An Austrian firm that buys foreign exchange because its managers expect the euro to depreciate is

Related MCQs

• Assume the following information regarding UK and European annualized interest rates: Currency Lending Rate Borrowing Rate UK pound (£) 6.73% 7.20% Euro (€) 6.80% 7.28% Milly Bank can borrow either £20 million or €20 million. The current spot rate of the euro is £0.75. Furthermore, Milly Bank expects the spot rate of the euro to be £0.76 in 90 days. What is Milly Bank’s pound profit from speculating if the spot rate of the euro is indeed £0.76 in 90 days?
• Foghat Co. has 1,000,000 euros as receivables due in 30 days, and is certain that the euro will depreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to:
• A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is
• A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. The share price of the firm was 15 euros when the Dutch market closed. As the U.S. market opens, the euro is worth $1.10. Thus, the price of the ADR should be _____.
• Assume a UK firm uses a forward contract to hedge all of its translation exposure. Also assume that the firm underestimated what its foreign earnings would be. Assume that the foreign currency depreciated over the year. The firm would generate a translation _______, which would be _______ than the gain generated by the forward contract.
• A French-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to __________ its estimate of the previously computed net present value.
• Suppose the exchange rates between the United States and Euro Area are in long-run equilibrium as defined by the idea of purchasing power parity. If the law of one price holds perfectly, then differences between U.S. and Euro Area rates of inflation would
• Volusia, plc is a UK-based exporting firm that expects to receive payments denominated in both euros and Canadian dollars in one month. Based on today's spot rates, the pound value of the funds to be received is estimated at £500,000 for the euros and £300,000 for the Canadian dollars. Based on data for the last fifty months, Volusia estimates the standard deviation of monthly percentage changes to be 8 percent for the euro and 3 percent for the Canadian dollar. The correlation coefficient between the euro and the Canadian dollar is 0.30. What is the portfolio standard deviation?
• When a firm perceives that a foreign currency is ________, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively _______.
• When the foreign exchange market opens in the UK each morning, the opening exchange rate quotations will be based on the: