Question 1

Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?

Accepted Answer

A) Import raw materials from Japan denominated in yen to substitute for domestic suppliers. 
B) Pay suppliers from other countries in yen. 
C) Import raw materials from Japan denominated in dollars. 
D) Acquire debt denominated in yen. 
A) Import raw materials from Japan denominated in yen to substitute for domestic suppliers. 
B) Pay suppliers from other countries in yen. 
C) Import raw materials from Japan denominated in dollars. 
D) Acquire debt denominated in yen.

Question 2

Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors.

Accepted Answer

A) True 
 B)False

Question 3

What type of international risk exposure measures the change in present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates?

Accepted Answer

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

Question 4

Intracompany leads and lags are generally more feasible than comparable intercompany activities because the favorable impact of the lead or lag for one company is the reverse for the other firm.

Accepted Answer

A) True 
 B)False

Question 5

Diversification is possibly the best technique for reducing the problems associated with international transactions. Provide one example each of international financial diversification and international operational diversification and explain how the action reduces risk.

Accepted Answer

An MNE well known in the financial marke

Question 6

When disequilibria in international markets occur, management can take advantage by

Accepted Answer

A) doing nothing if they are already diversified and able to realize beneficial portfolio effects. 
B) recognizing disequilibria faster than purely domestic competitors. 
C) shifting operational of financing activities to take advantage of the disequilibria. 
D) all of the above 
A) doing nothing if they are already diversified and able to realize beneficial portfolio effects. 
B) recognizing disequilibria faster than purely domestic competitors. 
C) shifting operational of financing activities to take advantage of the disequilibria. 
D) all of the above

Question 7

A British firm and a U.S. Corporation each wish to enter into a currency swap hedging agreement. The British firm is receiving U.S. dollars from sales in the U.S. but wants pounds. The U.S. firm is receiving pounds from sales in Britain but wants dollars. Which of the following choices would best satisfy the desires of the firms?

Accepted Answer

A) The British firm pays dollars to a swap dealer and receives pounds from the dealer. The U.S. firm pays pounds to the swap dealer and receives dollars. 
B) The U.S. firm pays dollars to a swap dealer and receives pounds from the dealer. The British firm pays pounds to the swap dealer and receives dollars. 
C) The British firm pays pounds to a swap dealer and receives pounds from the dealer. The U.S. firm pays dollars to the swap dealer and receives dollars. 
D) The British firm pays dollars to a swap dealer and receives dollars from the dealer. The U.S. firm pays pounds to the swap dealer and receives pounds. 
A) The British firm pays dollars to a swap dealer and receives pounds from the dealer. The U.S. firm pays pounds to the swap dealer and receives dollars. 
B) The U.S. firm pays dollars to a swap dealer and receives pounds from the dealer. The British firm pays pounds to the swap dealer and receives dollars. 
C) The British firm pays pounds to a swap dealer and receives pounds from the dealer. The U.S. firm pays dollars to the swap dealer and receives dollars. 
D) The British firm pays dollars to a swap dealer and receives dollars from the dealer. The U.S. firm pays pounds to the swap dealer and receives pounds.

Question 8

________ exposure is far more important for the long-run health of a business than changes caused by ________ or ________ exposure.

Accepted Answer

A) Operating; translation; transaction 
B) Transaction; operating; translation 
C) Accounting; translation; transaction 
D) Translation; operating; transaction 
A) Operating; translation; transaction 
B) Transaction; operating; translation 
C) Accounting; translation; transaction 
D) Translation; operating; transaction

Question 9

A ________ resembles a back-to-back loan except that it does not appear on a firm's balance sheet.

Accepted Answer

A) forward loan 
B) currency hedge 
C) counterparty 
D) currency swap 
A) forward loan 
B) currency hedge 
C) counterparty 
D) currency swap

Question 10

A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an ________ loan to the ________ subsidiary while effectively financing the ________ subsidiary.

Accepted Answer

A) indirect; U.S.; Canadian 
B) indirect; Canadian; U.S. 
C) direct; U.S.; Canadian 
D) direct; Canadian; U.S. 
A) indirect; U.S.; Canadian 
B) indirect; Canadian; U.S. 
C) direct; U.S.; Canadian 
D) direct; Canadian; U.S.

Question 11

After being introduced in the 1980s, currency swaps have gained increasing importance as financial derivative instruments.

Accepted Answer

A) True 
 B)False

Question 12

________ cash flows arise from intracompany and intercompany receivables and payments while ________ cash flows are payments for the use of loans and equity.

Accepted Answer

A) Financing; operating 
B) Operating; financing 
C) Operating; accounting 
D) Accounting; financing 
A) Financing; operating 
B) Operating; financing 
C) Operating; accounting 
D) Accounting; financing

Question 13

After being introduced in the 1980s, currency swaps have remained a relatively insignificant financial derivative instrument.

Accepted Answer

A) True 
 B)False

Question 14

The Land's Beginning Company Inc. (LBC), imports extreme condition outdoor wear and equipment from The Hudson Bay Company (HBC)located in Canada. With the steady decline of the U.S dollar against the Canadian dollar LBC is finding a continued relationship with HBC to be an increasingly difficult proposition. In response to LBC's request, HBC has proposed the following risk-sharing arrangement. First, set the current spot rate as the base rate. As long as spot rates stay within 5% (up or down)LBC will pay at the base rate. Any rate outside of the 5% range, HBC will share equally with LBC the difference between the spot rate and the base rate. If LBC has a payable of C$100,000 due today and the current spot rate is C$1.17/$, how much does LBC owe in U.S. dollars?

Accepted Answer

A) $83,333 
B) $85,470 
C) $85,837 
D) $117,000 
A) $83,333 
B) $85,470 
C) $85,837 
D) $117,000

Question 15

Reinvoicing centers provide the following benefits:

Accepted Answer

A) Aid in the management of foreign exchange exposure. 
B) Effectively guarantee the exchange rate for future orders. 
C) Help manage intra-subsidiary cash flows. 
D) all of the above 
A) Aid in the management of foreign exchange exposure. 
B) Effectively guarantee the exchange rate for future orders. 
C) Help manage intra-subsidiary cash flows. 
D) all of the above

Question 16

Costs associated with the purchase of sizeable put options positions include each of the following EXCEPT:

Accepted Answer

A) the purchase price of the options. 
B) the opportunity cost of buying the options rather than diversifying operations to reduce risk. 
C) executive salaries of having corporate offices in more than one country. 
D) none of the above 
A) the purchase price of the options. 
B) the opportunity cost of buying the options rather than diversifying operations to reduce risk. 
C) executive salaries of having corporate offices in more than one country. 
D) none of the above

Question 17

The Land's Beginning Company Inc. (LBC), imports extreme condition outdoor wear and equipment from The Hudson Bay Company (HBC)located in Canada. With the steady decline of the U.S dollar against the Canadian dollar LBC is finding a continued relationship with HBC to be an increasingly difficult proposition. In response to LBC's request, HBC has proposed the following risk-sharing arrangement. First, set the current spot rate as the base rate. As long as spot rates stay within 5% (up or down)LBC will pay at the base rate. Any rate outside of the 5% range, HBC will share equally with LBC the difference between the spot rate and the base rate. If the current spot rate is C$1.20/$, what are the upper and lower limits for trading to take place at C$1.20?

Accepted Answer

A) C$1.205/$ - C$1.195/$ 
B) C$1.15/$ - C$1.25/$ 
C) C$1.14/$ - C$1.26/$ 
D) none of the above 
A) C$1.205/$ - C$1.195/$ 
B) C$1.15/$ - C$1.25/$ 
C) C$1.14/$ - C$1.26/$ 
D) none of the above

Question 18

Which of the following is NOT an example of diversification in financing?

Accepted Answer

A) Raising funds in more than one market. 
B) Raising funds in more than one country. 
C) Diversifying sales. 
D) All of the above qualify. 
A) Raising funds in more than one market. 
B) Raising funds in more than one country. 
C) Diversifying sales. 
D) All of the above qualify.

Question 19

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

Accepted Answer

A) Borrow money in the foreign currency in question. 
B) Lend money in the foreign currency in question. 
C) Rely on the Federal Reserve Board to enact monetary policy favorable to your exposure risk. 
D) none of the above 
A) Borrow money in the foreign currency in question. 
B) Lend money in the foreign currency in question. 
C) Rely on the Federal Reserve Board to enact monetary policy favorable to your exposure risk. 
D) none of the above

Question 20

Which of the following is NOT an example of an operating cash flow?

Accepted Answer

A) Management fees and distributed overhead. 
B) Royalties and license fees. 
C) Rent and lease payments. 
D) Dividend paid to parent company. 
A) Management fees and distributed overhead. 
B) Royalties and license fees. 
C) Rent and lease payments. 
D) Dividend paid to parent company.

Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?

Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors.

What type of international risk exposure measures the change in present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates?

Intracompany leads and lags are generally more feasible than comparable intercompany activities because the favorable impact of the lead or lag for one company is the reverse for the other firm.

Diversification is possibly the best technique for reducing the problems associated with international transactions. Provide one example each of international financial diversification and international operational diversification and explain how the action reduces risk.

When disequilibria in international markets occur, management can take advantage by

exposure is far more important for the long-run health of a business than changes caused by or exposure.

A ________ resembles a back-to-back loan except that it does not appear on a firm's balance sheet.

A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an loan to the subsidiary while effectively financing the subsidiary.

After being introduced in the 1980s, currency swaps have gained increasing importance as financial derivative instruments.

cash flows arise from intracompany and intercompany receivables and payments while cash flows are payments for the use of loans and equity.

After being introduced in the 1980s, currency swaps have remained a relatively insignificant financial derivative instrument.

Reinvoicing centers provide the following benefits:

Costs associated with the purchase of sizeable put options positions include each of the following EXCEPT:

Which of the following is NOT an example of diversification in financing?

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

Which of the following is NOT an example of an operating cash flow?

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007-2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives

Interest Rate and Currency Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

The Global Cost and Availability of Capital

Sourcing Equity Globally

Sourcing Debt Globally

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Political Risk

Multinational Capital Budgeting

Multinational Tax Management

Working Capital Management

International Trade Finance

Filters

Exam 12: Operating Exposure

Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?

Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors.

What type of international risk exposure measures the change in present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates?

Intracompany leads and lags are generally more feasible than comparable intercompany activities because the favorable impact of the lead or lag for one company is the reverse for the other firm.

Diversification is possibly the best technique for reducing the problems associated with international transactions. Provide one example each of international financial diversification and international operational diversification and explain how the action reduces risk.

When disequilibria in international markets occur, management can take advantage by

________ exposure is far more important for the long-run health of a business than changes caused by ________ or ________ exposure.

A ________ resembles a back-to-back loan except that it does not appear on a firm's balance sheet.

A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an ________ loan to the ________ subsidiary while effectively financing the ________ subsidiary.

After being introduced in the 1980s, currency swaps have gained increasing importance as financial derivative instruments.

________ cash flows arise from intracompany and intercompany receivables and payments while ________ cash flows are payments for the use of loans and equity.

After being introduced in the 1980s, currency swaps have remained a relatively insignificant financial derivative instrument.

Reinvoicing centers provide the following benefits:

Costs associated with the purchase of sizeable put options positions include each of the following EXCEPT:

Which of the following is NOT an example of diversification in financing?

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

Which of the following is NOT an example of an operating cash flow?

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007-2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives

Interest Rate and Currency Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

The Global Cost and Availability of Capital

Sourcing Equity Globally

Sourcing Debt Globally

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Political Risk

Multinational Capital Budgeting

Multinational Tax Management

Working Capital Management

International Trade Finance

Filters

exposure is far more important for the long-run health of a business than changes caused by or exposure.

A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an loan to the subsidiary while effectively financing the subsidiary.

cash flows arise from intracompany and intercompany receivables and payments while cash flows are payments for the use of loans and equity.