Question 1

Which of the following is false?

Accepted Answer

A) The competitive effect is that a 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 operating cash flow in a foreign currency will be converted into a lower dollar amount after a 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 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 operating cash flow in a foreign currency will be converted into a lower dollar amount after a 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 2

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 3

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 cannot 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 cannot 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 4

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

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 5

Discuss how you can hedge your exchange risk exposure and also examine the consequences of hedging.

Accepted Answer

The answer of Discuss how you can hedge your exchange...

Question 6

A foreign country could provide low cost production sites

Accepted Answer

A) because the factors of production are underpriced. 
B) because the currency is undervalued. 
C) because the locals like to give away their land labor and capital to foreigners. 
D) both a and b 
A) because the factors of production are underpriced. 
B) because the currency is undervalued. 
C) because the locals like to give away their land labor and capital to foreigners. 
D) both a and b

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

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 9

With regard to operational hedging versus financial hedging,

Accepted Answer

A) operational hedging provides a more stable long-term approach than does financial hedging. 
B) financial hedging, when instituted on a rollover basis, is a superior long-term approach to operational hedging. 
C) since they both have the same goal, stabilizing the firm's cash flows in domestic currency, they are fungible in use. 
D) none of the above 
A) operational hedging provides a more stable long-term approach than does financial hedging. 
B) financial hedging, when instituted on a rollover basis, is a superior long-term approach to operational hedging. 
C) since they both have the same goal, stabilizing the firm's cash flows in domestic currency, they are fungible in use. 
D) none of the above

Question 10

Developing multiple production sites in a variety of countries,

Accepted Answer

A) can create an excess capacity problem. 
B) can lead to underutilization of domestic plants. 
C) can lead to domestic job losses. 
D) all of the above 
A) can create an excess capacity problem. 
B) can lead to underutilization of domestic plants. 
C) can lead to domestic job losses. 
D) all of the above

Question 11

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 12

The exposure coefficient   in the regression   informs

Accepted Answer

A) how much of a foreign currency to sell forward. 
B) the part of the variability of the dollar value of the asset that is related to random changes in the exchange rate. 
C) captures the residual part of the dollar value variability that is independent of exchange rate movements. 
D) how many call options to write. 
A) how much of a foreign currency to sell forward. 
B) the part of the variability of the dollar value of the asset that is related to random changes in the exchange rate. 
C) captures the residual part of the dollar value variability that is independent of exchange rate movements. 
D) how many call options to write.

Question 13

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

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 14

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 15

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 16

A U.S. firm holds an asset in Great Britain and faces the following scenario:   where,
PS1U1P1*S1S1P0 = 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

The extent to which the firm's operating cash flows would be affected by random changes in exchange rates is called

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 18

Generally speaking, a firm is subject to high degrees of operating exposure when

Accepted Answer

A) either its cost or its price is sensitive to exchange rate changes. 
B) both the cost and the price are sensitive to exchange rate changes. 
C) both the cost and the price are insensitive to exchange rate changes. 
D) none of the above 
A) either its cost or its price is sensitive to exchange rate changes. 
B) both the cost and the price are sensitive to exchange rate changes. 
C) both the cost and the price are insensitive to exchange rate changes. 
D) none of the above

Question 19

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 20

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.

Which of the following is false?

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

Which of the following conclusions are correct?

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

Discuss how you can hedge your exchange risk exposure and also examine the consequences of hedging.

A foreign country could provide low cost production sites

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

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

With regard to operational hedging versus financial hedging,

Developing multiple production sites in a variety of countries,

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

The exposure coefficient in the regression informs

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

Which of the following would be an effective hedge?

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

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:

The extent to which the firm's operating cash flows would be affected by random changes in exchange rates is called

Generally speaking, a firm is subject to high degrees of operating exposure when

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

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

Which of the following is false?

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

Which of the following conclusions are correct?

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

Discuss how you can hedge your exchange risk exposure and also examine the consequences of hedging.

A foreign country could provide low cost production sites

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

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

With regard to operational hedging versus financial hedging,

Developing multiple production sites in a variety of countries,

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

The exposure coefficient in the regression informs

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

Which of the following would be an effective hedge?

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

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:

The extent to which the firm's operating cash flows would be affected by random changes in exchange rates is called

Generally speaking, a firm is subject to high degrees of operating exposure when

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

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 P = Dollar price of the same asset -The variance of the exchange rate is: