Question 1

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.

Question 2

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 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

Managing operating exposure

Accepted Answer

A) is a short-term tactical issue. 
B) is a long-term issue, like selecting a site for a factory. 
C) is relatively unimportant, since most MNCs have a built-in hedge. 
D) none of the above 
A) is a short-term tactical issue. 
B) is a long-term issue, like selecting a site for a factory. 
C) is relatively unimportant, since most MNCs have a built-in hedge. 
D) none of the above

Question 5

Which of the following can a company use to manage operating exposure?

Accepted Answer

A) Selecting low-cost production sites, diversifying the market. 
B) Low cost production sites, but not financial hedging. 
C) Pursuing a flexible sourcing policy, product differentiation, R& D efforts. 
D) Both a and c. 
A) Selecting low-cost production sites, diversifying the market. 
B) Low cost production sites, but not financial hedging. 
C) Pursuing a flexible sourcing policy, product differentiation, R& D efforts. 
D) Both a and c.

Question 6

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 7

The variance of the exchange rate is:

Accepted Answer

A) 0.001968 
B) 0.002969 
C) 0.003968 
D) 0.004968 
A) 0.001968 
B) 0.002969 
C) 0.003968 
D) 0.004968

Question 8

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 9

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 $P = a + b \times S + e$ .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 10

Compute the variance of the dollar value of your property that is attributable to exchange rate uncertainty.

Accepted Answer

The answer of Compute the variance of the dollar value...

Question 11

The expected value of the investment in U.S.dollars is:

Accepted Answer

A) $5,050 
B) $3,700 
C) $2,112.50 
D) none of the above 
A) $5,050 
B) $3,700 
C) $2,112.50 
D) none of the above

Question 12

Suppose the U.S.dollar substantially depreciates against the Japanese yen.The change in exchange rate

Accepted Answer

A) will tend to weaken the competitive position of import-competing U.S.car makers. 
B) will tend to strengthen the competitive position of import-competing U.S.car makers. 
C) will tend to strengthen the competitive position of Japanese car makers at the expense of U.S.makers. 
D) none of the above 
A) will tend to weaken the competitive position of import-competing U.S.car makers. 
B) will tend to strengthen the competitive position of import-competing U.S.car makers. 
C) will tend to strengthen the competitive position of Japanese car makers at the expense of U.S.makers. 
D) none of the above

Question 13

The price elasticity of demand for commodity products tends to be

Accepted Answer

A) highly elastic. 
B) highly inelastic. 
C) both a and b 
D) none of the above 
A) highly elastic. 
B) highly inelastic. 
C) both a and b 
D) none of the above

Question 14

Which of the following conclusions are correct?

Accepted Answer

A) Most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 236,717 ($)2 and 493,751 ($)2 respectively. 
B) Most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 236,717 ($)2 and 493,751 ($)2 respectively. 
C) Most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 8.22 ($)2 and 59,211 ($)2, respectively. 
D) Most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 8.22 ($)2 and 59,211 ($)2 respectively. 
A) Most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 236,717 ($)2 and 493,751 ($)2 respectively. 
B) Most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 236,717 ($)2 and 493,751 ($)2 respectively. 
C) Most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 8.22 ($)2 and 59,211 ($)2, respectively. 
D) Most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 8.22 ($)2 and 59,211 ($)2 respectively.

Question 15

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

Accepted Answer

A) The change in the cash flow in euro due an alteration in the firm's competitive position in the marketplace is in part a function of the elasticity of demand for the firm's product. 
B) A given operating cash flow in euro will be translated to a higher U.S.dollar cash flow regardless of the firm's hedging program. 
C) Both a and b 
D) None of the above 
A) The change in the cash flow in euro due an alteration in the firm's competitive position in the marketplace is in part a function of the elasticity of demand for the firm's product. 
B) A given operating cash flow in euro will be translated to a higher U.S.dollar cash flow regardless of the firm's hedging program. 
C) Both a and b 
D) None of the above

Question 16

The link between a firm's future operating cash flows and exchange rate fluctuations is

Accepted Answer

A) asset exposure 
B) operating exposure 
C) both a and b 
D) none of the above 
A) asset exposure 
B) operating exposure 
C) both a and b 
D) none of the above

Question 17

On the basis of regression Equation $P = a + b \times S + e$ we can decompose the variability of the dollar value of the asset,Var(P),into two separate components.

Accepted Answer

A) Cov(P,S) = b2 * Var(P) + Var(S) 
B) Var(P) = b2 * Var(S) + Var(e) 
C) Cov(P,S) = b2 * Cov(S,P) + Cov(S,e) 
D) Var(P) = b2  *Var(S) 
E) None of the above 
A) Cov(P,S) = b2 * Var(P) + Var(S) 
B) Var(P) = b2 * Var(S) + Var(e) 
C) Cov(P,S) = b2 * Cov(S,P) + Cov(S,e) 
D) Var(P) = b2  *Var(S) 
E) None of the above

Question 18

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

Accepted Answer

A) in markets with mainly domestics (foreign to the firm) competitors. 
B) in markets with low price elasticities. 
C) both a and b 
D) none of the above 
A) in markets with mainly domestics (foreign to the firm) competitors. 
B) in markets with low price elasticities. 
C) both a and b 
D) none of the above

Question 19

Which of the following conclusions are correct?

Accepted Answer

A) Most of the volatility of the dollar value of the British asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 0 ($)2 and 0 ($)2 respectively. 
B) None of the volatility of the dollar value of the British asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 0 ($)2 and 0 ($)2 respectively. 
C) Most of the volatility of the dollar value of the British asset can NOT be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 125,000 ($)2 and -127,500 ($)2 respectively. 
D) Most of the volatility of the dollar value of the British asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 125,000 ($)2 and -127,500 ($)2 respectively. 
A) Most of the volatility of the dollar value of the British asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 0 ($)2 and 0 ($)2 respectively. 
B) None of the volatility of the dollar value of the British asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 0 ($)2 and 0 ($)2 respectively. 
C) Most of the volatility of the dollar value of the British asset can NOT be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 125,000 ($)2 and -127,500 ($)2 respectively. 
D) Most of the volatility of the dollar value of the British asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 125,000 ($)2 and -127,500 ($)2 respectively.

Question 20

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression $\frac { \operatorname { Cov } ( P , S ) } { \operatorname { Var } ( S ) }$

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

Exam 9: Management of Economic Exposure

Economic exposure refers to

Operating exposure can be defined as

Investments in R&D

Managing operating exposure

Which of the following can a company use to manage operating exposure?

Currency risk

The variance of the exchange rate is:

The variance of the exchange rate is:

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 P=a+b×S+eP = a + b \times S + eP=a+b×S+e .When reviewing the output,you should initially focus on

Compute the variance of the dollar value of your property that is attributable to exchange rate uncertainty.

The expected value of the investment in U.S.dollars is:

Suppose the U.S.dollar substantially depreciates against the Japanese yen.The change in exchange rate

The price elasticity of demand for commodity products tends to be

Which of the following conclusions are correct?

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

The link between a firm's future operating cash flows and exchange rate fluctuations is

On the basis of regression Equation P=a+b×S+eP = a + b \times S + eP=a+b×S+e we can decompose the variability of the dollar value of the asset,Var(P),into two separate components.

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

Which of the following conclusions are correct?

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression Cov⁡(P,S)Var⁡(S)\frac { \operatorname { Cov } ( P , S ) } { \operatorname { Var } ( S ) }Var(S)Cov(P,S)​

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

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 $P = a + b \times S + e$ .When reviewing the output,you should initially focus on

On the basis of regression Equation $P = a + b \times S + e$ we can decompose the variability of the dollar value of the asset,Var(P),into two separate components.

The "exposure" (i.e.the regression coefficient beta)is: Hint: Calculate the expression $\frac { \operatorname { Cov } ( P , S ) } { \operatorname { Var } ( S ) }$