Question 1

Segmented markets are markets that discriminate on the basis of race, creed, or color.

Accepted Answer

A) True 
 B)False  False

Question 2

Change in the value of future cash flows due to unexpected changes in exchange rates is called _______ to currency risk.

Accepted Answer

A)  economic exposure 
B)  operating exposure 
C)  transaction exposure 
D)  translation exposure 
E)  None of the above 
A)  economic exposure 
B)  operating exposure 
C)  transaction exposure 
D)  translation exposure 
E)  None of the above A

Question 3

In an integrated financial market, purchasing power parity holds so that equivalent assets trade for the same price regardless of where they are traded.

Accepted Answer

A) True 
 B)False  True

Question 4

Operating cash flows that are exposed to currency risk are affected primarily by ______.

Accepted Answer

A)  changes in domestic inflation 
B)  changes in foreign inflation 
C)  changes in nominal exchange rates 
D)  changes in real exchange rates 
E)  None of the above 
A)  changes in domestic inflation 
B)  changes in foreign inflation 
C)  changes in nominal exchange rates 
D)  changes in real exchange rates 
E)  None of the above

Question 5

Shareholders' exposure to currency risk is equal to ______.

Accepted Answer

A)  assets less liabilities 
B)  credits less debits 
C)  net monetary assets plus real assets 
D)  the sum of transaction exposure and operating exposure 
E)  None of the above 
A)  assets less liabilities 
B)  credits less debits 
C)  net monetary assets plus real assets 
D)  the sum of transaction exposure and operating exposure 
E)  None of the above

Question 6

The domestic currency value of a monetary cash flow denominated in a foreign currency changes _______ with a change in the value of the foreign currency.

Accepted Answer

A)  disproportionately 
B)  the currency of denomination 
C)  not at all 
D)  one for one 
E)  None of the above 
A)  disproportionately 
B)  the currency of denomination 
C)  not at all 
D)  one for one 
E)  None of the above

Question 7

Managers should assess the performance of financial market hedges of operating exposures by ______.

Accepted Answer

A)  assessing the interaction of operating performance with exchange rate changes 
B)  varying pro forma operating performance within reasonable limits 
C)  varying the exchange rate and assessing the resulting competitive position of the firm 
D)  More than one of the above 
E)  None of the above 
A)  assessing the interaction of operating performance with exchange rate changes 
B)  varying pro forma operating performance within reasonable limits 
C)  varying the exchange rate and assessing the resulting competitive position of the firm 
D)  More than one of the above 
E)  None of the above

Question 8

The classic _______ is relatively insensitive to currency fluctuations.

Accepted Answer

A)  domestic firms 
B)  exporters 
C)  importers 
D)  multinational corporations 
E)  Each of the above is sensitive to changes in foreign exchange rates 
A)  domestic firms 
B)  exporters 
C)  importers 
D)  multinational corporations 
E)  Each of the above is sensitive to changes in foreign exchange rates

Question 9

Exposure to currency risk is measured as the percentage change in ______.

Accepted Answer

A)  currency values given a percentage change in exchange rates 
B)  exchange rates given a percentage change in currency values 
C)  exchange rates given a percentage change in value 
D)  value given a percentage change in exchange rates 
E)  None of the above 
A)  currency values given a percentage change in exchange rates 
B)  exchange rates given a percentage change in currency values 
C)  exchange rates given a percentage change in value 
D)  value given a percentage change in exchange rates 
E)  None of the above

Question 10

Change in the value of contractual cash flows due to unexpected changes in currency values is called ______ to currency risk.

Accepted Answer

A)  economic exposure 
B)  operating exposure 
C)  transaction exposure 
D)  translation exposure 
E)  None of the above 
A)  economic exposure 
B)  operating exposure 
C)  transaction exposure 
D)  translation exposure 
E)  None of the above

Question 11

A Dutch exporter has dollar revenues and euro expenses. The company's competitors are U.S. firms that have revenues and expenses denominated in dollars. Sensible pricing strategies that the Dutch exporter can pursue in response to an appreciation of the dollar include which of a) through c)?

Accepted Answer

A)  Maintain the current euro price for their goods, try to sell the same quantity in the U.S. market, and capture a bigger contribution margin per unit. 
B)  Maintain the current dollar price for their goods and try to increase profits by increasing sales volume at the current contribution margin. 
C)  Follow the lead of the price leader in the U.S. market. 
D)  More than one of the above 
E)  None of the above 
A)  Maintain the current euro price for their goods, try to sell the same quantity in the U.S. market, and capture a bigger contribution margin per unit. 
B)  Maintain the current dollar price for their goods and try to increase profits by increasing sales volume at the current contribution margin. 
C)  Follow the lead of the price leader in the U.S. market. 
D)  More than one of the above 
E)  None of the above

Question 12

The globally competitive multinational corporation typically has ______.

Accepted Answer

A)  both revenues and expenses that are determined globally 
B)  both revenues and expenses that are determined locally 
C)  revenues that are determined locally and expenses that are determined globally 
D)  revenues that are determined globally and expenses that are determined locally 
E)  None of the above 
A)  both revenues and expenses that are determined globally 
B)  both revenues and expenses that are determined locally 
C)  revenues that are determined locally and expenses that are determined globally 
D)  revenues that are determined globally and expenses that are determined locally 
E)  None of the above

Question 13

Real asset hedges of operating exposure to currency risk are less difficult to construct than financial market hedges.

Accepted Answer

A) True 
 B)False

Question 14

Dimensions of diversification that can reduce variability in the multinational corporation's operating cash flows include ____:

Accepted Answer

A)  currency and geographic diversification 
B)  currency and product market diversification 
C)  geographic and product market diversification 
D)  currency and virtual diversification 
E)  None of the above 
A)  currency and geographic diversification 
B)  currency and product market diversification 
C)  geographic and product market diversification 
D)  currency and virtual diversification 
E)  None of the above

Question 15

Operating exposure is defined as change in the firm's operations in response to currency risk.

Accepted Answer

A) True 
 B)False

Question 16

Monetary cash flows that are exposed to currency risk are affected primarily by ______.

Accepted Answer

A)  changes in domestic unemployment 
B)  changes in foreign unemployment 
C)  changes in nominal exchange rates 
D)  changes in real exchange rates 
E)  None of the above 
A)  changes in domestic unemployment 
B)  changes in foreign unemployment 
C)  changes in nominal exchange rates 
D)  changes in real exchange rates 
E)  None of the above

Question 17

Operating exposure to currency risk is most effectively managed by ______.

Accepted Answer

A)  hedging with currency forwards or futures 
B)  hedging with currency options 
C)  hedging with real assets 
D)  hedging with virtual assets 
E)  None of the above 
A)  hedging with currency forwards or futures 
B)  hedging with currency options 
C)  hedging with real assets 
D)  hedging with virtual assets 
E)  None of the above

Question 18

Economic exposure to currency risk is defined as change in the value of future cash flows due to unexpected changes in currency values.

Accepted Answer

A) True 
 B)False

Question 19

An exporter's financial market hedging alternatives include each of a) through c) EXCEPT

Accepted Answer

A)  Buy the foreign currency with long-dated forward contracts. 
B)  Use currency swaps to acquire financial liabilities in the foreign currency. 
C)  Use a rolling hedge to repeatedly sell the foreign currency. 
D)  More than one of the above 
E)  None of the above 
A)  Buy the foreign currency with long-dated forward contracts. 
B)  Use currency swaps to acquire financial liabilities in the foreign currency. 
C)  Use a rolling hedge to repeatedly sell the foreign currency. 
D)  More than one of the above 
E)  None of the above

Question 20

Economic exposure is far more important than translation exposure to the value of the multinational corporation.

Accepted Answer

A) True 
 B)False

Exam 10: Managing Operating Exposure to Currency Risk

Segmented markets are markets that discriminate on the basis of race, creed, or color.

Change in the value of future cash flows due to unexpected changes in exchange rates is called _______ to currency risk.

In an integrated financial market, purchasing power parity holds so that equivalent assets trade for the same price regardless of where they are traded.

Operating cash flows that are exposed to currency risk are affected primarily by ______.

Shareholders' exposure to currency risk is equal to ______.

The domestic currency value of a monetary cash flow denominated in a foreign currency changes _______ with a change in the value of the foreign currency.

Managers should assess the performance of financial market hedges of operating exposures by ______.

The classic _______ is relatively insensitive to currency fluctuations.

Exposure to currency risk is measured as the percentage change in ______.

Change in the value of contractual cash flows due to unexpected changes in currency values is called ______ to currency risk.

A Dutch exporter has dollar revenues and euro expenses. The company's competitors are U.S. firms that have revenues and expenses denominated in dollars. Sensible pricing strategies that the Dutch exporter can pursue in response to an appreciation of the dollar include which of a) through c)?

The globally competitive multinational corporation typically has ______.

Real asset hedges of operating exposure to currency risk are less difficult to construct than financial market hedges.

Dimensions of diversification that can reduce variability in the multinational corporation's operating cash flows include ____:

Operating exposure is defined as change in the firm's operations in response to currency risk.

Monetary cash flows that are exposed to currency risk are affected primarily by ______.

Operating exposure to currency risk is most effectively managed by ______.

Economic exposure to currency risk is defined as change in the value of future cash flows due to unexpected changes in currency values.

An exporter's financial market hedging alternatives include each of a) through c) EXCEPT

Economic exposure is far more important than translation exposure to the value of the multinational corporation.

An Introduction to Multinational Finance

World Trade and the International Monetary System

Foreign Exchange and Eurocurrency Markets

The International Parity Conditions and Their Consequences

Extension: the International Parity Conditions and Their Consequences

Currency Futures and Futures Markets

Currency Options and Options Markets

Currency Swaps and Swaps Markets

Multinational Treasury Management

Extension: Multinational Treasury Management

Managing Transaction Exposure to Currency Risk

Managing Translation Exposure and Accounting for Financial Transactions

Foreign Market Entry and Country Risk Management

Multinational Capital Budgeting

Multinational Capital Structure and Cost of Capital

Taxes and Multinational Corporate Strategy

Real Options and Cross-Border Investment Strategy

Corporate Governance and the International Market for Corporate Control

International Capital Markets

International Portfolio Diversification

International Asset Pricing

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