Question

9) In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro. How many euros will the U.S. investor acquire with his initial $500,000 investment?

A) €650,000

B) €370,370

C) €500,000

D) €384,615

10) Not all firms have the same optimal capital structure. Factors that might influence a firm's capital structure include:

A) the industry in which it operates.

B) the volatility of its sales and operating income.

C) the collateral value of its assets.

D) all of the above

11) A U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro depreciates against the dollar from $1.40/€ at the time the loan was made to $1.35/€ at the end of the first year, how much interest will the US firm pay at the end of the first year (rounded)?

A) $55,000

B) €74,250

C) $74,250

D) $77,000

12) Eurocurrencies are NOT the same as the euro developed for the common European currency.

A) True

B) False

Answer 1

9) In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro. How many euros will the U.S. investor acquire with his initial $500,000 investment?

D) €384,615

Euros that can be acquired = investment / Exchange Rate = $500000 / 1.30 = 384615

10) Not all firms have the same optimal capital structure. Factors that might influence a firm's capital structure include:

D) all of the above

All of the mentioned statement are important in designing capital structure of a Firm

11) A U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro depreciates against the dollar from $1.40/€ at the time the loan was made to $1.35/€ at the end of the first year, how much interest will the US firm pay at the end of the first year (rounded)?

C) $74,250

Interest that will be paid = Euro Loan * Interest rate * Exchange Rate at the end

Interest that will be paid = 1000000 * 5.50% * 1.35

Interest that will be paid = $74250

12) Euro currencies are NOT the same as the euro developed for the common European currency.

B) False

Euro Currencies are same as common European currency

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