Exam 10: Measuring and Managing Translation and Transaction Exposure

Transaction gains and losses that result from adjusting assets and liabilities denominated in a currency other than the functional currency must appear on the foreign unit's income statement unless the gains or losses are attributable to

Which one of the following would NOT be a suggested element for an effective exposure management strategy?

The type of exposure that measures the extent to which currency fluctuations can alter a company's future operating cash flows,that is,its future revenues and costs is known as

The major difference between the temporal method and the monetary/nonmonetary method is that

Which of the following is a basic hedging technique during a depreciation?

A Japanese firm sells TV sets to an American importer for one billion yen payable in 90 days.To protect against exchange risk,the importer could

A __________ involves offsetting exposures in one currency with exposures in the same or another currency,where exchange rates are expected to move in such a way that losses on the first exposed position should be offset by gains on the second currency exposure and vice versa.

Du Pont has entered into a currency risk sharing arrangement with British Gas.Under the contract,Du Pont agrees to pay British Gas a base price of $10 million for gas purchases,but the parties would share the currency risk equally beyond a neutral zone,specified as a band of exchange rates: $1.67?1.73:£1.Within the neutral zone,Du Pont must pay BG the pound equivalent of $10 million at the base rate of $1.70.Suppose the spot rate at the time of payment is £1 = $1.63.How much will Du Pont owe British Gas?

In 1996,DEC hedges a FF 3.2 million receivable due in 180 days.The current spot rate is FF 1 = $0.18834 and the 180-day forward rate is FF 1 = $0.18625.If the spot rate at the end of 180 days is $0.18728,how much has the forward market hedge cost DEC?

The current standard for measuring translation exposure is

It is possible for transaction exposure to be positive and translation exposure in the same currency to be

In 1995,Ajax Manufacturing's German subsidiary has the following balance sheet: Suppose the DM appreciates from $0.70 to $0.76 during the period. -Under the current rate method,what is Ajax's translation gain loss.?

___________ a certain currency exposure means establishing an offsetting currency position so that the gain or loss from the exposure on the original currency is exactly offset buy the gain or loss from the currency hedge.

In 1990,Goodyear had operations in both Germany and the Netherlands.In the past the Dutch guilder and Deutsche mark were highly correlated in their movements against the U.S.dollar.If the Dutch unit has net inflows of guilders and the German unit has net inflows of DM,then Goodyear's combined transaction exposure

Suppose Alcoa in 1995 had a payable of FF 1 million due in one year.Alcoa's cost of the payable using a money market hedge is ____ and its cost using a forward market hedge is ____.

Suppose the German subsidiary of a U.S.firm had current assets of €3 million,fixed assets of €6 million and current liabilities of €3 million both at the start and at the end of the year.There are no long-term liabilities.If the euro depreciated during that year from $.48 to $.38,the FASB-52 translation gain loss.to be included in the parent company's equity account is

The FASB document that aims to establish accounting and reporting standards for derivative instruments and for hedging activities is FASB

The type of exposure that arises from the need,for purposes of reporting and consolidating,to convert the financial statements of foreign operations from the local currencies involved to the home currency is known as

Which one of the following is most likely to depreciate?

____________ exposure results from the possibility of incurring a gain or loss related to a sale or purchase already entered into and denominated in another currency.