Question 1

In recent years,the U.S.dollar has depreciated substantially against most major currencies of the world,especially against the euro.

Accepted Answer

A) The stronger euro has made many European products more expensive in dollar terms, hurting sales of these products in the United States. 
B) The stronger euro has made many American products less expensive in euro terms, boosting sales of U.S.products in Europe. 
C) Both a) and b) 
D) None of the above 
A) The stronger euro has made many European products more expensive in dollar terms, hurting sales of these products in the United States. 
B) The stronger euro has made many American products less expensive in euro terms, boosting sales of U.S.products in Europe. 
C) Both a) and b) 
D) None of the above

Question 2

In the figure below,label curves A and B respectively,

Accepted Answer

A) unhedged, hedged. 
B) hedged, unhedged. 
C) normal, abnormal. 
D) none of the above 
A) unhedged, hedged. 
B) hedged, unhedged. 
C) normal, abnormal. 
D) none of the above

Question 3

Investments in R&D

Accepted Answer

A) are usually a waste of time and money. 
B) can allow the firm to maintain and strengthen its competitive position. 
C) can allow the firm to cut costs and enhance productivity. 
D) both b) and c) 
A) are usually a waste of time and money. 
B) can allow the firm to maintain and strengthen its competitive position. 
C) can allow the firm to cut costs and enhance productivity. 
D) both b) and c)

Question 4

Suppose a U.S.firm has an asset in Britain whose local currency price is random.For simplicity,suppose there are only three states of the world and each state is equally likely to occur.The future local currency price of this British asset (P*)as well as the future exchange rate (S)will be determined,depending on the realized state of the world.   Which of the following statements is most correct?

Accepted Answer

A) The firm faces no exchange rate risk since the local currency price of the asset and the exchange rate are negatively correlated. 
B) The firm faces substantial exchange rate risk since the local currency price of the asset and the exchange rate are positively correlated. 
C) The firm's exchange rate exposure can be completely hedged with derivatives written on the British pound. 
D) Since randomness is involved, no hedging is possible. 
A) The firm faces no exchange rate risk since the local currency price of the asset and the exchange rate are negatively correlated. 
B) The firm faces substantial exchange rate risk since the local currency price of the asset and the exchange rate are positively correlated. 
C) The firm's exchange rate exposure can be completely hedged with derivatives written on the British pound. 
D) Since randomness is involved, no hedging is possible.

Question 5

While maintaining multiple production sites does provide a firm valuable options,

Accepted Answer

A) a firm may miss out on economies of scope. 
B) a firm may miss out on economies of scale. 
C) a firm may find that exchange rate changes can fully offset the advantage of multiple manufacturing sites. 
D) both a) and b) 
A) a firm may miss out on economies of scope. 
B) a firm may miss out on economies of scale. 
C) a firm may find that exchange rate changes can fully offset the advantage of multiple manufacturing sites. 
D) both a) and b)

Question 6

Which of the following is a true statement?

Accepted Answer

A) As long as exchange rates do not always move in the same direction, the firm can stabilize its operating cash flows by diversifying its export market. 
B) The firm should not get into new lines of business solely to diversify exchange risk because conglomerate expansion can bring about inefficiency and losses. 
C) All of the above are true 
D) None of the above are true 
A) As long as exchange rates do not always move in the same direction, the firm can stabilize its operating cash flows by diversifying its export market. 
B) The firm should not get into new lines of business solely to diversify exchange risk because conglomerate expansion can bring about inefficiency and losses. 
C) All of the above are true 
D) None of the above are true

Question 7

Before you can use the hedging strategies such as a forward market hedge,options market hedge,and so on,you should consider running a regression of the form   .When reviewing the output,you should initially focus on

Accepted Answer

A) the intercept a. 
B) the slope coefficient b. 
C) mean square error, MSE. 
D) R2. 
A) the intercept a. 
B) the slope coefficient b. 
C) mean square error, MSE. 
D) R2.

Question 8

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 random changes in the exchange rate. 
B) the dollar value variability that is independent of exchange rate movements. 
C) both a) and b) 
D) none of the above 
A) the variability of the dollar value of the asset that is related to random changes in the exchange rate. 
B) the dollar value variability that is independent of exchange rate movements. 
C) both a) and b) 
D) none of the above

Question 9

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression

Accepted Answer

A) -25,000 
B) 2,5000 
C) -2,500 
D) none of the above 
A) -25,000 
B) 2,5000 
C) -2,500 
D) none of the above

Question 10

Which of the following would be an effective hedge?

Accepted Answer

A) Sell 53 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time zero. 
B) Buy 53 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time zero. 
C) Sell 12,898 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time zero. 
D) None of the above 
A) Sell 53 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time zero. 
B) Buy 53 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time zero. 
C) Sell 12,898 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time zero. 
D) None of the above

Question 11

What does it mean to have redenominated an asset in terms of the dollar?

Accepted Answer

A) You have undertaken a hedging strategy that gives the asset a constant dollar value. 
B) Multiply the foreign currency value of the asset by the spot exchange rate. 
C) Undertaken accounting changes to eliminate translation exposure. 
D) None of the above 
A) You have undertaken a hedging strategy that gives the asset a constant dollar value. 
B) Multiply the foreign currency value of the asset by the spot exchange rate. 
C) Undertaken accounting changes to eliminate translation exposure. 
D) None of the above

Question 12

Operating exposure can be defined as

Accepted Answer

A) the link between the future home currency values of the firm's assets and liabilities and exchange rate fluctuations. 
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 link between the future home currency values of the firm's assets and liabilities and exchange rate fluctuations. 
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 13

A firm that is committed to keeping manufacturing facilities in only the home country (and not developing multiple production sites in a variety of countries)can

Accepted Answer

A) lessen the effect of exchange rate changes by pursuing a strategy of diversifying the markets in which the firm's products are sold. 
B) not mitigate the effects of exchange rate changes. 
C) lessen the effect of exchange rate changes by pursuing a strategy of selling commodity products without product differentiation. 
D) pursue a strategy of increasing its products price elasticity of demand. 
A) lessen the effect of exchange rate changes by pursuing a strategy of diversifying the markets in which the firm's products are sold. 
B) not mitigate the effects of exchange rate changes. 
C) lessen the effect of exchange rate changes by pursuing a strategy of selling commodity products without product differentiation. 
D) pursue a strategy of increasing its products price elasticity of demand.

Question 14

A U.S.firm holds an asset in Great Britain and faces the following scenario:   Where P* = Pound sterling price of the asset held by the U.S.firm
The CFO decides to hedge his exposure by selling forward the expected value of the pound denominated cash flow at F1($/£)= $2/£.As a result

Accepted Answer

A) The firm's exposure to the exchange rate is made worse. 
B) He has a nearly perfect hedge. 
C) He has a perfect hedge. 
D) None of the above 
A) The firm's exposure to the exchange rate is made worse. 
B) He has a nearly perfect hedge. 
C) He has a perfect hedge. 
D) None of the above

Question 15

What is the objective of managing operating exposure?

Accepted Answer

A) Stabilize accounting results in the face of fluctuating exchange rates. 
B) Selecting low cost production sites. 
C) Increase the variability of cash flows in the face of fluctuating exchange rates. 
D) None of the above 
A) Stabilize accounting results in the face of fluctuating exchange rates. 
B) Selecting low cost production sites. 
C) Increase the variability of cash flows in the face of fluctuating exchange rates. 
D) None of the above

Question 16

A U.S. firm holds an asset in Great Britain and faces the following scenario:   where,
P* = Pound sterling price of the asset held by the U.S. firm
P = Dollar price of the same asset
-The variance of the exchange rate is:

Accepted Answer

A) 0.0200 
B) 0.10 
C) 0.002 
D) none of the above 
A) 0.0200 
B) 0.10 
C) 0.002 
D) none of the above

Question 17

Currency risk

Accepted Answer

A) is the same as currency exposure. 
B) represents random changes in exchange rates. 
C) measure "what the firm has at risk." 
D) both a) and b) 
A) is the same as currency exposure. 
B) represents random changes in exchange rates. 
C) measure "what the firm has at risk." 
D) both a) and b)

Question 18

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression

Accepted Answer

A) -52.6316 
B) 1,289.80 
C) 12,898.00 
D) none of the above 
A) -52.6316 
B) 1,289.80 
C) 12,898.00 
D) none of the above

Question 19

The firm may not be able to pass through changes in the exchange rate

Accepted Answer

A) in markets with low product differentiation. 
B) in markets with high price elasticities. 
C) both a) and b) 
D) none of the above 
A) in markets with low product differentiation. 
B) in markets with high price elasticities. 
C) both a) and b) 
D) none of the above

Question 20

Consider a U.S.-based MNC with a wholly-owned German subsidiary.Following a depreciation of the dollar against the euro,which of the following describes the conversion effect of the depreciation?

Accepted Answer

A) The cash flow in euro could be altered due a change in the firm's competitive position in the marketplace. 
B) A given operating cash flow in euro will be translated to a higher U.S.dollar cash flow. 
C) Both a) and b) 
D) None of the above 
A) The cash flow in euro could be altered due a change in the firm's competitive position in the marketplace. 
B) A given operating cash flow in euro will be translated to a higher U.S.dollar cash flow. 
C) Both a) and b) 
D) None of the above

In recent years,the U.S.dollar has depreciated substantially against most major currencies of the world,especially against the euro.

In the figure below,label curves A and B respectively,

Investments in R&D

While maintaining multiple production sites does provide a firm valuable options,

Which of the following is a true statement?

Before you can use the hedging strategies such as a forward market hedge,options market hedge,and so on,you should consider running a regression of the form .When reviewing the output,you should initially focus on

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

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression

Which of the following would be an effective hedge?

What does it mean to have redenominated an asset in terms of the dollar?

Operating exposure can be defined as

A firm that is committed to keeping manufacturing facilities in only the home country (and not developing multiple production sites in a variety of countries)can

A U.S.firm holds an asset in Great Britain and faces the following scenario: Where P* = Pound sterling price of the asset held by the U.S.firm The CFO decides to hedge his exposure by selling forward the expected value of the pound denominated cash flow at F₁($/£)= $2/£.As a result

What is the objective of managing operating exposure?

A U.S. firm holds an asset in Great Britain and faces the following scenario: where, P* = Pound sterling price of the asset held by the U.S. firm P = Dollar price of the same asset -The variance of the exchange rate is:

Currency risk

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression

The firm may not be able to pass through changes in the exchange rate

Consider a U.S.-based MNC with a wholly-owned German subsidiary.Following a depreciation of the dollar against the euro,which of the following describes the conversion effect of the depreciation?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 9: Management of Economic Exposure

In recent years,the U.S.dollar has depreciated substantially against most major currencies of the world,especially against the euro.

In the figure below,label curves A and B respectively,

Investments in R&D

While maintaining multiple production sites does provide a firm valuable options,

Which of the following is a true statement?

Before you can use the hedging strategies such as a forward market hedge,options market hedge,and so on,you should consider running a regression of the form .When reviewing the output,you should initially focus on

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

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression

Which of the following would be an effective hedge?

What does it mean to have redenominated an asset in terms of the dollar?

Operating exposure can be defined as

A firm that is committed to keeping manufacturing facilities in only the home country (and not developing multiple production sites in a variety of countries)can

A U.S.firm holds an asset in Great Britain and faces the following scenario: Where P* = Pound sterling price of the asset held by the U.S.firm The CFO decides to hedge his exposure by selling forward the expected value of the pound denominated cash flow at F1($/£)= $2/£.As a result

What is the objective of managing operating exposure?

A U.S. firm holds an asset in Great Britain and faces the following scenario: where, P* = Pound sterling price of the asset held by the U.S. firm P = Dollar price of the same asset -The variance of the exchange rate is:

Currency risk

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression

The firm may not be able to pass through changes in the exchange rate

Consider a U.S.-based MNC with a wholly-owned German subsidiary.Following a depreciation of the dollar against the euro,which of the following describes the conversion effect of the depreciation?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

A U.S.firm holds an asset in Great Britain and faces the following scenario: Where P* = Pound sterling price of the asset held by the U.S.firm The CFO decides to hedge his exposure by selling forward the expected value of the pound denominated cash flow at F₁($/£)= $2/£.As a result