Question 1

Swap agreements are treated as off-balance sheet transactions via U.S. accounting methods.

Accepted Answer

A) True 
 B)False  True

Question 2

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. A

Question 3

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.

Accepted Answer

A) $102,000 
B) $101,000 
C) $100,000 
D) none of the above 
A) $102,000 
B) $101,000 
C) $100,000 
D) none of the above B

Question 4

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 5

Which of the following is probably NOT an advantage of foreign exchange risk management?

Accepted Answer

A) the reduction of the variability of cash flows due to domestic business cycles 
B) increased availability of capital 
C) reduced cost of capital 
D) All of the above are potential advantages of foreign exchange risk management. 
A) the reduction of the variability of cash flows due to domestic business cycles 
B) increased availability of capital 
C) reduced cost of capital 
D) All of the above are potential advantages of foreign exchange risk management.

Question 6

Diversifying the financing base means diversifying sales, location of production facilities, and raw material sources.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) parent invested equity capital 
B) interest on intrafirm lending 
C) payment for goods and services 
D) intrafirm principal payments 
A) parent invested equity capital 
B) interest on intrafirm lending 
C) payment for goods and services 
D) intrafirm principal payments

Question 9

NorthRim Inc. (NRI), imports extreme condition outdoor wear and equipment from The Allofit Territories Company (ATC)located in Canada. With the steady decline of the U.S dollar against the Canadian dollar NRI is finding a continued relationship with ATC to be an increasingly difficult proposition. In response to NRI's request, ATC 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)NRI will pay at the base rate. Any rate outside of the 5% range, ATC will share equally with NRI the difference between the spot rate and the base rate. If NRI 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 10

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 11

If a firm diversifies its financing sources, it will be pre-positioned to take advantage of temporary deviations from the International Fisher Effect.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Moral hazard may occur when a firm or individual takes on more risk when it knows that someone else will "pick up the tab."

Accepted Answer

A) True 
 B)False

Question 14

Operating cash flows may occur in different currencies and at different times, but financing cash flows may occur only in a single currency.

Accepted Answer

A) True 
 B)False

Question 15

A U.S. timber products firm has a long-term contract to import unprocessed logs from Canada. To avoid occasional and unpredictable changes in the exchange rate between the U.S. dollar and the Canadian dollar, the firms agree to split between the two firms the impact of any exchange rate movement. This type of agreement is referred to as:

Accepted Answer

A) risk-sharing. 
B) currency-switching. 
C) matching. 
D) a natural hedge. 
A) risk-sharing. 
B) currency-switching. 
C) matching. 
D) a natural hedge.

Question 16

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 17

NorthRim Inc. (NRI), imports extreme condition outdoor wear and equipment from the Allofit Territories Company (ATC)located in Canada. With the steady decline of the U.S dollar against the Canadian dollar NRI is finding a continued relationship with ATC to be an increasingly difficult proposition. In response to NRI's request, ATC 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)NRI will pay at the base rate. Any rate outside of the 5% range, ATC will share equally with NRI 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 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?

Accepted Answer

A) Borrow money in the foreign currency in question. 
B) Lend money in the foreign currency in question. 
C) Increase sales to that country. 
D) Increase sales in this country. 
A) Borrow money in the foreign currency in question. 
B) Lend money in the foreign currency in question. 
C) Increase sales to that country. 
D) Increase sales in this country.

Question 19

Most swap dealers arrange swaps so that each firm that is a party to the transaction does not know who the counterparty is.

Accepted Answer

A) True 
 B)False

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

Swap agreements are treated as off-balance sheet transactions via U.S. accounting methods.

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

Which of the following is probably NOT an advantage of foreign exchange risk management?

Diversifying the financing base means diversifying sales, location of production facilities, and raw material sources.

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.

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

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?

If a firm diversifies its financing sources, it will be pre-positioned to take advantage of temporary deviations from the International Fisher Effect.

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?

Moral hazard may occur when a firm or individual takes on more risk when it knows that someone else will "pick up the tab."

Operating cash flows may occur in different currencies and at different times, but financing cash flows may occur only in a single currency.

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 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?

Most swap dealers arrange swaps so that each firm that is a party to the transaction does not know who the counterparty is.

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

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

Exam 12: Operating Exposure

Swap agreements are treated as off-balance sheet transactions via U.S. accounting methods.

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

Which of the following is probably NOT an advantage of foreign exchange risk management?

Diversifying the financing base means diversifying sales, location of production facilities, and raw material sources.

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.

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

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?

If a firm diversifies its financing sources, it will be pre-positioned to take advantage of temporary deviations from the International Fisher Effect.

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?

Moral hazard may occur when a firm or individual takes on more risk when it knows that someone else will "pick up the tab."

Operating cash flows may occur in different currencies and at different times, but financing cash flows may occur only in a single currency.

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 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?

Most swap dealers arrange swaps so that each firm that is a party to the transaction does not know who the counterparty is.

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

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters