Exam 12: Operating Exposure

Which of the following is NOT an example of a form of political risk that might be avoided or reduced by foreign exchange risk management?

An MNE has a contract for a relatively predictable long-term inflow of Japanese yen that the firm chooses to hedge by seeking out potential suppliers in Japan. This hedging strategy is referred to as:

Simpson Sign Company based in Frostbite Falls, Minnesota has a 6-month C$100,000 contract to complete sign work in Winnipeg, Manitoba, Canada. The current spot rate is $1.02/C$ and the forward rate is $1.01/C$. Under conditions of equilibrium, management would use ________ today when preparing operating budgets.

A ________ is the term used to describe a foreign currency agreement between two parties to exchange a given amount of one currency for another, and after a period of time, to give back the original amounts.

Purely domestic firms will be at a disadvantage to MNEs in the event of market disequilibria because:

Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?

If a firm diversifies its financing sources, it will be pre-positioned to take advantage of temporary deviations from the International Fisher Effect.

Which of the following is NOT identified by your authors as a proactive management technique to reduce exposure to foreign exchange risk?

A ________ resembles a back-to-back loan except that it does not appear on a firm's balance sheet.

Even though contracts are often fixed in the short run, as time passes, prices and costs can be changed to reflect the new competitive realities caused by a change in exchange rates.

Most swap dealers arrange swaps so that each firm that is a party to the transaction knows who the counterparty is.

Another name for operating exposure is ________ exposure.

The strategy management undertakes in response to unexpected changes in exchange rates depends to a large measure on their opinion about the price elasticity of demand.

Management must be able to predict disequilibria in international markets to take advantage of diversification strategies.

Costs associated with the purchase of sizeable put options positions include each of the following EXCEPT:

Which of the following is probably NOT an advantage of foreign exchange risk management?

Which one of the following management techniques is likely to best offset the risk of long-run exposure to receivables denominated in a particular foreign currency?

________ exposure is far more important for the long-run health of a business than changes caused by ________ or ________ exposure.

Which of the following is NOT an important impediment to widespread use of parallel loans?

Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors.