Exam 11: Operating Exposure

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

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

Swap agreements are treated as line items on the balance sheet via U.S. accounting methods.

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.

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?

An MNE has a contract for a relatively predictable long-term inflow of Japanese yen that the firm chooses to hedge by paying for imports from Canada in Japanese yen. This hedging strategy is known as

Which of the following is NOT an example of an operating cash flow?

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

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.

A British firm and a U.S. Corporation each wish to enter into a currency swap hedging agreement. The British firm is receiving U.S. dollars from sales in the U.S. but wants pounds. The U.S. firm is receiving pounds from sales in Britain but wants dollars. Which of the following choices would best satisfy the desires of the firms?

Operating exposure

Diversifying sources of financing, regardless of the currency of denomination, can lower a firm's cost of capital and increase its availability of capital.

Risk sharing agreements were especially popular during the Bratton Woods Agreement, but lately have lost its significance in the long-term customer-supplier relationship.

Diversification as a strategic tool to manage operating exposure includes

Diversification is possibly the best technique for reducing the problems associated with international transactions. Provide one example each of international financial diversification and international operational diversification and explain how the action reduces risk.

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

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?

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