International Finance Marks 10 Time 45 minutes

Explanation must be provided for all questions. Evaluation will be dependent solely on the explanation. 1. When the dollar strengthens, the reported consolidated earnings of U.S. based MNCs are _______ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are __________ affected. a. unfavorably; favorably affected b. favorably; unfavorably affected

(Marks 1)

2. The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar ________ by _______%. A) depreciated; 5.80 B) depreciated; 4.00 C) appreciated; 5.80 D) appreciated; 4.00 (Marks 1) 3. Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances? A) purchase Canadian dollars forward. B) purchase Canadian dollar futures contracts. C) purchase Canadian dollar put options. D) purchase Canadian dollar call options.

(Marks 1)

4. Assume a U.S.-based subsidiary wants to raise $1,000,000 by issuing a bond denominated in Indian rupees (RS). The current exchange rate of the rupee is $.025. Thus, the MNC needs ___________ rupees to obtain the $1,000,000 needed. (Marks 1) 5. Which of the following is the most likely strategy for a UK firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk? a. purchase a call option on francs.

b. sell a futures contract on francs. c. obtain a forward contract to purchase francs forward. d. all of the above are appropriate strategies for the scenario described. (Marks 1) 5. A UK corporation has purchased currency call options to hedge a 70,000 dollar payable. The premium is 0.015 and the exercise price of the option is 0.54. If the spot rate at the time of maturity is a) 0.59 b) 0.50, what is the total amount paid by the corporation if it acts rationally? (Marks 4)

6. From a foreign currency perspective, the ideal conditions would be a weak foreign currency at the time of acquisition and a strengthening of the foreign currency over time as funds are remitted back to the parent. (Marks 1)