Question 1

Which of the following would be an effective hedge?

Accepted Answer

A) Sell $\le$2,278.13 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
B) Buy $\le$2,500 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
C) Sell $\le$25,000 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
D) None of the above 
A) Sell $\le$2,278.13 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
B) Buy $\le$2,500 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
C) Sell $\le$25,000 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
D) None of the above

Question 2

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 Var(P)= b2 * Var(S)+ Var(e) The first term in the right-hand side of the equation,b2 * Var(S)represents

Accepted Answer

A) the part of the variability of the dollar value of the asset that is related to random changes in the exchange rate. 
B) captures the residual part of the dollar value variability that is independent of exchange rate movements. 
C) none of the above 
A) the part of the variability of the dollar value of the asset that is related to random changes in the exchange rate. 
B) captures the residual part of the dollar value variability that is independent of exchange rate movements. 
C) none of the above

Question 3

Consider a U.S.MNC with operations in Great Britain.Which of the following are potential risks following a strengthening of the dollar?

Accepted Answer

A) A pound sterling depreciation may affect operating cash flow in pounds by altering the firm's competitive position in the marketplace. 
B) A given operating cash flow in pounds will be converted into a lower dollar amount after the pound depreciation. 
C) Both a and b 
D) None of the above 
A) A pound sterling depreciation may affect operating cash flow in pounds by altering the firm's competitive position in the marketplace. 
B) A given operating cash flow in pounds will be converted into a lower dollar amount after the pound depreciation. 
C) Both a and b 
D) None of the above

Question 4

A flexible sourcing policy

Accepted Answer

A) is primarily concerned with low-cost (and often low-quality) vendors. 
B) need not be confined just to materials and parts. 
C) only works for manufacturing firms, not service firms. 
D) puts the focus on the exchange rate at the expense of shipping rates. 
A) is primarily concerned with low-cost (and often low-quality) vendors. 
B) need not be confined just to materials and parts. 
C) only works for manufacturing firms, not service firms. 
D) puts the focus on the exchange rate at the expense of shipping rates.

Question 5

Two studies found a link between exchange rates and the stock prices of U.S.firms,

Accepted Answer

A) this suggests that exchange rate changes can systematically affect the value of the firm by influencing its operating cash flows. 
B) this suggests that exchange rate changes can systematically affect the value of the firm by influencing the domestic currency values of its assets and liabilities. 
C) both a and b 
D) none of the above 
A) this suggests that exchange rate changes can systematically affect the value of the firm by influencing its operating cash flows. 
B) this suggests that exchange rate changes can systematically affect the value of the firm by influencing the domestic currency values of its assets and liabilities. 
C) both a and b 
D) none of the above

Question 6

If the stock market of a foreign country is consistently up when the dollar value of the currency is down,

Accepted Answer

A) there may not be a great deal of exchange rate risk for a U.S.-based investor. 
B) there will be a great deal of exchange rate risk for a U.S.-based investor. 
C) then investors can ignore diversification. 
D) none of the above 
A) there may not be a great deal of exchange rate risk for a U.S.-based investor. 
B) there will be a great deal of exchange rate risk for a U.S.-based investor. 
C) then investors can ignore diversification. 
D) none of the above

Question 7

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

Accepted Answer

A) $2,083.33 
B) $762.50 
C) $6,250.00 
D) $6,562.50 
A) $2,083.33 
B) $762.50 
C) $6,250.00 
D) $6,562.50

Question 8

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

Accepted Answer

A) 7,500 
B) 2,5000 
C) -2,500 
D) none of the above 
A) 7,500 
B) 2,5000 
C) -2,500 
D) none of the above

Question 9

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 1,125,000 ($)2 and 2,500 ($)2 respectively. 
B) 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 236,717 ($)2 and 493,751 ($)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 1,125,000 ($)2 and 2,500 ($)2 respectively. 
B) 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 236,717 ($)2 and 493,751 ($)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 10

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

Question 11

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

Accepted Answer

A) The cash flow in euro could be altered due an alteration 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 an alteration 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

Question 12

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

Accepted Answer

A) $5,050 
B) $4,500 
C) $2,112.50 
D) none of the above 
A) $5,050 
B) $4,500 
C) $2,112.50 
D) none of the above

Question 13

It can be argued that,while financial hedging can be used to stabilize a firm's cash flows,

Accepted Answer

A) it is not a substitute for long-term operational hedging. 
B) it is therefore a substitute for long-term operational hedging. 
C) it is inferior to money market hedging. 
D) none of the above. 
A) it is not a substitute for long-term operational hedging. 
B) it is therefore a substitute for long-term operational hedging. 
C) it is inferior to money market hedging. 
D) none of the above.

Question 14

Which of the following is true?

Accepted Answer

A) The competitive effect is that a currency depreciation may affect operating cash flow in the foreign currency by altering the firm's competitive position in the marketplace. 
B) The conversion effect is defined as a given accounting cash value in a foreign currency will be converted into a lower dollar amount after currency depreciation. 
C) The competitive effect is defined as a given operating cash flow in a foreign currency will be converted into a lower dollar amount after a currency depreciation. 
D) None of the above 
A) The competitive effect is that a currency depreciation may affect operating cash flow in the foreign currency by altering the firm's competitive position in the marketplace. 
B) The conversion effect is defined as a given accounting cash value in a foreign currency will be converted into a lower dollar amount after currency depreciation. 
C) The competitive effect is defined as a given operating cash flow in a foreign currency will be converted into a lower dollar amount after a currency depreciation. 
D) None of the above

Question 15

If the domestic currency is strong or expected to become strong,

Accepted Answer

A) a firm can choose to locate production facilities in a foreign country where costs are low due to either the undervalued currency or underpriced factors of production. 
B) a firm should curtail R&D efforts until the exchange rate situation improves. 
C) a firm should abandon international sales and focus on domestic market share. 
D) the firm should focus on profiting in the currency futures market based on its forecasts. 
A) a firm can choose to locate production facilities in a foreign country where costs are low due to either the undervalued currency or underpriced factors of production. 
B) a firm should curtail R&D efforts until the exchange rate situation improves. 
C) a firm should abandon international sales and focus on domestic market share. 
D) the firm should focus on profiting in the currency futures market based on its forecasts.

Question 16

Exposure to currency risk can be measured by the sensitivities of

Accepted Answer

A) the future home currency values of the firm's assets and liabilities. 
B) the firm's operating cash flows to random changes in exchange rates. 
C) both a and b 
D) none of the above 
A) the future home currency values of the firm's assets and liabilities. 
B) the firm's operating cash flows to random changes in exchange rates. 
C) both a and b 
D) none of the above

Question 17

Which of the following would be an effective hedge?

Accepted Answer

A) Sell $\le$2,500 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
B) Buy $\le$2,500 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
C) Sell $\le$25,000 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
D) None of the above 
A) Sell $\le$2,500 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
B) Buy $\le$2,500 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
C) Sell $\le$25,000 forward at the 1-year forward rate, F1($/$\le$), that prevails at time zero. 
D) None of the above

Question 18

Operating exposure measures

Accepted Answer

A) the extent to which the foreign currency value of the firm's assets is affected by unanticipated changes in exchange rates. 
B) the extent to which the firm's operating cash flows will be affected by unexpected changes in exchange rates. 
C) the affect of changes in exchange rates will have on the consolidated financial reports of a MNC. 
D) the affect of unanticipated changes in exchange rates on the dollar value of contractual obligations denominated in a foreign currency. 
A) the extent to which the foreign currency value of the firm's assets is affected by unanticipated changes in exchange rates. 
B) the extent to which the firm's operating cash flows will be affected by unexpected changes in exchange rates. 
C) the affect of changes in exchange rates will have on the consolidated financial reports of a MNC. 
D) the affect of unanticipated changes in exchange rates on the dollar value of contractual obligations denominated in a foreign currency.

Question 19

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 20

Goldman Sachs estimates that as much as __% of the pretax profits that Porsche reported for a recent fiscal year came from skillfully executing currency options.

Accepted Answer

A) 5% 
B) 10% 
C) 15% 
D) 75% 
A) 5% 
B) 10% 
C) 15% 
D) 75%

Exam 9: Management of Economic Exposure

Which of the following would be an effective hedge?

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 Var(P)= b2 * Var(S)+ Var(e) The first term in the right-hand side of the equation,b2 * Var(S)represents

Consider a U.S.MNC with operations in Great Britain.Which of the following are potential risks following a strengthening of the dollar?

A flexible sourcing policy

Two studies found a link between exchange rates and the stock prices of U.S.firms,

If the stock market of a foreign country is consistently up when the dollar value of the currency is down,

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

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)​

Which of the following conclusions are correct?

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?

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

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

It can be argued that,while financial hedging can be used to stabilize a firm's cash flows,

Which of the following is true?

If the domestic currency is strong or expected to become strong,

Exposure to currency risk can be measured by the sensitivities of

Which of the following would be an effective hedge?

Operating exposure measures

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

Goldman Sachs estimates that as much as __% of the pretax profits that Porsche reported for a recent fiscal year came from skillfully executing currency options.

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

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 Var(P)= b² * Var(S)+ Var(e) The first term in the right-hand side of the equation,b² * Var(S)represents

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