION 18

Which of the following factors is likely to affect the value of a currency? [I] Interest rate levels [II] Trade deficit [III] Central bank intervention [IV] political instability. Chose best answer.

		I, II, IV
		III, IV
		I, III, IV
		All of the above

1 points

QUESTION 19

The European Central Bank (ECB) is located in

		Brussels, Belgium
		Paris, France
		London, United Kingdom
		Berlin, Germany
		Frankfurt, Germany
		None of the above