Question 1

Which of the following is not a strategy for managing operating exposure

Accepted Answer

A)  Financial hedging
B)  Diversification of the market
C)  Lowering sale prices
D)  Product differentiation C

Question 2

The expected value of the investment in Canadian dollars is:

Accepted Answer

A)  $3,000
B)  $4,950
C)  $5,155
D)  $5,550 C

Question 3

The variance of the exchange rate is:

Accepted Answer

A)  0.001968
B)  0.002968
C)  0.003968
D)  0.004968 B

Question 4

The exposure coefficient,b,is defined as

Accepted Answer

A)  Cov (P, S)  / Cov (S) 
B)  Cov (P, S)  / Var (S) 
C)  Var (S)  / Cov (P,S) 
D)  Cov (P, S)  / Var (P)

Question 5

The extend to which the value of the firm is affected by unanticipated changes in exchange rates is called

Accepted Answer

A)  economic exposure
B)  operating exposure
C)  transaction exposure
D)  translation exposure

Question 6

The variance of the exchange rate is:

Accepted Answer

A)  0.065058
B)  0.056058
C)  0.075058
D)  0.085058

Question 7

ABC Inc.,a Canadian paper manufacturer,has a subsidiary in the United States which sources its wood from Canada.The US dollar depreciates rapidly.Discuss the likely competitive and conversion effects of the depreciation of the US dollar.

Accepted Answer

The answer of ABC Inc.,a Canadian paper manufacturer,has a subsidiary...

Question 8

Which of the following conclusions are correct?

Accepted Answer

A)  most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S) ] and Var(e)  are 236,717 ($) 2 and 493,751 ($) 2 respectively
B)  most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S) ] and Var(e)  are 236,717 ($) 2 and 493,751 ($) 2 respectively
C)  most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S) ] and Var(e)  are 493,751 ($) 2 and 236,717 ($) 2, respectively
D)  most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S) ] and Var(e)  are 493,751 ($) 2 and 236,717 ($) 2 respectively

Question 9

How can operating exposure be managed?

Accepted Answer

The answer of How can operating exposure be managed?...

Question 10

The variability of the dollar value of an asset (invested overseas)depends on:

Accepted Answer

A)  the variability of the dollar value of the asset that is related to random changes in the exchange rate
B)  the dollar value variability that is independent of exchange rate movements
C)  a and b
D)  none of these

Question 11

Economic exposure refers to:

Accepted Answer

A)  the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes
B)  the extent to which the value of the firm would be affected by unanticipated changes in exchange rate
C)  the potential that the firm's consolidated financial statement can be affected by changes in exchange rates
D)  ex post and ex ante currency exposures

Question 12

A firm's operating exposure is:

Accepted Answer

A)  defined as the extent to which the firm's operating cash flows would be affected by the random changes in exchange rates
B)  determined by the structure of the markets in which the firm sources its inputs, such as labor and materials, and sells its products
C)  determined by the firm's ability to mitigate the effect of exchange rate changes by adjusting its markets, product mix, and sourcing
D)  all of these

Question 13

It is conventional to classify foreign currency exposures into the following types:

Accepted Answer

A)  economic exposure, transaction exposure, and translation exposure
B)  economic exposure, noneconomic exposure, and political exposure
C)  national exposure, international exposure, and trade exposure
D)  conversion exposure, and exchange exposure

Question 14

The "exposure" (i.e.the regression coefficient beta)is:
Hint:
Calculate the expression Cov(P,S)/Var(S)

Accepted Answer

A)  128.98
B)  1,289.80
C)  12,898.00
D)  none of these

Question 15

Banff Inc.is headquartered in Calgary and produces high-end living room furniture.The firm has a subsidiary in Germany.The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany.The German subsidiary then upholsters the sofas using Belgium fabrics.Each frame costs the subsidiary C$1,500.The materials and labour for the upholstery amount to euro 2,000 per sofa.Fixed overhead costs are euro 1,500,000 for the subsidiary.Banff Inc.expects to be able to sell 3,000 Sofas for 5,000 euros each.The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%.The current exchange rate is C$1.5/euro.How would the operating cash flows (expressed in Canadian dollars)change if the exchange rate is C$1.6/euro,all else equal?

Accepted Answer

The answer of Banff Inc.is headquartered in Calgary and produces...

Question 16

Banff Inc.is headquartered in Calgary and produces high-end living room furniture.The firm has a subsidiary in Germany.The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany.The German subsidiary then upholsters the sofas using Belgium fabrics.Each frame costs the subsidiary C$1,500.The materials and labour for the upholstery amount to euro 2,000 per sofa.Fixed overhead costs are euro 1,500,000 for the subsidiary.Banff Inc.expects to be able to sell 3,000 Sofas for 5,000 euros each.The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%.The current exchange rate is C$1.5/euro.How would the operating cash flows (expressed in Canadian dollars)change if the exchange rate is C$1.4/euro,the German inflation rate is 3% but the firm will not be able to raise the price for its products and due to new competition from the Russian market (with a more favorable exchange rate)unit sales drop to 2,500?

Accepted Answer

The answer of Banff Inc.is headquartered in Calgary and produces...

Question 17

Operating exposure can be managed by:

Accepted Answer

A)  flexible sourcing policy
B)  diversification of the market
C)  financial hedging
D)  all of these

Question 18

The "exposure" (i.e.the regression coefficient beta)is:

Accepted Answer

A)  67.97
B)  679.78
C)  6797.80
D)  none of these

Question 19

Banff Inc.is headquartered in Calgary and produces high-end living room furniture.The firm has a subsidiary in Germany.The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany.The German subsidiary then upholsters the sofas using Belgium fabrics.Each frame costs the subsidiary C$1,500.The materials and labour for the upholstery amount to euro 2,000 per sofa.Fixed overhead costs are euro 1,500,000 for the subsidiary.Banff Inc.expects to be able to sell 3,000 Sofas for 5,000 euros each.The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%.The current exchange rate is C$1.5/euro.How would the operating cash flows (expressed in Canadian dollars)change if the exchange rate is C$1.4/euro,all else equal?

Accepted Answer

The answer of Banff Inc.is headquartered in Calgary and produces...

Question 20

Operating exposure can be defined as:

Accepted Answer

A)  the future home currency values of the firm's assets and liabilities
B)  the extent to which the firm's operating cash flows would be affected by random changes in exchange rates
C)  the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes
D)  the potential that the firm's consolidated financial statement can be affected by changes in exchange rates

Exam 12: International Bond Market

Which of the following is not a strategy for managing operating exposure

The expected value of the investment in Canadian dollars is:

The variance of the exchange rate is:

The exposure coefficient,b,is defined as

The extend to which the value of the firm is affected by unanticipated changes in exchange rates is called

The variance of the exchange rate is:

ABC Inc.,a Canadian paper manufacturer,has a subsidiary in the United States which sources its wood from Canada.The US dollar depreciates rapidly.Discuss the likely competitive and conversion effects of the depreciation of the US dollar.

Which of the following conclusions are correct?

How can operating exposure be managed?

The variability of the dollar value of an asset (invested overseas) depends on:

Economic exposure refers to:

A firm's operating exposure is:

It is conventional to classify foreign currency exposures into the following types:

The "exposure" (i.e.the regression coefficient beta) is: Hint: Calculate the expression Cov(P,S) /Var(S)

Operating exposure can be managed by:

The "exposure" (i.e.the regression coefficient beta) is:

Operating exposure can be defined as: