Management Of Economic Exposure

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Question 1
Free
Multiple Choice

Suppose the U.S.dollar substantially depreciates against the Japanese yen.The change in exchange rate

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A

can have significant economic consequences for U.S.firms.

B

can have significant economic consequences for Japanese firms.

C

can have significant economic consequences for both U.S.and Japanese firms.

D

none of the above

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Question 2
Free
Multiple Choice

Suppose the U.S.dollar substantially depreciates against the Japanese yen.The change in exchange rate

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A

will tend to weaken the competitive position of import-competing U.S.car makers.

B

will tend to strengthen the competitive position of import-competing U.S.car makers.

C

will tend to strengthen the competitive position of Japanese car makers at the expense of U.S.makers.

D

none of the above

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Question 3
Free
Multiple Choice

The link between a firm's future operating cash flows and exchange rate fluctuations is

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A

asset exposure

B

operating exposure

C

both a) and b)

D

none of the above

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Question 4
Free
Multiple Choice

When the Mexican peso collapsed in 1994,declining by 37 percent,

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A

U.S.firms that exported to Mexico and priced in peso were adversely affected.

B

U.S.firms that exported to Mexico and priced in dollars were adversely affected.

C

U.S.firms were unaffected by the peso collapse, since Mexico is such a small market.

D

both a) and b)

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Question 5
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Multiple Choice

When exchange rates change,

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A

U.S.firms that produce domestically and sell only to domestic customers will be unaffected.

B

U.S.firms that produce domestically and sell only to domestic customers can be affected if they compete against imports.

C

U.S.firms that produce domestically and sell only to domestic customers will be affected, but only if they borrow in foreign currency to finance their domestic operations.

D

both a) and b)

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Question 6
Multiple Choice

When exchange rates change,

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A
this can alter the operating cash flow of a domestic firm.
B
this can alter the competitive position of a domestic firm.
C
this can alter the home currency values of a multinational firm's assets and liabilities.
D
all of the above
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Question 7
Multiple Choice

Two studies found a link between exchange rates and the stock prices of U.S.firms,

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A
this suggests that exchange rate changes can systematically affect the value of the firm by influencing its operating cash flows.
B
this suggests that exchange rate changes can systematically affect the value of the firm by influencing the domestic currency values of its assets and liabilities.
C
both a) and b)
D
none of the above
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Question 8
Multiple Choice

It is conventional to classify foreign currency exposures into the following types:

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A
economic exposure, transaction exposure, and translation exposure.
B
economic exposure, noneconomic exposure, and political exposure.
C
national exposure, international exposure, and trade exposure.
D
conversion exposure, and exchange exposure.
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Question 9
Multiple Choice

Exposure to currency risk can be measured by the sensitivities of

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A
the future home currency values of the firm's assets and liabilities.
B
the firm's operating cash flows to random changes in exchange rates.
C
both a) and b)
D
none of the above
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Question 10
Multiple Choice

Operating exposure measures

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A
the extent to which the foreign currency value of the firm's assets is affected by unanticipated changes in exchange rates.
B
the extent to which the firm's operating cash flows will be affected by unexpected changes in exchange rates.
C
the affect of changes in exchange rates will have on the consolidated financial reports of a MNC.
D
the affect of unanticipated changes in exchange rates on the dollar value of contractual obligations denominated in a foreign currency.
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Question 11
Multiple Choice

Economic exposure refers to

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A
the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes.
B
the extent to which the value of the firm would be affected by unanticipated changes in exchange rate.
C
the potential that the firm's consolidated financial statement can be affected by changes in exchange rates.
D
ex post and ex ante currency exposures.
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Question 12
Multiple Choice

Currency risk

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A
is the same as currency exposure.
B
represents random changes in exchange rates.
C
measure "what the firm has at risk."
D
both a) and b)
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Question 13
Multiple Choice

Suppose a U.S.-based MNC maintains a vacation home for employees in the British countryside and the local price of this property is always moving together with the pound price of the U.S.dollar.As a result,

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A
whenever the pound depreciates against the dollar, the local currency price of this property goes up by the same proportion.
B
the firm is not exposed to currency risk even if the pound-dollar exchange rate fluctuates randomly.
C
both a) and b)
D
none of the above
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Question 14
Multiple Choice

The exposure coefficient in the regression image is given by:

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A
image
B
image
C
image
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Question 15
Multiple Choice

The exposure coefficient image in the regression image is:

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A
A measure of how a change in the exchange rate affects the dollar value of a firm's assets.
B
Has a value of zero if the value of the firm's assets is perfectly correlated with changes in the exchange rate.
C
both a) and b)
D
none of the above
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Question 16
Multiple Choice

The exposure coefficient image in the regression image informs

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A
how much of a foreign currency to sell forward.
B
the part of the variability of the dollar value of the asset that is related to random changes in the exchange rate.
C
captures the residual part of the dollar value variability that is independent of exchange rate movements.
D
how many call options to write.
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Question 17
Multiple Choice

Before you can use the hedging strategies such as a forward market hedge,options market hedge,and so on,you should consider running a regression of the form image .When reviewing the output,you should initially focus on

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A
the intercept a.
B
the slope coefficient b.
C
mean square error, MSE.
D
R2.
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Question 18
Multiple Choice

The link between the home currency value of a firm's assets and liabilities and exchange rate fluctuations is

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A
asset exposure.
B
operating exposure.
C
both a) and b)
D
none of the above
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Question 19
Multiple Choice

A purely domestic firm that sources and sells only domestically,

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A
faces exchange rate risk to the extent that it has international competitors in the domestic market.
B
faces no exchange rate risk.
C
should never hedge since this could actually increase its currency exposure.
D
both b) and c)
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Question 20
Multiple Choice

In recent years,the U.S.dollar has depreciated substantially against most major currencies of the world,especially against the euro.

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A
The stronger euro has made many European products more expensive in dollar terms, hurting sales of these products in the United States.
B
The stronger euro has made many American products less expensive in euro terms, boosting sales of U.S.products in Europe.
C
Both a) and b)
D
None of the above
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