Question 1

Which of the following is NOT one of the commonly employed financial policies used to manage operating and transaction exposure?

Accepted Answer

A) use of natural hedges by matching currency cash flows 
B) back-to-back or parallel loans 
C) currency swaps 
D) All of the above are commonly used financial policies for managing operating exposure. 
A) use of natural hedges by matching currency cash flows 
B) back-to-back or parallel loans 
C) currency swaps 
D) All of the above are commonly used financial policies for managing operating exposure.

Question 2

Operating exposure

Accepted Answer

A) creates foreign exchange accounting gains and losses. 
B) causes exchange rates to fluctuate. 
C) is the possibility that future cash flows will change due to an unexpected change in foreign exchange rates. 
D) measures a country's propensity to import and export. 
A) creates foreign exchange accounting gains and losses. 
B) causes exchange rates to fluctuate. 
C) is the possibility that future cash flows will change due to an unexpected change in foreign exchange rates. 
D) measures a country's propensity to import and export.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

An unexpected change in exchange rates impacts a firm's cash flows at what level(s)?

Accepted Answer

A) short run 
B) medium run (equilibrium case) 
C) long run 
D) all of the above 
A) short run 
B) medium run (equilibrium case) 
C) long run 
D) all of the above

Question 7

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

Matching currency cash flows requires th

Question 8

Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

________ 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 14

The primary method by which a firm may protect itself against operating exposure impacts is

Accepted Answer

A) money market hedges. 
B) diversification. 
C) forward contract hedges. 
D) balance sheet hedging. 
A) money market hedges. 
B) diversification. 
C) forward contract hedges. 
D) balance sheet hedging.

Question 15

Which of the following is 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 16

Swap agreements are treated as off-balance sheet transactions via U.S.accounting methods.

Accepted Answer

A) True 
 B)False

Question 17

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.

Question 18

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 19

An unexpected change in exchange rates impacts a firm's expected cash flows at four levels; a)the short run,b)medium run: equilibrium,c)medium run: disequilibrium,and d)the long run.Describe the impact on cash flows over each of these categories identifying the time frame for each as well as the price changes,volume changes,and structural changes associated with each stage.

Accepted Answer

The answer of An unexpected change in exchange rates impacts...

Question 20

Under conditions of equilibrium,management would use ________ exchange rate as an unbiased predictor of future spot rates when preparing operating budgets.

Accepted Answer

A) the current spot 
B) the forward rate 
C) the black market 
D) none of the above 
A) the current spot 
B) the forward rate 
C) the black market 
D) none of the above

Which of the following is NOT one of the commonly employed financial policies used to manage operating and transaction exposure?

Operating exposure

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

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

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

An unexpected change in exchange rates impacts a firm's cash flows at what level(s)?

Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors.

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

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

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

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

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

The primary method by which a firm may protect itself against operating exposure impacts is

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

Swap agreements are treated as off-balance sheet transactions via U.S.accounting methods.

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

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

Under conditions of equilibrium,management would use ________ exchange rate as an unbiased predictor of future spot rates when preparing operating budgets.

Current Multinational Challenges and the Global Economy

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007 - 2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction and Translation Exposure

The Global Cost and Availability of Capital

Sourcing Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

International Portfolio Theory and Diversification

Working Capital Management

International Trade Finance

Filters

Exam 11: Operating Exposure

Which of the following is NOT one of the commonly employed financial policies used to manage operating and transaction exposure?

Operating exposure

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

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

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

An unexpected change in exchange rates impacts a firm's cash flows at what level(s)?

Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors.

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

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

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

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

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

The primary method by which a firm may protect itself against operating exposure impacts is

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

Swap agreements are treated as off-balance sheet transactions via U.S.accounting methods.

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

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

Under conditions of equilibrium,management would use ________ exchange rate as an unbiased predictor of future spot rates when preparing operating budgets.

Current Multinational Challenges and the Global Economy

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007 - 2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction and Translation Exposure

The Global Cost and Availability of Capital

Sourcing Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

International Portfolio Theory and Diversification

Working Capital Management

International Trade Finance

Filters

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