Question 1

Operating exposure can be managed by:

Accepted Answer

A)  flexible sourcing policy. 
B)  diversification of the market. 
C)  financial hedging. 
D)  all of these. 
A)  flexible sourcing policy. 
B)  diversification of the market. 
C)  financial hedging. 
D)  all of these. D

Question 2

The table below depicts the three possible values of future spot exchange rate and your foreign assets.You used the simple regression model to estimate of the effect of the exchange rate on the assets' value.Find the estimated slope of this regression b. State Prob.P* S($/£)P(=SP*)
1 1/3 £1059 1.7 $1,800
2 1/3 £1,000 1.8 $1,800
3 1/3 £947 1.9 $1,800

Accepted Answer

A)  -167 
B)  0 
C)  c: 167 
D)  250 
A)  -167 
B)  0 
C)  c: 167 
D)  250 B

Question 3

Which of the following is not a strategy for managing operating exposure:

Accepted Answer

A)  Financial hedging. 
B)  Diversification of the market. 
C)  Lowering sale prices. 
D)  Product differentiation. 
A)  Financial hedging. 
B)  Diversification of the market. 
C)  Lowering sale prices. 
D)  Product differentiation. C

Question 4

Exposure to currency risk can be measured by the sensitivities of:

Accepted Answer

A)  the future foreign currency values of the firm's assets and liabilities. 
B)  the firm's operating cash flows to specific changes in exchange rates. 
C)  the future home currency values of the firm's assets and liabilities. 
D)  None of these. 
A)  the future foreign currency values of the firm's assets and liabilities. 
B)  the firm's operating cash flows to specific changes in exchange rates. 
C)  the future home currency values of the firm's assets and liabilities. 
D)  None of these.

Question 5

Banff Inc.is headquartered in Calgary and produces high-end living room furniture.The firm has a subsidiary in Germany.The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany.The German subsidiary then upholsters the sofas using Belgium fabrics.Each frame costs the subsidiary C$1,500.The materials and labour for the upholstery amount to euro 2,000 per sofa.Fixed overhead costs are euro 1,500,000 for the subsidiary.Banff Inc.expects to be able to sell 3,000 Sofas for 5,000 euros each.The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%.The current exchange rate is C$1.5/euro.How would the operating cash flows (expressed in Canadian dollars)change if the exchange rate is C$1.4/euro,all else equal?

Accepted Answer

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Question 6

A Canadian firm holds an asset in France and faces the following scenario:
$\begin{array} { l l l l } 
\hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \
\hline \text { Probability } & 20 \% & 50 \% & 30 \% \
\text { Spot rate } & \$ 1.6 / \text { euro } & \$ 1.65 / \text { euro } & \$ 1.70 / \text { euro } \
\begin{array} { l } 
\text { Price of the euro- } \
\text { asset }
\end{array} & \text { euro } 2,000 & \text { euro } 3,000 & \text { euro 4,000 }
\end{array}$
-The variance of the exchange rate is:

Accepted Answer

A)  0.001225 
B)  0.056058 
C)  0.075058 
D)  0.085058 
A)  0.001225 
B)  0.056058 
C)  0.075058 
D)  0.085058

Question 7

How can operating exposure be managed?

Accepted Answer

The object of managing operating exposur

Question 8

The exposure coefficient,b,is defined as:

Accepted Answer

A)  Cov (P, S)/Cov (S). 
B)  Cov (P, S)/Var (S). 
C)  Var (S)/Cov (P,S). 
D)  Cov (P, S)/Var (P). 
A)  Cov (P, S)/Cov (S). 
B)  Cov (P, S)/Var (S). 
C)  Var (S)/Cov (P,S). 
D)  Cov (P, S)/Var (P).

Question 9

Operating exposure can be defined as:

Accepted Answer

A)  the future home currency values of the firm's assets and liabilities. 
B)  the extent to which the firm's operating cash flows would be affected by random changes in exchange rates. 
C)  the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. 
D)  the potential that the firm's consolidated financial statement can be affected by changes in exchange rates. 
A)  the future home currency values of the firm's assets and liabilities. 
B)  the extent to which the firm's operating cash flows would be affected by random changes in exchange rates. 
C)  the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. 
D)  the potential that the firm's consolidated financial statement can be affected by changes in exchange rates.

Question 10

Which of the following statements is true?

Accepted Answer

A)  Exchange rate exposure on a foreign asset can be eliminated completely via hedging in all cases. 
B)  Exchange rate exposure on a foreign asset can be eliminated completely via hedging if the value of the foreign asset is fixed. 
C)  Exchange rate exposure on a foreign asset can be eliminated completely via hedging if the value of the foreign asset is variable. 
D)  Exchange rate exposure on a foreign asset can never be eliminated completely. 
A)  Exchange rate exposure on a foreign asset can be eliminated completely via hedging in all cases. 
B)  Exchange rate exposure on a foreign asset can be eliminated completely via hedging if the value of the foreign asset is fixed. 
C)  Exchange rate exposure on a foreign asset can be eliminated completely via hedging if the value of the foreign asset is variable. 
D)  Exchange rate exposure on a foreign asset can never be eliminated completely.

Question 11

The variability of the dollar value of an asset (invested overseas)depends on:

Accepted Answer

A)  the variability of the dollar value of the asset that is related to specific changes in the exchange rate. 
B)  the dollar value variability that is dependent on the exchange rate movements. 
C)  the dollar value variability that is independent of exchange rate movements. 
D)  None of these. 
A)  the variability of the dollar value of the asset that is related to specific changes in the exchange rate. 
B)  the dollar value variability that is dependent on the exchange rate movements. 
C)  the dollar value variability that is independent of exchange rate movements. 
D)  None of these.

Question 12

Banff Inc.is headquartered in Calgary and produces high-end living room furniture.The firm has a subsidiary in Germany.The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany.The German subsidiary then upholsters the sofas using Belgium fabrics.Each frame costs the subsidiary C$1,500.The materials and labour for the upholstery amount to euro 2,000 per sofa.Fixed overhead costs are euro 1,500,000 for the subsidiary.Banff Inc.expects to be able to sell 3,000 Sofas for 5,000 euros each.The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%.The current exchange rate is C$1.5/euro.How would the operating cash flows (expressed in Canadian dollars)change if the exchange rate is C$1.4/euro,the German inflation rate is 3% but the firm will not be able to raise the price for its products and due to new competition from the Russian market (with a more favorable exchange rate)unit sales drop to 2,500?

Accepted Answer

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Question 13

A U.S. firm holds an asset in Israel and faces the following scenario:
$\begin{array} { l l l l } 
\hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \
\hline \text { Probability } & 25 \% & 50 ^ { \circ } \text { o } & 25 \% \
\text { Spot rate } & \$ 0.30 \text { ILS } & \text { \$0.20 ILS } & \$ 0.15 / \text { ILS } \
\text { P* } & \text { ILS2,000 } & \text { ILS5,000 } & \text { ILS3,000 } \
\text { P } & \$ 3,000 & \text { \$2.500 } & \text { \$750 }
\end{array}$
where,
P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm
P = dollar price of the same asset

-The expected value of the investment in U.S.dollars is: (Do not round intermediate calculations):

Accepted Answer

A)  $2,083.33. 
B)  $2,187.50. 
C)  $6,250.00. 
D)  $6,562.50. 
A)  $2,083.33. 
B)  $2,187.50. 
C)  $6,250.00. 
D)  $6,562.50.

Question 14

A firm's operating exposure is:

Accepted Answer

A)  defined as the extent to which the firm's operating cash flows would be affected by the random changes in exchange rates. 
B)  determined by the structure of the markets in which the firm sources its inputs, such as labor and materials, and sells its products. 
C)  determined by the firm's ability to mitigate the effect of exchange rate changes by adjusting its markets, product mix, and sourcing. 
D)  all of these 
A)  defined as the extent to which the firm's operating cash flows would be affected by the random changes in exchange rates. 
B)  determined by the structure of the markets in which the firm sources its inputs, such as labor and materials, and sells its products. 
C)  determined by the firm's ability to mitigate the effect of exchange rate changes by adjusting its markets, product mix, and sourcing. 
D)  all of these

Question 15

The dollar operating cash flows following a depreciation of a foreign currency may change for the following reasons:

Accepted Answer

A)  the conversion effect. 
B)  the competitive effect. 
C)  the conversion effect and the conversion effect. 
D)  None of these. 
A)  the conversion effect. 
B)  the competitive effect. 
C)  the conversion effect and the conversion effect. 
D)  None of these.

Question 16

After the appreciation of the Canadian dollar,firm ABC loses market share in the United States because American firms can sell their products at a lower price.This is an example of:

Accepted Answer

A)  Competitive effect. 
B)  Conversion effect. 
C)  Exchange rate effect. 
D)  Unfair competition. 
A)  Competitive effect. 
B)  Conversion effect. 
C)  Exchange rate effect. 
D)  Unfair competition.

Question 17

A Canadian firm holds an asset in France and faces the following scenario:
$\begin{array} { l l l l } 
\hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \
\hline \text { Probability } & 20 \% & 50 \% & 30 \% \
\text { Spot rate } & \$ 1.6 / \text { euro } & \$ 1.65 / \text { euro } & \$ 1.70 / \text { euro } \
\begin{array} { l } 
\text { Price of the euro- } \
\text { asset }
\end{array} & \text { euro } 2,000 & \text { euro } 3,000 & \text { euro 4,000 }
\end{array}$
-The "exposure" (i.e.the regression coefficient beta)is:

Accepted Answer

A)  67.97 
B)  679.78 
C)  6797.80 
D)  None of these. 
A)  67.97 
B)  679.78 
C)  6797.80 
D)  None of these.

Question 18

It is conventional to classify foreign currency exposures into the following types:

Accepted Answer

A)  economic exposure, transaction exposure, and translation exposure. 
B)  economic exposure, non-economic exposure, and political exposure. 
C)  national exposure, international exposure, and trade exposure. 
D)  conversion exposure, and exchange exposure. 
A)  economic exposure, transaction exposure, and translation exposure. 
B)  economic exposure, non-economic exposure, and political exposure. 
C)  national exposure, international exposure, and trade exposure. 
D)  conversion exposure, and exchange exposure.

Question 19

A Canadian firm holds an asset in France and faces the following scenario:
$\begin{array} { l l l l } 
\hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \
\hline \text { Probability } & 20 \% & 50 \% & 30 \% \
\text { Spot rate } & \$ 1.6 / \text { euro } & \$ 1.65 / \text { euro } & \$ 1.70 / \text { euro } \
\begin{array} { l } 
\text { Price of the euro- } \
\text { asset }
\end{array} & \text { euro } 2,000 & \text { euro } 3,000 & \text { euro 4,000 }
\end{array}$
-The expected value of the investment in Canadian dollars is:

Accepted Answer

A)  $3,000. 
B)  $4,950. 
C)  $5,155. 
D)  $5,550. 
A)  $3,000. 
B)  $4,950. 
C)  $5,155. 
D)  $5,550.

Question 20

Economic exposure refers to:

Accepted Answer

A)  the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. 
B)  the extent to which the value of the firm would be affected by unanticipated changes in exchange rate. 
C)  the potential that the firm's consolidated financial statement can be affected by changes in exchange rates. 
D)  ex post and ex ante currency exposures. 
A)  the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. 
B)  the extent to which the value of the firm would be affected by unanticipated changes in exchange rate. 
C)  the potential that the firm's consolidated financial statement can be affected by changes in exchange rates. 
D)  ex post and ex ante currency exposures.

Operating exposure can be managed by:

Which of the following is not a strategy for managing operating exposure:

Exposure to currency risk can be measured by the sensitivities of:

A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 Probability 20\% 50\% 30\% Spot rate \ 1.6/ euro \ 1.65/ euro \ 1.70/ euro Price of the euro- asset euro 2,000 euro 3,000 euro 4,000 -The variance of the exchange rate is:

How can operating exposure be managed?

The exposure coefficient,b,is defined as:

Operating exposure can be defined as:

Which of the following statements is true?

The variability of the dollar value of an asset (invested overseas)depends on:

A firm's operating exposure is:

The dollar operating cash flows following a depreciation of a foreign currency may change for the following reasons:

After the appreciation of the Canadian dollar,firm ABC loses market share in the United States because American firms can sell their products at a lower price.This is an example of:

A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 Probability 20\% 50\% 30\% Spot rate \ 1.6/ euro \ 1.65/ euro \ 1.70/ euro Price of the euro- asset euro 2,000 euro 3,000 euro 4,000 -The "exposure" (i.e.the regression coefficient beta)is:

It is conventional to classify foreign currency exposures into the following types:

A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 Probability 20\% 50\% 30\% Spot rate \ 1.6/ euro \ 1.65/ euro \ 1.70/ euro Price of the euro- asset euro 2,000 euro 3,000 euro 4,000 -The expected value of the investment in Canadian dollars is:

Economic exposure refers to:

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Futures and Options on Foreign Exchange

Interest Rate and Currency Swaps

International Portfolio Investment

Management of Transaction Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

Exports and Imports

International Tax Environment

Corporate Governance Around the World

Filters

Exam 12: Management of Economic Exposure

Operating exposure can be managed by:

Which of the following is not a strategy for managing operating exposure:

Exposure to currency risk can be measured by the sensitivities of:

A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 Probability 20\% 50\% 30\% Spot rate \ 1.6/ euro \ 1.65/ euro \ 1.70/ euro Price of the euro- asset euro 2,000 euro 3,000 euro 4,000 -The variance of the exchange rate is:

How can operating exposure be managed?

The exposure coefficient,b,is defined as:

Operating exposure can be defined as:

Which of the following statements is true?

The variability of the dollar value of an asset (invested overseas)depends on:

A firm's operating exposure is:

The dollar operating cash flows following a depreciation of a foreign currency may change for the following reasons:

After the appreciation of the Canadian dollar,firm ABC loses market share in the United States because American firms can sell their products at a lower price.This is an example of:

A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 Probability 20\% 50\% 30\% Spot rate \ 1.6/ euro \ 1.65/ euro \ 1.70/ euro Price of the euro- asset euro 2,000 euro 3,000 euro 4,000 -The "exposure" (i.e.the regression coefficient beta)is:

It is conventional to classify foreign currency exposures into the following types:

A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 Probability 20\% 50\% 30\% Spot rate \ 1.6/ euro \ 1.65/ euro \ 1.70/ euro Price of the euro- asset euro 2,000 euro 3,000 euro 4,000 -The expected value of the investment in Canadian dollars is:

Economic exposure refers to:

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Futures and Options on Foreign Exchange

Interest Rate and Currency Swaps

International Portfolio Investment

Management of Transaction Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

Exports and Imports

International Tax Environment

Corporate Governance Around the World

Filters