Exam 10: Operating Exposure

From an investor's perspective, if the foreign exchange market is efficient, information about expected changes in exchange rates should be widely known and thus reflected in a firm's market value. Only ________ in exchange rates or an ________ foreign exchange market, should cause market value to change.

________ risk measures the change in value of the firm that results from changes in future operating cash flows caused by unexpected changes in exchange rates.

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

Which of the following is NOT an example of diversification in financing?

Which of the following is NOT one of the commonly employed financial policies used to manage operating and transaction exposure?

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?

Most swap dealers arrange swaps so that each firm that is a party to the transaction does not know who the counterparty is.

When disequilibria in international markets occur, management can take advantage by

Which of the following is NOT a proactive policy for managing operating exposure?

The Land's Beginning Company Inc. (LBC), imports extreme condition outdoor wear and equipment from The Hudson Bay Company (HBC) located in Canada. With the steady decline of the U.S dollar against the Canadian dollar LBC is finding a continued relationship with HBC to be an increasingly difficult proposition. In response to LBC's request, HBC has proposed the following risk-sharing arrangement. First, set the current spot rate as the base rate. As long as spot rates stay within 5% (up or down) LBC will pay at the base rate. Any rate outside of the 5% range, HBC will share equally with LBC the difference between the spot rate and the base rate. If LBC has a payable of C$100,000 due today and the current spot rate is C$1.17/$, how much does LBC owe in U.S. dollars?

Contractual approaches (i.e., options and forwards) have occasionally been used to hedge operating exposure, but are costly and possibly ineffectual.

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

Which of the following is NOT an example of a financial cash flow?

After being introduced in the 1980s, currency swaps have remained a relatively insignificant financial derivative instrument.

The three main types of foreign exchange risk are

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

A ________ occurs when two business firms in separate countries arrange to borrow each other's currency for a specified period of time.

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?

Currency swaps are exclusively for periods of time under one year.

The particular strategy of trying to offset stable inflows of cash from one country with outflows of cash in the same currency is known as ________.