Exam 12: Operating Exposure

Management must be able to predict disequilibria in international markets to take advantage of diversification strategies.

Which of the following is NOT an example of a financial cash flow?

Which of the following is NOT seen as a potential disadvantage to the formation of an intra-company reinvoicing center?

An MNE has a contract for a relatively predictable long-term inflow of Japanese yen that the firm chooses to hedge by paying for imports from Canada in Japanese yen. This hedging strategy is known as ________.

The goal of operating exposure analysis is to identify strategic operating techniques the firm might adopt to enhance value in the face of unanticipated exchange rate changes.

Currency swaps are exclusively for periods of time under one year.

Which of the following is NOT an important impediment to widespread use of parallel loans?

Most swap dealers arrange swaps so that each firm that is a party to the transaction knows who the counterparty is.

An MNE has a contract for a relatively predictable long-term inflow of Japanese yen that the firm chooses to hedge by seeking out potential suppliers in Japan. This hedging strategy is referred to as ________.

Which of the following is NOT identified by your authors as a proactive management technique to reduce exposure to foreign exchange risk?

Which of the following is NOT an example of a form of political risk that might be avoided or reduced by foreign exchange risk management?

Which one of the following management techniques is likely to best offset the risk of long-run exposure to receivables denominated in a particular foreign currency?

The particular strategy of trying to offset stable inflows of cash from one country with outflows of cash in the same currency is known as ________.

Swap agreements are treated as line items on the balance sheet via U.S. accounting methods.

A ________ occurs when two business firms in separate countries arrange to borrow each other's currency for a specified period of time.

Simpson Sign Company based in Frostbite Falls, Minnesota has a 6-month C$100,000 contract to complete sign work in Winnipeg, Manitoba, Canada. The current spot rate is $1.02/C$ and the forward rate is $1.01/C$. Under conditions of equilibrium, management would use today ________ when preparing operating budgets.

The empirical evidence strongly supports the proposition that contractual hedges can effectively eliminate operating exposure.

Which of the following is NOT an example of diversifying operations?

A British firm has a subsidiary in the U.S., and a U.S. firm, known to the British firm, has a subsidiary in Britain. Define and then provide an example for each of the following management techniques for reducing the firm's operating cash flows. The following are techniques to consider: (a)matching currency cash flows (b)risk-sharing agreements (c)back-to-back or parallel loans

A ________ is the term used to describe a foreign currency agreement between two parties to exchange a given amount of one currency for another, and after a period of time, to give back the original amounts.