Question 1

The three main types of foreign exchange risk are

Accepted Answer

A)  operating, transaction, and translation. 
B)  translation, accounting, and operating. 
C)  transaction, accounting, and translation. 
D)  operating, currency, and market. 
A)  operating, transaction, and translation. 
B)  translation, accounting, and operating. 
C)  transaction, accounting, and translation. 
D)  operating, currency, and market. A

Question 2

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. B

Question 3

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

Accepted Answer

A)  matching currency of cash flow 
B)  back-to-back loans 
C)  cross currency swap agreements 
D)  All of the above are proactive management policies for operating exposure. 
A)  matching currency of cash flow 
B)  back-to-back loans 
C)  cross currency swap agreements 
D)  All of the above are proactive management policies for operating exposure. D

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Operating exposure referred to as MEDIUM RUN: EQUILIBRIUM has which of the following set of characteristics?

Accepted Answer

A)  It lasts two to five years, has complete pass-through of exchange rate changes, and existing competitors begin partial responses. 
B)  It lasts for less than one year, has partial pass-through of exchange rate changes, and existing competitors begin partial responses. 
C)  It lasts for more than five years, has partial pass-through of exchange rate changes, and existing competitors begin partial responses. 
D)  It lasts two to five years, has partial pass-through of exchange rate changes, and existing competitors begin partial responses. 
A)  It lasts two to five years, has complete pass-through of exchange rate changes, and existing competitors begin partial responses. 
B)  It lasts for less than one year, has partial pass-through of exchange rate changes, and existing competitors begin partial responses. 
C)  It lasts for more than five years, has partial pass-through of exchange rate changes, and existing competitors begin partial responses. 
D)  It lasts two to five years, has partial pass-through of exchange rate changes, and existing competitors begin partial responses.

Question 6

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

Accepted Answer

A)  natural hedge loan 
B)  forward loan 
C)  currency switch loan 
D)  back-to-back loan 
A)  natural hedge loan 
B)  forward loan 
C)  currency switch loan 
D)  back-to-back loan

Question 7

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

Accepted Answer

A)  a natural hedge. 
B)  currency-switching. 
C)  matching. 
D)  diversification. 
A)  a natural hedge. 
B)  currency-switching. 
C)  matching. 
D)  diversification.

Question 8

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 9

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?

Accepted Answer

A)  borrow money in the foreign currency in question 
B)  lend money in the foreign currency in question 
C)  increase sales to that country 
D)  increase sales in this country 
A)  borrow money in the foreign currency in question 
B)  lend money in the foreign currency in question 
C)  increase sales to that country 
D)  increase sales in this country

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

A U.S. timber products firm has a long-term contract to import unprocessed logs from Canada. To avoid occasional and unpredictable changes in the exchange rate between the U.S. dollar and the Canadian dollar, the firms agree to split between the two firms the impact of any exchange rate movement. This type of agreement is referred to as

Accepted Answer

A)  risk-sharing. 
B)  currency-switching. 
C)  matching. 
D)  a natural hedge. 
A)  risk-sharing. 
B)  currency-switching. 
C)  matching. 
D)  a natural hedge.

Question 13

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

Accepted Answer

A)  raising funds in more than one market 
B)  raising funds in more than one country 
C)  diversifying sales 
D)  All of the above qualify. 
A)  raising funds in more than one market 
B)  raising funds in more than one country 
C)  diversifying sales 
D)  All of the above qualify.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

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 18

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 19

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

Accepted Answer

A)  the reduction of the variability of cash flows due to domestic business cycles 
B)  increased availability of capital 
C)  reduced cost of capital 
D)  All of the above are potential advantages of foreign exchange risk management. 
A)  the reduction of the variability of cash flows due to domestic business cycles 
B)  increased availability of capital 
C)  reduced cost of capital 
D)  All of the above are potential advantages of foreign exchange risk management.

Question 20

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

The three main types of foreign exchange risk are

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

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

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

Operating exposure referred to as MEDIUM RUN: EQUILIBRIUM has which of the following set of characteristics?

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

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

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

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?

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.

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

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

Another name for operating exposure is ________ exposure.

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

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

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

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

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

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Exam 11: Operating Exposure

The three main types of foreign exchange risk are

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

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

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

Operating exposure referred to as MEDIUM RUN: EQUILIBRIUM has which of the following set of characteristics?

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

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

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

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?

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.

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

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

Another name for operating exposure is ________ exposure.

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

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

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

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

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters