Compounding with different interest rates

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Reference no: EM132062820

1. The Canadian one-year interest rate is 7 percent, while the U.S. one-year interest rate is 2 percent. Assume that interest rate parity exists. If you use the forward rate to forecast the exchange rate of the peso in one year, the expected effective yield from investing in a one-year deposit in Canada is

a. 7 percent.

b. 5 percent.

c. 6 percent.

d. 2 percent.

2. If a foreign currency consistently appreciated against the dollar over several periods and had higher interest rates at the beginning of those periods than the U.S. interest rates, then

a. U.S. firms could have achieved a higher effective yield on foreign deposits than on U.S. deposits during those periods.

b. the international Fisher effect is supported by the results.

c. A and B

d. none of the above

3. In order to manage the payments for all of the MNC's foreign subsidiaries, a manager may commonly use all of the following except__________.

a. multilateral netting system

b. the Delphi technique

c. preauthorized payment

d. lockbox

4. If a foreign currency consistently appreciated against the dollar over several periods and had higher interest rates at the beginning of those periods than the U.S. interest rates, then

a. U.S. firms could have achieved a higher effective yield on foreign deposits than on U.S. deposits during those periods.

b. the international Fisher effect is supported by the results.

c. A and B

d. none of the above

5. Compounding with Different Interest Rates A deposit of $890 earns interest rates of 10.9 percent in the first year and 8.9 percent in the second year. What would be the second year future value?

$1,956.22

$1,074.85

$987.37

$1,066.22

Reference no: EM132062820

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