Question 1

Why did Miller and Modigliani claim that hedging exchange rate risk was irrelevant to the value of the firm?

Accepted Answer

In general,M & M argued that purely fina

Question 2

The gains from hedging would be more significant in countries who have a ________ tax jurisdiction.

Accepted Answer

A)  lower 
B)  higher 
C)  flat tax 
D)  proportional 
A)  lower 
B)  higher 
C)  flat tax 
D)  proportional

Question 3

A ________ tax code imposes a larger tax rate on a higher income and a smaller tax rate on lower incomes.

Accepted Answer

A)  convex 
B)  concave 
C)  proportional 
D)  flat-rate 
A)  convex 
B)  concave 
C)  proportional 
D)  flat-rate

Question 4

Why does hedging reduce the firm's expected taxes and increase its value?

Accepted Answer

A)  It creates a tax-loss carry-forward. 
B)  It separates production costs from headquarters' costs. 
C)  It provides the firm with additional expenses reducing taxable income. 
D)  It allows the firm to shift income across different tax jurisdictions in the world. 
A)  It creates a tax-loss carry-forward. 
B)  It separates production costs from headquarters' costs. 
C)  It provides the firm with additional expenses reducing taxable income. 
D)  It allows the firm to shift income across different tax jurisdictions in the world.

Question 5

Why is hedging considered a cost center and not a profit center?

Accepted Answer

Hedging can be viewed as an insurance pr

Question 6

________ are financial contracts whose values depend on the values of some underlying asset price.

Accepted Answer

A)  Margin calls 
B)  Derivative securities 
C)  Tax codes 
D)  Tax shields 
A)  Margin calls 
B)  Derivative securities 
C)  Tax codes 
D)  Tax shields

Question 7

If a country's corporate tax rate is flat,when does it not make sense for a firm to hedge?

Accepted Answer

A convex tax code imposes a larger tax r

Question 8

According to the Wharton/CIBC Survey of 1998 on hedging,only when a firm is sufficiently large to overcome the fixed costs of hedging does the firm

Accepted Answer

A)  create an international division responsible for hedging. 
B)  institute tax shelters using hedging devices. 
C)  institute a hedging policy. 
D)  hold only the cash manager responsible for hedging. 
A)  create an international division responsible for hedging. 
B)  institute tax shelters using hedging devices. 
C)  institute a hedging policy. 
D)  hold only the cash manager responsible for hedging.

Question 9

Suppose that the value of a firm increases when the euro strengthens relative to the dollar,an appropriate hedge would be to

Accepted Answer

A)  find another currency that is highly correlated to sell forward. 
B)  buy euros forward. 
C)  liquidate euro liabilities. 
D)  convert some of the firm's debt into euros. 
A)  find another currency that is highly correlated to sell forward. 
B)  buy euros forward. 
C)  liquidate euro liabilities. 
D)  convert some of the firm's debt into euros.

Question 10

Tax benefits of hedging are greater in which one of the following?

Accepted Answer

A)  when the tax code is more progressive 
B)  when a firm's pretax income is more stable 
C)  when more of the firm's income is subject to a flat rate tax 
D)  when the tax code is more regressive 
A)  when the tax code is more progressive 
B)  when a firm's pretax income is more stable 
C)  when more of the firm's income is subject to a flat rate tax 
D)  when the tax code is more regressive

Question 11

Which one of the following has a higher likelihood of subsidizing losses?

Accepted Answer

A)  convex tax code 
B)  flat tax 
C)  currency board 
D)  floating exchange rate system 
A)  convex tax code 
B)  flat tax 
C)  currency board 
D)  floating exchange rate system

Question 12

Regarding the true hedging cost,if the bid-ask spread widens for more distant future contracts,the cost of forward hedging

Accepted Answer

A)  decreases with the maturity of the contract. 
B)  remains constant with the maturity of the contract. 
C)  increases with the maturity of the contract. 
D)  has no direct relationship to the longer term. 
A)  decreases with the maturity of the contract. 
B)  remains constant with the maturity of the contract. 
C)  increases with the maturity of the contract. 
D)  has no direct relationship to the longer term.

Why did Miller and Modigliani claim that hedging exchange rate risk was irrelevant to the value of the firm?

The gains from hedging would be more significant in countries who have a ________ tax jurisdiction.

A ________ tax code imposes a larger tax rate on a higher income and a smaller tax rate on lower incomes.

Why does hedging reduce the firm's expected taxes and increase its value?

Why is hedging considered a cost center and not a profit center?

________ are financial contracts whose values depend on the values of some underlying asset price.

If a country's corporate tax rate is flat,when does it not make sense for a firm to hedge?

According to the Wharton/CIBC Survey of 1998 on hedging,only when a firm is sufficiently large to overcome the fixed costs of hedging does the firm

Suppose that the value of a firm increases when the euro strengthens relative to the dollar,an appropriate hedge would be to

Tax benefits of hedging are greater in which one of the following?

Which one of the following has a higher likelihood of subsidizing losses?

Regarding the true hedging cost,if the bid-ask spread widens for more distant future contracts,the cost of forward hedging

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Speculation and Risk in the Foreign Exchange Market

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Financing International Trade

Managing Net Working Capital

Foreign Currency Futures and Options

Interest Rates and Foreign Currency Swaps

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Exam 17: Risk Management and the Foreign Currency Hedging Decision

Why did Miller and Modigliani claim that hedging exchange rate risk was irrelevant to the value of the firm?

The gains from hedging would be more significant in countries who have a ________ tax jurisdiction.

A ________ tax code imposes a larger tax rate on a higher income and a smaller tax rate on lower incomes.

Why does hedging reduce the firm's expected taxes and increase its value?

Why is hedging considered a cost center and not a profit center?

________ are financial contracts whose values depend on the values of some underlying asset price.

If a country's corporate tax rate is flat,when does it not make sense for a firm to hedge?

According to the Wharton/CIBC Survey of 1998 on hedging,only when a firm is sufficiently large to overcome the fixed costs of hedging does the firm

Suppose that the value of a firm increases when the euro strengthens relative to the dollar,an appropriate hedge would be to

Tax benefits of hedging are greater in which one of the following?

Which one of the following has a higher likelihood of subsidizing losses?

Regarding the true hedging cost,if the bid-ask spread widens for more distant future contracts,the cost of forward hedging

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Speculation and Risk in the Foreign Exchange Market

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Financing International Trade

Managing Net Working Capital

Foreign Currency Futures and Options

Interest Rates and Foreign Currency Swaps

Filters