Exam 12: Operating Exposure

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

When considering the phases of adjustment and response to operating exposure in the LONG RUN, price changes tend to be ________ and volume changes tend to be ________.

Even though contracts are often fixed in the short run, as time passes, prices and costs can be changed to reflect the new competitive realities caused by a change in exchange rates.

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

Reinvoicing centers provide the following benefit(s):

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 diversifying operations?

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.

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

The variability of a firm's operating cash flows is probably reduced by international diversification of its production, sourcing, and sales because exchange rate changes under disequilibrium conditions are likely to increase the firm''s competitiveness in some markets while reducing it in others.

Purely domestic firms will be at a disadvantage to MNEs in the event of market disequilibria because:

For a firm that competes internationally to sell its products, a depreciation of its domestic currency relative to markets where the firm exports goods, should eventually result in ________ sales at home and ________ sales abroad, other things equal.

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?

Unexpected changes in exchange rates is never good news for a firm's operating income.

Brimmo Motorcycles Inc., a U.S.-based firm, manufactures and sells electric motorcycles both domestically and internationally. A sudden and unexpected appreciation of the U.S. dollar should allow sales to ________ at home and ________ abroad. (Assume other factors remain unchanged.)

Recently the Canadian dollar realized an unexpected appreciation in value. Which of the following actions being considered by Tall Timber Exports, a Canadian logging firm specializing in exporting raw forest products, would be considered a highly unlikely response to the appreciation of the Canadian dollar?

The strategy management undertakes in response to unexpected changes in exchange rates depends to a large measure on their opinion about the price elasticity of demand.