Exam 10: Measuring Exposure to Exchange Rate Fluctuations

Consider an MNC that is exposed to the Bulgarian lev (BGL) and the Romanian leu (ROL); 30 percent of the MNC's funds are lev and 70 percent are leu. The standard deviation of exchange movements is 10 percent for lev and 15 percent for leu. The correlation coefficient between movements in the value of the lev and the leu is .85. Based on this information, the standard deviation of this two-currency portfolio is approximately:

(Multiple Choice)

5.0/5

(76)

Question 21

Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:

(Multiple Choice)

4.7/5

(82)

Question 22

If a U.S. firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a overall impact of the Swiss franc's depreciation against the dollar on .

(Multiple Choice)

4.9/5

(76)

Question 23

Which of the following operations benefits from appreciation of the firm's local currency?

(Multiple Choice)

4.7/5

(82)

Question 24

Because creditors may prefer that firms maintain low exposure to exchange rate risk, and because investors may prefer corporations to perform hedging for them, exchange rate risk is probably relevant.

(True/False)

4.9/5

(70)

Question 25

Translation exposure affects an MNC's cash flows.

(True/False)

4.8/5

(72)

Question 26

The following regression model was run by a U.S.-based MNC to determine its degree of economic exposure as it relates to the Australian dollar and Sudanese dinar (SDD): where the term on the leFt-hand side is the percentage change in inflation-adjusted cash flows measured in the firm's home currency over period t, and et is the percentage change in the exchange rate of the currency over period t. The regression was run over two subperiods for each of the two currencies, with the following results: Based on these results, which of the following statements is probably not true?

(Multiple Choice)

4.9/5

(94)

Question 27

Jenco Co. imports raw materials from Japan, invoiced in U.S. dollars. The price it pays is not expected to change for the next several years. If the Japanese yen appreciates, Jenco's imports from Japan will probably and if the Japanese yen depreciates, its imports from Japan will probably .

(Multiple Choice)

4.9/5

(75)

Question 28

If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in Switzerland, the appreciation of the Swiss franc has a impact on the firm's .

(Multiple Choice)

4.8/5

(78)

Question 29

Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located in Japan. Vada is subject to:

(Multiple Choice)

4.9/5

(80)

Question 30

Yomance Co. is a U.S. company that has exposure to Japanese yen and British pounds. It has net inflows of 5,000,000 yen and net outflows of 60,000 pounds. The present exchange rate of the Japanese yen is $.012 while the present exchange rate of the British pound is $1.50. Yomance Co. has not hedged its positions. The yen and pound movements against the dollar are highly and positively correlated. If the dollar strengthens, then Yomance Co. will:

(Multiple Choice)

4.8/5

(84)

Question 31

Assume that the British pound and Swiss franc are highly correlated. A U.S. firm anticipates the equivalent of $1 million cash outflows in francs and the equivalent of $1 million cash outflows in pounds. During a cycle, the firm is affected by its exposure.

(Multiple Choice)

5.0/5

(87)

Question 32

Lazer Co. is a U.S. firm that exports computers to Belgium invoiced in euros and to Italy invoiced in dollars. Additionally, Lazer Co. has a subsidiary in South Korea that produces computers and sells them there. Lazer also has competitors in different countries. Lazer Co. is subject to:

(Multiple Choice)

4.7/5

(74)

Question 33

Firms with more in foreign costs than in foreign revenues will be favorably affected by a stronger foreign currency.

(True/False)

4.7/5

(77)

Question 34

The transaction exposure of two inflow currencies is offset when the correlation between the currencies is high.

(True/False)

4.8/5

(83)

Question 35

The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:

(Multiple Choice)

5.0/5

(85)

Question 36

The Canadian dollar's volatility has changed over time but is normally less than the volatility of other currencies.

(True/False)

4.7/5

(72)

Question 37

Translation exposure reflects:

(Multiple Choice)

4.7/5

(93)

Question 38

Generally, MNCs with less foreign revenues than foreign costs will be affected by a foreign currency.

(Multiple Choice)

4.8/5

(78)

Question 39

Appreciation in a firm's local currency causes a(n) in cash inflows and a(n) in cash outflows.

(Multiple Choice)

4.8/5

(80)

Question 40

Showing 21 - 40 of 82

Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:

If a U.S. firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a overall impact of the Swiss franc's depreciation against the dollar on .

Which of the following operations benefits from appreciation of the firm's local currency?

Because creditors may prefer that firms maintain low exposure to exchange rate risk, and because investors may prefer corporations to perform hedging for them, exchange rate risk is probably relevant.

Translation exposure affects an MNC's cash flows.

Jenco Co. imports raw materials from Japan, invoiced in U.S. dollars. The price it pays is not expected to change for the next several years. If the Japanese yen appreciates, Jenco's imports from Japan will probably and if the Japanese yen depreciates, its imports from Japan will probably .

If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in Switzerland, the appreciation of the Swiss franc has a impact on the firm's .

Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located in Japan. Vada is subject to:

Assume that the British pound and Swiss franc are highly correlated. A U.S. firm anticipates the equivalent of $1 million cash outflows in francs and the equivalent of $1 million cash outflows in pounds. During a cycle, the firm is affected by its exposure.

Lazer Co. is a U.S. firm that exports computers to Belgium invoiced in euros and to Italy invoiced in dollars. Additionally, Lazer Co. has a subsidiary in South Korea that produces computers and sells them there. Lazer also has competitors in different countries. Lazer Co. is subject to:

Firms with more in foreign costs than in foreign revenues will be favorably affected by a stronger foreign currency.

The transaction exposure of two inflow currencies is offset when the correlation between the currencies is high.

The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:

The Canadian dollar's volatility has changed over time but is normally less than the volatility of other currencies.

Translation exposure reflects:

Generally, MNCs with less foreign revenues than foreign costs will be affected by a foreign currency.

Appreciation in a firm's local currency causes a(n) in cash inflows and a(n) in cash outflows.

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 10: Measuring Exposure to Exchange Rate Fluctuations

Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:

If a U.S. firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a ____ overall impact of the Swiss franc's depreciation against the dollar on ____.

Which of the following operations benefits from appreciation of the firm's local currency?

Because creditors may prefer that firms maintain low exposure to exchange rate risk, and because investors may prefer corporations to perform hedging for them, exchange rate risk is probably relevant.

Translation exposure affects an MNC's cash flows.

If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in Switzerland, the appreciation of the Swiss franc has a ____ impact on the firm's ____.

Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located in Japan. Vada is subject to:

Assume that the British pound and Swiss franc are highly correlated. A U.S. firm anticipates the equivalent of $1 million cash outflows in francs and the equivalent of $1 million cash outflows in pounds. During a ____ cycle, the firm is ____ affected by its exposure.

Lazer Co. is a U.S. firm that exports computers to Belgium invoiced in euros and to Italy invoiced in dollars. Additionally, Lazer Co. has a subsidiary in South Korea that produces computers and sells them there. Lazer also has competitors in different countries. Lazer Co. is subject to:

Firms with more in foreign costs than in foreign revenues will be favorably affected by a stronger foreign currency.

The transaction exposure of two inflow currencies is offset when the correlation between the currencies is high.

The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:

The Canadian dollar's volatility has changed over time but is normally less than the volatility of other currencies.

Translation exposure reflects:

Generally, MNCs with less foreign revenues than foreign costs will be ____ affected by a ____ foreign currency.

Appreciation in a firm's local currency causes a(n) ____ in cash inflows and a(n) ____ in cash outflows.

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

If a U.S. firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a overall impact of the Swiss franc's depreciation against the dollar on .

If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in Switzerland, the appreciation of the Swiss franc has a impact on the firm's .

Assume that the British pound and Swiss franc are highly correlated. A U.S. firm anticipates the equivalent of $1 million cash outflows in francs and the equivalent of $1 million cash outflows in pounds. During a cycle, the firm is affected by its exposure.

Generally, MNCs with less foreign revenues than foreign costs will be affected by a foreign currency.

Appreciation in a firm's local currency causes a(n) in cash inflows and a(n) in cash outflows.