A) translation gains and losses are included in the reported net income. B) translation gains and losses are included in stockholder's equity. C) translation gains and losses are included in the reported net income AND translation gains and losses are included in stockholder's equity. D) None of these are correct. A) translation gains and losses are included in the reported net income. B) translation gains and losses are included in stockholder's equity. C) translation gains and losses are included in the reported net income AND translation gains and losses are included in stockholder's equity. D) None of these are correct.

Exam 10: Measuring Exposure to Exchange Rate Fluctuations

Jensen Co. expects to pay €50,000 in one month for its imports from France. It also expects to receive €200,000 for its exports to Belgium in one month. Jensen estimates the standard deviation of monthly percentage changes of the euro to be 2.5 percent over the last 50 months. Assume that these percentage changes are normally distributed. Using the value-at-risk (VaR) method based on a 97.5 percent confidence level, what is the maximum one-month loss in dollars if the expected percentage change of the euro during next month is 2 percent? Assume that the current spot rate of the euro (before considering the maximum one-month loss) is $1.35.

(Multiple Choice)

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Question 21

Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:

(Multiple Choice)

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Question 22

If positions in a specific currency among an MNC's subsidiaries offset each other, the decision by one subsidiary to hedge its position in that currency would increase the MNC's overall exposure.

(True/False)

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Question 23

Regression analysis cannot be used to assess the sensitivity of a company's performance to economic conditions because economic conditions are unpredictable.

(True/False)

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Question 24

Which of the following is not a form of exposure to exchange rate fluctuations?

(Multiple Choice)

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Question 25

Subsidiary A of Mega Corp. has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What is the net inflow or outflow as measured in U.S. dollars?

(Multiple Choice)

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Question 26

Under FASB 52:

(Multiple Choice)

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Question 27

Assume that Mill Corp., a U.S.-based MNC, has applied the following regression model to estimate the sensitivity of its cash flows to exchange rate movements: PCF_t = a₀ + a₁e_t + $\mu$ _t Where the term on the left-hand side is the percentage change in inflation-adjusted cash flows measured in the firm's home currency over period t, and e_t is the percentage change in the exchange rate of the currency over period t. The regression model estimates a coefficient of a₁ of 2. This indicates that if the foreign currency:

(Multiple Choice)

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Question 28

If the functional currencies for reporting purposes are highly correlated, translation exposure is magnified.

(True/False)

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Question 29

Assume that exchange rate movements were unusually stable in a recent period (but will not continue to be so stable in the future) that was used to derive the estimated maximum expected loss based on the VaR method. The estimated expected loss derived using VaR based on that recent period will likely overestimate the actual maximum expected loss in the future.

(True/False)

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Question 30

The VaR method presumes that the distribution of exchange rate movements is normal.

(True/False)

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Question 31

In general, a firm that concentrates on local sales, has very little foreign competition, and obtains foreign supplies (denominated in foreign currencies) will likely a(n) local currency.

(Multiple Choice)

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Question 32

The VaR method assumes that the volatility (standard deviation) of exchange rate movements changes over time.

(True/False)

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Question 33

Purely domestic firms are never affected by economic exposure.

(True/False)

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Question 34

The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:

(Multiple Choice)

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Question 35

Which of the following is not true regarding currency correlations?

(Multiple Choice)

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Question 36

Assume a regression model in which the dependent variable is the firm's stock price percentage change, and the independent variable is the percentage change in the foreign currency. The coefficient is negative. This implies that the company's stock price increases if the foreign currency appreciates.

(True/False)

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Question 37

Magent Co. is a U.S. company that has exposure to the Swiss franc (SF) and Danish kroner (DK). It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $.40 while the present exchange rate of the DK is $.10. Magent Co. has not hedged these positions. The SF and DK are highly correlated in their movements against the dollar. If the dollar weakens, then Magent Co. will:

(Multiple Choice)

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Question 38

If a U.S. firm's sales in Australia are much greater than its cost of goods sold in Australia, the appreciation of the Australian dollar has a impact on the firm's .

(Multiple Choice)

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Question 39

Translation exposure reflects:

(Multiple Choice)

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Question 40

Showing 21 - 40 of 81

Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:

If positions in a specific currency among an MNC's subsidiaries offset each other, the decision by one subsidiary to hedge its position in that currency would increase the MNC's overall exposure.

Regression analysis cannot be used to assess the sensitivity of a company's performance to economic conditions because economic conditions are unpredictable.

Which of the following is not a form of exposure to exchange rate fluctuations?

Subsidiary A of Mega Corp. has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What is the net inflow or outflow as measured in U.S. dollars?

Under FASB 52:

If the functional currencies for reporting purposes are highly correlated, translation exposure is magnified.

The VaR method presumes that the distribution of exchange rate movements is normal.

In general, a firm that concentrates on local sales, has very little foreign competition, and obtains foreign supplies (denominated in foreign currencies) will likely a(n) local currency.

The VaR method assumes that the volatility (standard deviation) of exchange rate movements changes over time.

Purely domestic firms are never affected by economic exposure.

The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:

Which of the following is not true regarding currency correlations?

If a U.S. firm's sales in Australia are much greater than its cost of goods sold in Australia, the appreciation of the Australian dollar has a impact on the firm's .

Translation exposure reflects:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 10: Measuring Exposure to Exchange Rate Fluctuations

​Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:

If positions in a specific currency among an MNC's subsidiaries offset each other, the decision by one subsidiary to hedge its position in that currency would increase the MNC's overall exposure.

Regression analysis cannot be used to assess the sensitivity of a company's performance to economic conditions because economic conditions are unpredictable.

Which of the following is not a form of exposure to exchange rate fluctuations?

Subsidiary A of Mega Corp. has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What is the net inflow or outflow as measured in U.S. dollars?

Under FASB 52:

If the functional currencies for reporting purposes are highly correlated, translation exposure is magnified.

The VaR method presumes that the distribution of exchange rate movements is normal.

In general, a firm that concentrates on local sales, has very little foreign competition, and obtains foreign supplies (denominated in foreign currencies) will likely ____ a(n) ____ local currency.

The VaR method assumes that the volatility (standard deviation) of exchange rate movements changes over time.

Purely domestic firms are never affected by economic exposure.

​The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:

Which of the following is not true regarding currency correlations?

​If a U.S. firm's sales in Australia are much greater than its cost of goods sold in Australia, the appreciation of the Australian dollar has a ____ impact on the firm's ____.

​Translation exposure reflects:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:

In general, a firm that concentrates on local sales, has very little foreign competition, and obtains foreign supplies (denominated in foreign currencies) will likely a(n) local currency.

The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:

If a U.S. firm's sales in Australia are much greater than its cost of goods sold in Australia, the appreciation of the Australian dollar has a impact on the firm's .

Translation exposure reflects: