Please answer the questions and show work
Instructor: Prof. Humphrey
Fin 3343
Chapter 16 Homework Name ________________________
When the Federal Reserve (acting through member commercial banks) sells U.S. dollars in the foreign exchange market, it ____ the supply of U.S. dollars and hence tends to ____ the value of the U.S. dollar relative to other currencies.
| a. | increases, raise |
| b. | decreases, lower |
| c. | increases, lower |
| d. | decreases, raise |
A high rate of inflation within a country will tend to ____ the value of its currency with respect to the currencies of other countries that are experiencing lower rates of inflation.
| a. | increase |
| b. | decrease |
| c. | have no effect on |
| d. | cannot be determined because of insufficient information |
Firms transacting business with foreign companies can lower exchange rate risk exposure by
| a. | limiting transaction exposure |
| b. | hedging |
| c. | purchasing LIBORs |
| d. | none of the above |
A multinational firm ____.
| a. | has direct investments in manufacturing facilities in more than one country |
| b. | exports finished goods for sale in another country |
| c. | imports raw materials from another country |
| d. | has a manufacturing representative in another country |
An exchange rate quoted as $1.47 per British pound is known as a ____ quote.
| a. | hedge |
| b. | direct |
| c. | futures |
| d. | indirect |
If the direct exchange rate from U.S. dollars to Canadian dollars is $0.80, then the indirect exchange rate is
| a. | $0.80 Canadian $/U.S. dollar |
| b. | $1.25 Canadian $/U.S. dollar |
| c. | $1.20 Canadian $/U.S. dollar |
| d. | $8.00 Canadian $/U.S. dollar |
Crown Honda purchased one of its most popular models for 965,600 yen. The exchange rate for the yen was 142 yen per U.S. dollar at the time of purchase but then rose to 171.8 yen by the time payment was made. What was the dealer's gain or loss on the change in rates?
Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is equal to $.35. The value of the Peruvian Sol in Canadian dollars is:
A forward contract can be used to lock in the ____ of a specified currency for a future point in time.
| a. | purchase price |
| b. | sale price |
| c. | A or B |
| d. | none of the above |
Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089, while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if you sell yen forward
