Question 1

A progressive income tax scheme means:

Accepted Answer

A) marginal income tax rates increase as taxable income increases. 
B) marginal income tax rates decrease as taxable income increases. 
C) income tax revenues are used for more productive purposes as tax revenues increase. 
D) firms can receive rebates of taxes paid after tax revenues reach prescribed levels. 
A) marginal income tax rates increase as taxable income increases. 
B) marginal income tax rates decrease as taxable income increases. 
C) income tax revenues are used for more productive purposes as tax revenues increase. 
D) firms can receive rebates of taxes paid after tax revenues reach prescribed levels. A

Question 2

When a firm reduces its currency risk,it can better concentrate on its strategic plan and:

Accepted Answer

A) minimize its interest costs. 
B) improve efficiency in operations. 
C) maximize the use of tax shelters. 
D) capture a larger share of its markets. 
A) minimize its interest costs. 
B) improve efficiency in operations. 
C) maximize the use of tax shelters. 
D) capture a larger share of its markets. C

Question 3

Symmetric hedges use __________________,while asymmetric hedges usually use _____________________.

Accepted Answer

A) options;forwards and futures 
B) currency swaps;options 
C) forwards and futures;options 
D) options;derivatives 
A) options;forwards and futures 
B) currency swaps;options 
C) forwards and futures;options 
D) options;derivatives C

Question 4

A financial alternative dominates a second financial alternative,when the first alternative:

Accepted Answer

A) provides a higher cash flow for the same or lower risk compared to the second alternative. 
B) costs less than the second alternative. 
C) reduces the risks at all costs. 
D) provides more assurance of success. 
A) provides a higher cash flow for the same or lower risk compared to the second alternative. 
B) costs less than the second alternative. 
C) reduces the risks at all costs. 
D) provides more assurance of success.

Question 5

Hedging to address mitigation of transaction exposure primarily focuses on:

Accepted Answer

A) risk management. 
B) payables and receivables. 
C) research and development costs. 
D) taxable income. 
A) risk management. 
B) payables and receivables. 
C) research and development costs. 
D) taxable income.

Question 6

Firms select their hedging instruments based on:

Accepted Answer

A) the instruments sensitivity to the underlying currency. 
B) the cost of the instruments. 
C) the amount of exposure being hedged. 
D) the availability of alternative choices. 
A) the instruments sensitivity to the underlying currency. 
B) the cost of the instruments. 
C) the amount of exposure being hedged. 
D) the availability of alternative choices.

Question 7

Most MNCs:

Accepted Answer

A) are large companies but do not engage in hedging. 
B) are large companies and engage in hedging. 
C) are not large companies but do engage in hedging. 
D) are not large companies and do not engage in hedging. 
A) are large companies but do not engage in hedging. 
B) are large companies and engage in hedging. 
C) are not large companies but do engage in hedging. 
D) are not large companies and do not engage in hedging.

Question 8

The purchase of an option is also known as a:

Accepted Answer

A) call. 
B) put. 
C) hedge. 
D) match. 
A) call. 
B) put. 
C) hedge. 
D) match.

Question 9

In a forward hedge,the cash flow equals:

Accepted Answer

A) the amount of the foreign currency used in the hedge times the forward rate. 
B) the amount of the currency the firm usually transacts business in times the forward rate. 
C) the unhedged cash flow times the forward rate. 
D) the unhedged cash flow. 
A) the amount of the foreign currency used in the hedge times the forward rate. 
B) the amount of the currency the firm usually transacts business in times the forward rate. 
C) the unhedged cash flow times the forward rate. 
D) the unhedged cash flow.

Question 10

Why are firm managers generally considered to be risk-adverse?

Accepted Answer

Many managers have significant investmen

Question 11

Forward hedges can eliminate cash flow variability:

Accepted Answer

A) in most cases. 
B) to some extent. 
C) only occasionally. 
D) completely. 
A) in most cases. 
B) to some extent. 
C) only occasionally. 
D) completely.

Question 12

A purchase or sale of a foreign currency in anticipation of a future transaction is a(n):

Accepted Answer

A) money market hedge. 
B) forward hedge. 
C) unhedged transaction. 
D) currency hedge. 
A) money market hedge. 
B) forward hedge. 
C) unhedged transaction. 
D) currency hedge.

Question 13

Maturities of hedging instruments and the maturity of currency exposures rarely are the same because:

Accepted Answer

A) maturities of hedging instruments are standardized and set by the exchanges where they are traded. 
B) maturities of hedging instruments are not fixed and can change as circumstances change. 
C) maturities of currency exposures are not fixed and can change as circumstances change. 
D) the maturity of hedging instruments is not known when the hedging instruments are acquired. 
A) maturities of hedging instruments are standardized and set by the exchanges where they are traded. 
B) maturities of hedging instruments are not fixed and can change as circumstances change. 
C) maturities of currency exposures are not fixed and can change as circumstances change. 
D) the maturity of hedging instruments is not known when the hedging instruments are acquired.

Question 14

Examples of tax shields available to firms include:

Accepted Answer

A) interest income and investment income. 
B) hedging expenses and tax-free income. 
C) depreciation and interest paid. 
D) bond issuance expenses and dividends paid. 
A) interest income and investment income. 
B) hedging expenses and tax-free income. 
C) depreciation and interest paid. 
D) bond issuance expenses and dividends paid.

Question 15

How does hedging assist a firm in reducing its currency exposure?

Accepted Answer

A firm's currency exposure results from

Question 16

With respect to selecting hedging instruments,"matching" refers to:

Accepted Answer

A) how closely the cost of the hedging instrument relates to the amount involved in the exposure being hedged. 
B) the relationship between the firm seeking to hedge an exposure and the firm offering the hedging instrument. 
C) the relationship of the two countries whose currency is involved in the hedge. 
D) how closely the currency and maturity of the hedging instrument lines up with the exposure being hedged. 
A) how closely the cost of the hedging instrument relates to the amount involved in the exposure being hedged. 
B) the relationship between the firm seeking to hedge an exposure and the firm offering the hedging instrument. 
C) the relationship of the two countries whose currency is involved in the hedge. 
D) how closely the currency and maturity of the hedging instrument lines up with the exposure being hedged.

Question 17

Firms typically buy put options to hedge against:

Accepted Answer

A) payables. 
B) inventory. 
C) recessions. 
D) receivables. 
A) payables. 
B) inventory. 
C) recessions. 
D) receivables.

Question 18

In hedging,"delta" refers to:

Accepted Answer

A) the cost involved in acquiring hedging instruments. 
B) the degree of risk that a particular hedging instrument addresses. 
C) the difference between hedged cash flow and unhedged cash flow. 
D) the sensitivity between the hedging instrument and the underlying currency. 
A) the cost involved in acquiring hedging instruments. 
B) the degree of risk that a particular hedging instrument addresses. 
C) the difference between hedged cash flow and unhedged cash flow. 
D) the sensitivity between the hedging instrument and the underlying currency.

Question 19

How significant is currency risk compared to other risks that an MNC might face?

Accepted Answer

MNCs face not only currency risks but al

Question 20

Managers who receive stock options in their firms as part of their compensation may be most interested in:

Accepted Answer

A) level income in their firms because level income is an indication of stability and stability leads to higher stock prices. 
B) income volatility in their firms because income volatility can lead to stock price volatility which can allow the exercise of stock options at times advantageous to the managers. 
C) increasing income in their firms because increasing income leads to higher stock prices and an increasing value of their investment in the firm. 
D) decreasing income in their firms because decreasing income leads to lower stock prices which gives the holders of stock options an opportunity to exercise those options at advantageous stock price levels. 
A) level income in their firms because level income is an indication of stability and stability leads to higher stock prices. 
B) income volatility in their firms because income volatility can lead to stock price volatility which can allow the exercise of stock options at times advantageous to the managers. 
C) increasing income in their firms because increasing income leads to higher stock prices and an increasing value of their investment in the firm. 
D) decreasing income in their firms because decreasing income leads to lower stock prices which gives the holders of stock options an opportunity to exercise those options at advantageous stock price levels.

A progressive income tax scheme means:

When a firm reduces its currency risk,it can better concentrate on its strategic plan and:

Symmetric hedges use ,while asymmetric hedges usually use ___.

A financial alternative dominates a second financial alternative,when the first alternative:

Hedging to address mitigation of transaction exposure primarily focuses on:

Firms select their hedging instruments based on:

Most MNCs:

The purchase of an option is also known as a:

In a forward hedge,the cash flow equals:

Why are firm managers generally considered to be risk-adverse?

Forward hedges can eliminate cash flow variability:

A purchase or sale of a foreign currency in anticipation of a future transaction is a(n):

Maturities of hedging instruments and the maturity of currency exposures rarely are the same because:

Examples of tax shields available to firms include:

How does hedging assist a firm in reducing its currency exposure?

With respect to selecting hedging instruments,"matching" refers to:

Firms typically buy put options to hedge against:

In hedging,"delta" refers to:

How significant is currency risk compared to other risks that an MNC might face?

Managers who receive stock options in their firms as part of their compensation may be most interested in:

Introduction

International Financial Markets: Structure and Innovation

Currency and Eurocurrency Derivatives

Currency Systems and Valuation

Currency Parity Conditions

Currency Risk Exposure Measurement

Capital Budgeting

Advanced Capital Budgeting

Long-Term Financing

Optimizing and Financing Working Capital

International Alliances and Acquisitions

International Trade

International Taxation and Accounting

International Portfolio Investments

Filters

Exam 7: Currency Exposure Management

A progressive income tax scheme means:

When a firm reduces its currency risk,it can better concentrate on its strategic plan and:

Symmetric hedges use __________________,while asymmetric hedges usually use _____________________.

A financial alternative dominates a second financial alternative,when the first alternative:

Hedging to address mitigation of transaction exposure primarily focuses on:

Firms select their hedging instruments based on:

Most MNCs:

The purchase of an option is also known as a:

In a forward hedge,the cash flow equals:

Why are firm managers generally considered to be risk-adverse?

Forward hedges can eliminate cash flow variability:

A purchase or sale of a foreign currency in anticipation of a future transaction is a(n):

Maturities of hedging instruments and the maturity of currency exposures rarely are the same because:

Examples of tax shields available to firms include:

How does hedging assist a firm in reducing its currency exposure?

With respect to selecting hedging instruments,"matching" refers to:

Firms typically buy put options to hedge against:

In hedging,"delta" refers to:

How significant is currency risk compared to other risks that an MNC might face?

Managers who receive stock options in their firms as part of their compensation may be most interested in:

Introduction

International Financial Markets: Structure and Innovation

Currency and Eurocurrency Derivatives

Currency Systems and Valuation

Currency Parity Conditions

Currency Risk Exposure Measurement

Capital Budgeting

Advanced Capital Budgeting

Long-Term Financing

Optimizing and Financing Working Capital

International Alliances and Acquisitions

International Trade

International Taxation and Accounting

International Portfolio Investments

Filters

Symmetric hedges use ,while asymmetric hedges usually use ___.