Exam 12: Operating Exposure

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

Recently the British Pound suffered an unexpected depreciation in value. Which of the following actions being considered by Coventry Furniture of London, a purely domestic furniture manufacturer and retailer, would be considered a highly unlikely response to the depreciation of the pound?

Another name for operating exposure is ________ exposure.

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

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:

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 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.

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:

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

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

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.

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 important impediment to widespread use of parallel loans?

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

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

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

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:

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

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

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