Question 1

Which of the following is NOT seen as a potential disadvantage to the formation of an intra-company reinvoicing center?

Accepted Answer

A)  Reinvoicing center personnel may develop expertise in the selection and implementation of foreign exchange hedging techniques. 
B)  The company must create an additional corporate unit. 
C)  Initial setup costs may be high. 
D)  A separate set of books must be kept for this new corporate division. 
A)  Reinvoicing center personnel may develop expertise in the selection and implementation of foreign exchange hedging techniques. 
B)  The company must create an additional corporate unit. 
C)  Initial setup costs may be high. 
D)  A separate set of books must be kept for this new corporate division.

Question 2

Swap agreements are treated as off-balance sheet transactions via U.S. accounting methods.

Accepted Answer

A) True 
 B)False

Question 3

An unexpected change in exchange rates impacts a firm's cash flows at what level(s)?

Accepted Answer

A)  short run 
B)  medium run (equilibrium case) 
C)  long run 
D)  all of the above 
A)  short run 
B)  medium run (equilibrium case) 
C)  long run 
D)  all of the above

Question 4

A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an ________ loan to the ________ subsidiary while effectively financing the ________ subsidiary.

Accepted Answer

A)  indirect; U.S.; Canadian 
B)  indirect; Canadian; U.S. 
C)  direct; U.S.; Canadian 
D)  direct; Canadian; U.S. 
A)  indirect; U.S.; Canadian 
B)  indirect; Canadian; U.S. 
C)  direct; U.S.; Canadian 
D)  direct; Canadian; U.S.

Question 5

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?

Accepted Answer

A)  Import raw materials from Japan denominated in yen to substitute for domestic suppliers. 
B)  Pay suppliers from other countries in yen. 
C)  Import raw materials from Japan denominated in dollars. 
D)  Acquire debt denominated in yen. 
A)  Import raw materials from Japan denominated in yen to substitute for domestic suppliers. 
B)  Pay suppliers from other countries in yen. 
C)  Import raw materials from Japan denominated in dollars. 
D)  Acquire debt denominated in yen.

Question 6

The primary method by which a firm may protect itself against operating exposure impacts is

Accepted Answer

A)  money market hedges. 
B)  diversification. 
C)  forward contract hedges. 
D)  balance sheet hedging. 
A)  money market hedges. 
B)  diversification. 
C)  forward contract hedges. 
D)  balance sheet hedging.

Question 7

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

Accepted Answer

A)  matching currency cash flows 
B)  currency swaps 
C)  remaining a purely domestic firm 
D)  parallel loans 
A)  matching currency cash flows 
B)  currency swaps 
C)  remaining a purely domestic firm 
D)  parallel loans

Question 8

In equilibrium, expected cash flow to amortize international debt obligations should reflect the ________.

Accepted Answer

A)  current spot rate 
B)  the spot rate when the loan was contracted 
C)  the international Fisher effect 
D)  none of the above 
A)  current spot rate 
B)  the spot rate when the loan was contracted 
C)  the international Fisher effect 
D)  none of the above

Question 9

Another name for operating exposure is ________ exposure.

Accepted Answer

A)  economic 
B)  competitive 
C)  strategic 
D)  all of the above 
A)  economic 
B)  competitive 
C)  strategic 
D)  all of the above

Question 10

Reinvoicing centers provide the following benefits:

Accepted Answer

A)  Aid in the management of foreign exchange exposure. 
B)  Effectively guarantee the exchange rate for future orders. 
C)  Help manage intra-subsidiary cash flows. 
D)  All of the above. 
A)  Aid in the management of foreign exchange exposure. 
B)  Effectively guarantee the exchange rate for future orders. 
C)  Help manage intra-subsidiary cash flows. 
D)  All of the above.

Question 11

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

Accepted Answer

A)  difficulty in finding an appropriate counterparty 
B)  the risk that one of the parties will fail to return the borrowed funds when agreed 
C)  the process does not avoid exchange rate risk 
D)  All of the above are significant impediments. 
A)  difficulty in finding an appropriate counterparty 
B)  the risk that one of the parties will fail to return the borrowed funds when agreed 
C)  the process does not avoid exchange rate risk 
D)  All of the above are significant impediments.

Question 12

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

Accepted Answer

A)  domestic firms lack comparative data from its own sources. 
B)  international firms are already so large. 
C)  all of the domestic firm's raw materials are imported. 
D)  None of the above. Domestic firms are not at a disadvantage. 
A)  domestic firms lack comparative data from its own sources. 
B)  international firms are already so large. 
C)  all of the domestic firm's raw materials are imported. 
D)  None of the above. Domestic firms are not at a disadvantage.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

An advantage of international diversification is the

Accepted Answer

A)  reduction in the variability of future cash flows due to domestic business cycles. 
B)  increase in the availability of capital. 
C)  diversification of political risk. 
D)  all of the above. 
A)  reduction in the variability of future cash flows due to domestic business cycles. 
B)  increase in the availability of capital. 
C)  diversification of political risk. 
D)  all of the above.

Question 15

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

Accepted Answer

A)  borrow money in the foreign currency in question 
B)  lend money in the foreign currency in question 
C)  rely on the Federal Reserve Board to enact monetary policy favorable to your exposure risk 
D)  none of the above 
A)  borrow money in the foreign currency in question 
B)  lend money in the foreign currency in question 
C)  rely on the Federal Reserve Board to enact monetary policy favorable to your exposure risk 
D)  none of the above

Question 16

When an enterprise has a receivable or payable denominated in a foreign currency and settlement of the obligation has not yet taken place, that firm is said to have ________ exposure.

Accepted Answer

A)  accounting 
B)  operating 
C)  tax 
D)  transaction 
A)  accounting 
B)  operating 
C)  tax 
D)  transaction

Question 17

Under conditions of equilibrium, management would use ________ exchange rate as an unbiased predictor of future spot rates when preparing operating budgets.

Accepted Answer

A)  the current spot 
B)  the forward rate 
C)  the black market 
D)  none of the above 
A)  the current spot 
B)  the forward rate 
C)  the black market 
D)  none of the above

Question 18

Which of the following is not an operating cash flow?

Accepted Answer

A)  intra-firm payable 
B)  account receivable from an unrelated party 
C)  interest payment by a subsidiary to a parent company 
D)  account payable to a foreign subsidiary 
A)  intra-firm payable 
B)  account receivable from an unrelated party 
C)  interest payment by a subsidiary to a parent company 
D)  account payable to a foreign subsidiary

Question 19

A British firm has a subsidiary in the U.S., and a U.S. firm, known to the British firm, has a subsidiary in Britain. Define and then provide an example for each of the following management techniques for reducing the firm's operating cash flows. The following are techniques to consider:
(a) matching currency cash flows
(b) risk-sharing agreements
(c) back-to-back or parallel loans

Accepted Answer

Matching currency cash flows requires th

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 10: Operating Exposure

Which of the following is NOT seen as a potential disadvantage to the formation of an intra-company reinvoicing center?

Swap agreements are treated as off-balance sheet transactions via U.S. accounting methods.

An unexpected change in exchange rates impacts a firm's cash flows at what level(s)?

A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an ________ loan to the ________ subsidiary while effectively financing the ________ subsidiary.

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?

The primary method by which a firm may protect itself against operating exposure impacts is

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

In equilibrium, expected cash flow to amortize international debt obligations should reflect the ________.

Another name for operating exposure is ________ exposure.

Reinvoicing centers provide the following benefits:

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

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

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

An advantage of international diversification is the

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

When an enterprise has a receivable or payable denominated in a foreign currency and settlement of the obligation has not yet taken place, that firm is said to have ________ exposure.

Under conditions of equilibrium, management would use ________ exchange rate as an unbiased predictor of future spot rates when preparing operating budgets.

Which of the following is not an operating cash flow?

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

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters

A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an loan to the subsidiary while effectively financing the subsidiary.