Exam

Mid-Term (23/04/2015)

Paper
ACFI 305 (International Financial Management)
Semester/Year 1/2015
Student Name
Student ID

Total Exam
Time
Start Time
End Time
Total Marks
Total MCQs

90 Minutes
3:10 PM
4:40 PM
30
30

Instructions
o

Fill and return the attached answer sheet. Please Use a lead pencil to fill the attached
answer sheet.
o All questions carry equal marks
o Please only mark one right answer in the attached answer sheet. More than one answer
will carry no marks.
o You are allowed to use any university allowed/approved calculator.
o Please clearly mention your name and Student ID on this exam paper as well as on the
provided answer sheet.
o For rough work, you may use the blank side of the last sheet of this exam paper.
________________________________________________________________________________

Q.1. According to BISs April-2013 FX market survey, the foreign exchange market is the largest
financial market in the world with average daily turnover of ________.
a)
b)
c)
d)

$6.3 billion
$5.3 trillion
$7.1 trillion
$3.0 billion

Q.2. ________ is the dominant vehicle currency in the foreign exchange market.
a)
b)
c)
d)

Euro
British Pound
Japanese Yen
US Dollar

Q.3. An indirect FX quotation is the ________ of a direct FX quotation.

a)
b)
c)
d)

Multiple
Reciprocal
Square Root
Half
Page 1 of 8

Q.4. At any given point in time, a banks bid quote for a foreign currency will be_____than its ask
quote
a)
b)
c)
d)

Higher
Less
Equal
Greater

Q.5. An exchange rate regime where another countrys currency circulates as a legal tender is
called________.
a)
b)
c)
d)

Crawling Band
Free float
Dollarization
Peg

Q.6. In___________ system, the exchange rate is market determined, and any intervention is
aimed at moderating fluctuations rather than determining the level of the exchange rate.
a)
b)
c)
d)

Freely floating.
Fixed Peg.
Legal Tender.
Crawling Peg.

Q.7. The ________ was created to monitor the operation of the system and provide short-term
loans to countries experiencing temporary balance of payments difficulties.
a)
b)
c)
d)

The International Monetary Fund.

OECD.
Deutsche Bank.
United Nations.

Page 2 of 8

Q.8. Assume that a bank's bid rate on Swiss francs is $0.45 and its ask rate is $0.47. Its bid-ask
percentage spread is:
a)
b)
c)
d)

about 4.44%.
about 4.26%.
about 4.03%.
about 4.17%.

Q.9. Assume that a bank's bid rate on Japanese yen is $0.0041 and its ask rate is $0.0043. Its bidask percentage spread is:
a)
b)
c)
d)

about 4.99%.
about 4.88%.
about 4.65%.
about 4.43%.

Q.10. The ________ records a countrys trade in goods, services, and financial assets with the rest
of the world.
a)
b)
c)
d)

World Bank.
Balance of Payments.
Balance Sheet.
Trial Balance.

Q.11. _________ is not a part of the Current Account.

a)
b)
c)
d)

Merchandise
Investment income
Foreign Direct Investment
Unilateral transfers

Q.12. _________ is not a part of the Capital Account.

a)
b)
c)
d)

Bank claims and liabilities

Legal services
Foreign Direct Investment
Security Purchases

Page 3 of 8

Q.13. A balance of trade deficit indicates an excess of imports over exports.

a) True
b) False

Q.14. Which of the following will probably not result in an increase in a country's current account
balance (assuming everything else constant)?
a)
b)
c)
d)

A decrease in the country's rate of inflation

A decrease in the country's national income level
An appreciation of the country's currency
All of the above will result in an increased current account balance

Q.15. A Capital Account deficit indicates that the country is a net________.

a)
b)
c)
d)

Lender
Debtor
Aggregator
Organizer

Q.16. A forward contract can be used to lock in the _______ of a specified currency for a future
point in time.
a)
b)
c)
d)

purchase price
sale price
A or B
none of the above

Q.17. Futures contracts are typically ____; forward contracts are typically ____.
a)
b)
c)
d)

sold on an exchange; sold on an exchange

offered by commercial banks; sold on an exchange
sold on an exchange; offered by commercial banks
offered by commercial banks; offered by commercial banks

Page 4 of 8

Q.18. If Spot exchange rate for GBP is 1.50 $/ and its 1-year forward rate has a forward premium
of 2 percent, the 1-year forward rate is:
a)
b)
c)
d)

1.93 $/
2.10 $/
1.47 $/
1.53 $/

Q.19. If the GBPs 1-year forward rate is quoted at $1.428 and the spot rate is quoted at $1.40,
the GBPs forward discount is:
a)
b)
c)
d)

3%
2%
1.02 %
None of the Above

Q.20. The strike price is also known as the premium price.

a) True
b) False

Q.21. 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 $0.0089,
while the forward rate is $0.0098. You expect the spot rate in 60 days to be $0.0090. How many
dollars will you receive for the 5,000,000 yen 60 days from now if you sell yen forward?
a)
b)
c)
d)

$44,500
$45,000
$526 million
$49,000

Q.22. The value of the Australian dollar (A$) today is USD 0.73. Yesterday, the value of the
Australian dollar was USD 0.69. The Australian dollar ____ by ____%.
a)
b)
c)
d)

depreciated; 5.80
depreciated; 4.00
appreciated; 5.80
appreciated; 4.00
Page 5 of 8

Q.23. The IRP theory states that the difference between the forward and the spot exchange rate is
equal to the _______ rate differential between two countries
a)
b)
c)
d)

inflation
exchange
interest
growth

Q.24. The _________ states that the real rate of interest is the nominal interest rate minus the
expected inflation rate.
a)
b)
c)
d)

IRP
PPP
Real exchange rate
Fisher Effect

Q.25. Based on interest rate parity, the larger the degree by which the U.S. interest rate exceeds
the foreign interest rate, the:
a)
b)
c)
d)

larger will be the forward discount of the foreign currency.

larger will be the forward premium of the foreign currency.
smaller will be the forward premium of the foreign currency.
smaller will be the forward discount of the foreign currency.

Q.26. Purchasing power parity (PPP) focuses on the relationship between nominal interest rates
and exchange rates between two countries.
a) True
b) False

Q.27. The exposure of the MNCs consolidated financial statements to exchange rate fluctuations
is known as translation exposure.
a) True
b) False

Page 6 of 8

Q.28. Economic exposure also affects businesses which do not directly engage in international
business.
a) True
b) False

Q.29. Assume that a speculator purchases a put option on British pounds (with a strike price of
$1.50) for $0.05 per unit. A pound option represents 31,250 units. Assume that at the time of the
purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date.
The highest net profit possible for the speculator based on the information above is:
a)
b)
c)
d)

$1,562.50.
-$1,562.50.
-$1,250.00.
-$625.00.

Q.30. Assume the following information:

You have $400,000 to invest:

Current spot rate of Sudanese dinar (SDD) =
90-day forward rate of the dinar
=
90-day interest rate in the U.S.
=
90-day interest rate in Sudan
=

$0.00570
$0.00569
4.0%
4.2%

If you conduct covered interest arbitrage, what amount will you have after 90 days?
a)
b)
c)
d)

$416,000.00.
$416,800.00.
$424,242.86.
$416,068.77.

Page 7 of 8

Space for Rough Work

Page 8 of 8