Question 1

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 2

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

Accepted Answer

a)Matching currency cash flows requires

Question 3

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 4

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.

Accepted Answer

A)  matched flow 
B)  currency swap 
C)  back-to-back loan 
D)  none of the above 
A)  matched flow 
B)  currency swap 
C)  back-to-back loan 
D)  none of the above

Question 5

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?

Accepted Answer

A)  Tall Timber Exports might lower export prices in an effort to maintain market share. 
B)  Tall Timber Exports might raise export prices only slightly in an effort to increase market share. 
C)  Tall Timber Exports might leave export prices as they are and wait to determine what actions to take if any in the future. 
D)  all of the above 
A)  Tall Timber Exports might lower export prices in an effort to maintain market share. 
B)  Tall Timber Exports might raise export prices only slightly in an effort to increase market share. 
C)  Tall Timber Exports might leave export prices as they are and wait to determine what actions to take if any in the future. 
D)  all of the above

Question 6

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 7

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 8

The higher the price elasticity of demand,the higher the degree of pass-through.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 ________.

Accepted Answer

A)  fixed/contracted; contracted. 
B)  fixed/contracted; completely flexible. 
C)  completely flexible; completely flexible. 
D)  completely flexible; contracted. 
A)  fixed/contracted; contracted. 
B)  fixed/contracted; completely flexible. 
C)  completely flexible; completely flexible. 
D)  completely flexible; contracted.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

________ 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 16

Another name for operating exposure is ________ exposure.

Accepted Answer

A)  economic 
B)  competitive 
C)  strategic 
D)  all of the above 
A)  economic 
B)  competitive 
C)  strategic 
D)  all of the above

Question 17

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 18

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.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT an important impediment to widespread use of parallel loans?

Accepted Answer

A)  difficulty in finding an appropriate counterparty 
B)  the risk that one of the parties will fail to return the borrowed funds when agreed 
C)  the process does not avoid exchange rate risk 
D)  All of the above are significant impediments. 
A)  difficulty in finding an appropriate counterparty 
B)  the risk that one of the parties will fail to return the borrowed funds when agreed 
C)  the process does not avoid exchange rate risk 
D)  All of the above are significant impediments.

Question 20

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.

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

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

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 an example of diversification in financing?

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

The higher the price elasticity of demand,the higher the degree of pass-through.

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

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

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 .

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

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?

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

Another name for operating exposure is ________ exposure.

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.

Which of the following is NOT an important impediment to widespread use of parallel loans?

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

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

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

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 an example of diversification in financing?

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

The higher the price elasticity of demand,the higher the degree of pass-through.

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

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

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 ________.

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

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?

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

Another name for operating exposure is ________ exposure.

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.

Which of the following is NOT an important impediment to widespread use of parallel loans?

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

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 .

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