Question 1

Purely domestic firms do not have any ____________ exposure,but they do have ___________________ exposure.

Accepted Answer

A) currency;operating 
B) transaction;operating 
C) operating;translation 
D) market;currency 
A) currency;operating 
B) transaction;operating 
C) operating;translation 
D) market;currency B

Question 2

The Markowitz Portfolio Approach says that diversification of assets diminishes risk.What does that mean in the context of international financial transactions?

Accepted Answer

The Markowitz model considers the interaction between a firm's assets and determines that the lower the correlation coefficient between those asset,the less transaction risk that the firm faced.That means that if the primary assets of a firm are essentially the same,the risk that the firm will suffer losses in the short term in transactions involving those assets will increase.The more diversification in a firm's assets,the lower the correlation coefficient and the lower the firm's transaction risks will be.For instance,if a firm is heavily invested in corporate bonds,a change in the value of the currency in which those bonds are denominated could mean significant losses for the firm because it has significant assets that are all subject to the same risks.On the other hand,if a firm has some investments in corporate bonds but other investments in production equipment,a change in the value of the currency in which the bonds are denominated could cause the firm to incur a loss,but that change in currency value would likely not have an adverse effect on the firm's investment in production equipment.The key point of the Markowitz Portfolio Approach is to diversify to reduce risks.

Question 3

In a competitive market,the effect of a currency change for a price follower is that:

Accepted Answer

A) sales may be lost,so operating exposure is high. 
B) the change may or not affect the foreign cash flow of the firm if the firm can effectively and efficiently change its prices. 
C) increased cash flow can offset the conversion impact,so operating exposure is low. 
D) since price followers do whatever the market dictates,operating exposure is low. 
A) sales may be lost,so operating exposure is high. 
B) the change may or not affect the foreign cash flow of the firm if the firm can effectively and efficiently change its prices. 
C) increased cash flow can offset the conversion impact,so operating exposure is low. 
D) since price followers do whatever the market dictates,operating exposure is low. A

Question 4

For each transaction undertaken by a firm that involves currency risks,three factors must be considered:

Accepted Answer

A) kind of transaction (loan or borrowing),interest rate,and volatility of the currency involved. 
B) amount involved,timing of the transaction,and volatility of the currency involved. 
C) amount involved,interest rate,and timing of the transaction. 
D) kind of transaction (loan or borrowing),timing of the transaction,and volatility of the currency involved. 
A) kind of transaction (loan or borrowing),interest rate,and volatility of the currency involved. 
B) amount involved,timing of the transaction,and volatility of the currency involved. 
C) amount involved,interest rate,and timing of the transaction. 
D) kind of transaction (loan or borrowing),timing of the transaction,and volatility of the currency involved.

Question 5

__________________ is a measure of the impact of currency values on the financial statements of a firm.

Accepted Answer

A) Translation exposure 
B) Operating exposure 
C) Transaction exposure 
D) Accounting exposure 
A) Translation exposure 
B) Operating exposure 
C) Transaction exposure 
D) Accounting exposure

Question 6

The direct effect of currency volatility on a firm can be seen in:

Accepted Answer

A) the other firms that it contracts with and the terms of those contracts. 
B) analyzing the countries where it does business. 
C) its accounting record and formal contracts. 
D) considering the country that it elects to consider its headquarters. 
A) the other firms that it contracts with and the terms of those contracts. 
B) analyzing the countries where it does business. 
C) its accounting record and formal contracts. 
D) considering the country that it elects to consider its headquarters.

Question 7

If risk valuation is based on a time series of value changes in the asset being considered,the approach is called a _______________ approach.

Accepted Answer

A) delta-normal. 
B) value neutral. 
C) historical simulation. 
D) normal distribution. 
A) delta-normal. 
B) value neutral. 
C) historical simulation. 
D) normal distribution.

Question 8

The three primary types of exposure that currency risks create for a firm are:

Accepted Answer

A) transaction exposure,interest rate exposure,and translation exposure. 
B) profit/loss exposure,interest rate exposure,and economic exposure. 
C) economic exposure,financial exposure,and translation exposure. 
D) transaction exposure,economic exposure,and translation exposure. 
A) transaction exposure,interest rate exposure,and translation exposure. 
B) profit/loss exposure,interest rate exposure,and economic exposure. 
C) economic exposure,financial exposure,and translation exposure. 
D) transaction exposure,economic exposure,and translation exposure.

Question 9

Can currency changes affect operating cash flow of a domestic firm?

Accepted Answer

A) Yes,because there really is no firm that is purely domestic and all firms deal in buying or selling in foreign currencies. 
B) No,domestic firms are those that only deal in the currency of the country where they are located,so changes in currency values cannot affect them. 
C) No,domestic firms are protected form changes in currency values by the government of the country where they operate. 
D) Yes,since domestic firms may deal in products that are based on a foreign currency and may be affected by changes in the value of that foreign currency. 
A) Yes,because there really is no firm that is purely domestic and all firms deal in buying or selling in foreign currencies. 
B) No,domestic firms are those that only deal in the currency of the country where they are located,so changes in currency values cannot affect them. 
C) No,domestic firms are protected form changes in currency values by the government of the country where they operate. 
D) Yes,since domestic firms may deal in products that are based on a foreign currency and may be affected by changes in the value of that foreign currency.

Question 10

How does conversion impact affect a firm's operating exposure?

Accepted Answer

Conversion impact,along with price and u

Question 11

The risks posed to a firm's operating cash flow by currency-related changes is called:

Accepted Answer

A) operating exposure. 
B) currency risks. 
C) economic exposure. 
D) transaction risks. 
A) operating exposure. 
B) currency risks. 
C) economic exposure. 
D) transaction risks.

Question 12

The Markowitz Portfolio Approach suggests that:

Accepted Answer

A) diversification reduces currency risk. 
B) cooperation reduces currency risk. 
C) currency risk cannot be reduced. 
D) currency risk and transaction risk are the same things. 
A) diversification reduces currency risk. 
B) cooperation reduces currency risk. 
C) currency risk cannot be reduced. 
D) currency risk and transaction risk are the same things.

Question 13

The standard deviation of a currency is:

Accepted Answer

A) plus or minus the average value of the currency over a specific period. 
B) square root of the variance of the currency. 
C) the average of squared deviations from the mean. 
D) an average of the deviations from the currency. 
A) plus or minus the average value of the currency over a specific period. 
B) square root of the variance of the currency. 
C) the average of squared deviations from the mean. 
D) an average of the deviations from the currency.

Question 14

____________ exposure is an analysis of the effects of currency changes on a firm's operating cash flow.

Accepted Answer

A) Operating 
B) Cash flow 
C) Translation 
D) Profit 
A) Operating 
B) Cash flow 
C) Translation 
D) Profit

Question 15

Changes in the value of currencies:

Accepted Answer

A) occur only in floating currency systems. 
B) can occur in floating currency systems,in managed floating systems,and even in fixed systems. 
C) occur only in floating and managed floating currency systems. 
D) occur uniformly in all currency systems. 
A) occur only in floating currency systems. 
B) can occur in floating currency systems,in managed floating systems,and even in fixed systems. 
C) occur only in floating and managed floating currency systems. 
D) occur uniformly in all currency systems.

Question 16

Which risk do experts generally agree is the most important for firms and why?

Accepted Answer

A) Economic risks because the economy is a primary determinant in the success of a firm. 
B) Currency risks because all firms deal in currencies. 
C) Transaction risks because transactions are where firms make their profits or suffer their losses. 
D) Interest rate risks because interest rates affect firms in a number of different ways. 
A) Economic risks because the economy is a primary determinant in the success of a firm. 
B) Currency risks because all firms deal in currencies. 
C) Transaction risks because transactions are where firms make their profits or suffer their losses. 
D) Interest rate risks because interest rates affect firms in a number of different ways.

Question 17

Currency exposure can be difficult to estimate because a firm is likely to be involved in multiple transactions in a currency at different times.This complication can be made simpler by:

Accepted Answer

A) eliminating the transactions at the extremes and focusing on the average transactions. 
B) considering only the transaction that occur within a very short period of time. 
C) considering only representative transactions. 
D) netting the transactions so that the focus can be on the net effect of the transactions. 
A) eliminating the transactions at the extremes and focusing on the average transactions. 
B) considering only the transaction that occur within a very short period of time. 
C) considering only representative transactions. 
D) netting the transactions so that the focus can be on the net effect of the transactions.

Question 18

The approach to risk valuation that assumes that changes in value of the asset being considered are normally distributed is called the:

Accepted Answer

A) value neutral approach. 
B) delta-normal approach. 
C) normal distribution theory. 
D) historical simulation theory. 
A) value neutral approach. 
B) delta-normal approach. 
C) normal distribution theory. 
D) historical simulation theory.

Question 19

Calculation of the standard deviation of a currency addresses the potential differences in results for high-value and low-value currencies by:

Accepted Answer

A) averaging the exchange rates of the currency over a specific period of time. 
B) discounting the standard deviation of high-value currency. 
C) converting currency values into currency returns,which are percentage changes in currency values. 
D) adjusting the standard deviation of both currencies when comparing high- and low-value currencies. 
A) averaging the exchange rates of the currency over a specific period of time. 
B) discounting the standard deviation of high-value currency. 
C) converting currency values into currency returns,which are percentage changes in currency values. 
D) adjusting the standard deviation of both currencies when comparing high- and low-value currencies.

Question 20

When a firm analyzes its situation and determines the maximum likely losses that it can incur in that situation,it has determined it's:

Accepted Answer

A) value at risk. 
B) risk quotient. 
C) loss limit. 
D) transaction exposure. 
A) value at risk. 
B) risk quotient. 
C) loss limit. 
D) transaction exposure.

Purely domestic firms do not have any exposure,but they do have _______ exposure.

The Markowitz Portfolio Approach says that diversification of assets diminishes risk.What does that mean in the context of international financial transactions?

In a competitive market,the effect of a currency change for a price follower is that:

For each transaction undertaken by a firm that involves currency risks,three factors must be considered:

__________________ is a measure of the impact of currency values on the financial statements of a firm.

The direct effect of currency volatility on a firm can be seen in:

If risk valuation is based on a time series of value changes in the asset being considered,the approach is called a _______________ approach.

The three primary types of exposure that currency risks create for a firm are:

Can currency changes affect operating cash flow of a domestic firm?

How does conversion impact affect a firm's operating exposure?

The risks posed to a firm's operating cash flow by currency-related changes is called:

The Markowitz Portfolio Approach suggests that:

The standard deviation of a currency is:

____________ exposure is an analysis of the effects of currency changes on a firm's operating cash flow.

Changes in the value of currencies:

Which risk do experts generally agree is the most important for firms and why?

Currency exposure can be difficult to estimate because a firm is likely to be involved in multiple transactions in a currency at different times.This complication can be made simpler by:

The approach to risk valuation that assumes that changes in value of the asset being considered are normally distributed is called the:

Calculation of the standard deviation of a currency addresses the potential differences in results for high-value and low-value currencies by:

When a firm analyzes its situation and determines the maximum likely losses that it can incur in that situation,it has determined it's:

Introduction

International Financial Markets: Structure and Innovation

Currency and Eurocurrency Derivatives

Currency Systems and Valuation

Currency Parity Conditions

Currency Exposure Management

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 6: Currency Risk Exposure Measurement

Purely domestic firms do not have any ____________ exposure,but they do have ___________________ exposure.

The Markowitz Portfolio Approach says that diversification of assets diminishes risk.What does that mean in the context of international financial transactions?

In a competitive market,the effect of a currency change for a price follower is that:

For each transaction undertaken by a firm that involves currency risks,three factors must be considered:

__________________ is a measure of the impact of currency values on the financial statements of a firm.

The direct effect of currency volatility on a firm can be seen in:

If risk valuation is based on a time series of value changes in the asset being considered,the approach is called a _______________ approach.

The three primary types of exposure that currency risks create for a firm are:

Can currency changes affect operating cash flow of a domestic firm?

How does conversion impact affect a firm's operating exposure?

The risks posed to a firm's operating cash flow by currency-related changes is called:

The Markowitz Portfolio Approach suggests that:

The standard deviation of a currency is:

____________ exposure is an analysis of the effects of currency changes on a firm's operating cash flow.

Changes in the value of currencies:

Which risk do experts generally agree is the most important for firms and why?

Currency exposure can be difficult to estimate because a firm is likely to be involved in multiple transactions in a currency at different times.This complication can be made simpler by:

The approach to risk valuation that assumes that changes in value of the asset being considered are normally distributed is called the:

Calculation of the standard deviation of a currency addresses the potential differences in results for high-value and low-value currencies by:

When a firm analyzes its situation and determines the maximum likely losses that it can incur in that situation,it has determined it's:

Introduction

International Financial Markets: Structure and Innovation

Currency and Eurocurrency Derivatives

Currency Systems and Valuation

Currency Parity Conditions

Currency Exposure Management

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

Purely domestic firms do not have any exposure,but they do have _______ exposure.