Operating Exposure

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Question 1
Free
Multiple Choice

Another name for operating exposure is ________ exposure.

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A

economic

B

competitive

C

strategic

D

all of the above

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Question 2
Free
Multiple Choice

What type of international risk exposure measures the change in present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates?

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A

transaction exposure

B

accounting exposure

C

operating exposure

D

translation exposure

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Question 3
Free
Multiple Choice

________ cash flows arise from intracompany and intercompany receivables and payments, while ________ cash flows are payments for the use of loans and equity.

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A

Financing; operating

B

Operating; financing

C

Operating; accounting

D

Accounting; financing

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Question 4
Free
Multiple Choice

Which of the following is NOT an example of a financial cash flow?

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A

parent invested equity capital

B

interest on intrafirm lending

C

payment for goods and services

D

intrafirm principal payments

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Question 5
Free
Multiple Choice

Which of the following is NOT an example of an operating cash flow?

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A

management fees and distributed overhead

B

royalties and license fees

C

rent and lease payments

D

dividend paid to parent company

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Question 6
Multiple Choice

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

Choose correct answer/s
A
Operating; translation; transaction
B
Transaction; operating; translation
C
Accounting; translation; transaction
D
Translation; operating; transaction
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Question 7
Multiple Choice

Simpson Sign Company based in Frostbite Falls, Minnesota has a 6-month C$100,000 contract to complete sign work in Winnipeg, Manitoba, Canada. The current spot rate is $1.02/C$ and the forward rate is $1.01/C$. Under conditions of equilibrium, management would use ________ today when preparing operating budgets.

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A
$102,000
B
$101,000
C
$100,000
D
none of the above
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Question 8
Multiple Choice

When considering the phases of adjustment and response to operating exposure in the LONG RUN, price changes tend to be ________ and volume changes tend to be ________ .

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A
fixed/contracted; contracted.
B
fixed/contracted; completely flexible.
C
completely flexible; completely flexible.
D
completely flexible; contracted.
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Question 9
True/False

The goal of operating exposure analysis is to identify strategic operating techniques the firm might adopt to enhance value in the face of unanticipated exchange rate changes.

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True
False
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Question 10
True/False

Operating cash flows may occur in different currencies and at different times, but financing cash flows may occur only in a single currency.

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True
False
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Question 11
True/False

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

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True
False
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Question 12
True/False

Even though contracts are often fixed in the short run, as time passes, prices and costs can be changed to reflect the new competitive realities caused by a change in exchange rates.

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True
False
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Question 13
True/False

The higher the price elasticity of demand, the higher the degree of pass-through.

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True
False
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Question 14
Essay

An unexpected change in exchange rates impacts a firm's expected cash flows at three levels, depending on the time horizon used (Short Run, Medium Run, and Long Run). Describe the three operating exposure's phases of adjustment assuming that parity conditions do not hold among foreign exchange rates, national inflation rates, and national interest rates (disequilibrium).

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Question 15
Multiple Choice

Recently the British Pound suffered an unexpected depreciation in value. Which of the following actions being considered by Coventry Furniture of London, a purely domestic furniture manufacturer and retailer, would be considered a highly unlikely response to the depreciation of the pound?

Choose correct answer/s
A
Coventry might choose to maintain its domestic sales prices constant in pound terms.
B
Coventry might try to raise domestic prices because competing imports are now priced higher in England.
C
Coventry might try to lower domestic prices because competing imports are now priced higher in England.
D
none of the above
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Question 16
Multiple Choice

Recently the Canadian dollar realized an unexpected appreciation in value. Which of the following actions being considered by Tall Timber Exports, a Canadian logging firm specializing in exporting raw forest products, would be considered a highly unlikely response to the appreciation of the Canadian dollar?

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A
Tall Timber Exports might lower export prices in an effort to maintain market share.
B
Tall Timber Exports might raise export prices only slightly in an effort to increase market share.
C
Tall Timber Exports might leave export prices as they are and wait to determine what actions to take if any in the future.
D
all of the above
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Question 17
Multiple Choice

For a firm that competes internationally to sell its products, a depreciation of its domestic currency relative to markets where the firm exports goods, should eventually result in ________ sales at home and ________ sales abroad, other things equal.

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A
fewer; greater
B
fewer; fewer
C
greater; greater
D
greater; fewer
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Question 18
Multiple Choice

Brimmo Motorcycles Inc., a U.S.-based firm, manufactures and sells electric motorcycles both domestically and internationally. A sudden and unexpected appreciation of the U.S. dollar should allow sales to ________ at home and ________ abroad. (Assume other factors remain unchanged.)

Choose correct answer/s
A
increase; increase
B
decrease; decrease
C
increase; decrease
D
decrease; increase
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Question 19
True/False

The strategy management undertakes in response to unexpected changes in exchange rates depends to a large measure on their opinion about the price elasticity of demand.

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True
False
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Question 20
True/False

Unexpected changes in exchange rates is never good news for a firm's operating income.

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True
False
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