Question 1

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

Accepted Answer

A)  domestic firms lack comparative data from its own sources. 
B)  international firms are already so large. 
C)  all of the domestic firm's raw materials are imported. 
D)  None of the above; domestic firms are not at a disadvantage. 
A)  domestic firms lack comparative data from its own sources. 
B)  international firms are already so large. 
C)  all of the domestic firm's raw materials are imported. 
D)  None of the above; domestic firms are not at a disadvantage. A

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

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.

Accepted Answer

A)  fewer; greater 
B)  fewer; fewer 
C)  greater; greater 
D)  greater; fewer 
A)  fewer; greater 
B)  fewer; fewer 
C)  greater; greater 
D)  greater; fewer

Question 5

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?

Accepted Answer

A)  expropriation of assets 
B)  destruction of raw materials through natural disaster 
C)  war 
D)  unfavorable legal changes 
A)  expropriation of assets 
B)  destruction of raw materials through natural disaster 
C)  war 
D)  unfavorable legal changes

Question 6

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?

Accepted Answer

A)  Coventry might choose to maintain its domestic sales prices constant in pound terms. 
B)  Coventry might try to raise domestic prices because competing imports are now priced higher in England. 
C)  Coventry might try to lower domestic prices because competing imports are now priced higher in England. 
D)  none of the above 
A)  Coventry might choose to maintain its domestic sales prices constant in pound terms. 
B)  Coventry might try to raise domestic prices because competing imports are now priced higher in England. 
C)  Coventry might try to lower domestic prices because competing imports are now priced higher in England. 
D)  none of the above

Question 7

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:

Accepted Answer

A)  hedging. 
B)  diversification. 
C)  matching. 
D)  balancing. 
A)  hedging. 
B)  diversification. 
C)  matching. 
D)  balancing.

Question 8

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 9

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

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  matching currency cash flows 
B)  cross-currency swaps 
C)  remaining a purely domestic firm 
D)  parallel loans 
A)  matching currency cash flows 
B)  cross-currency swaps 
C)  remaining a purely domestic firm 
D)  parallel loans

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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

Accepted Answer

A)  diversifying sales 
B)  diversifying location of operations 
C)  raising funds in more than one country 
D)  sourcing raw materials in more than one country 
A)  diversifying sales 
B)  diversifying location of operations 
C)  raising funds in more than one country 
D)  sourcing raw materials in more than one country

Question 16

________ 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 17

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:

Accepted Answer

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

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

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

Question 20

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

Accepted Answer

A) True 
 B)False

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

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

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

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?

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?

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:

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.

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

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

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

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

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

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

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 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?

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

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

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 12: Operating Exposure

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

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

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

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?

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?

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:

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.

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

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

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

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

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

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

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 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?

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

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

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

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.

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