Operating Exposure

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Questions Bank

Multinational Financial Management: Opportunities and Challenges
The International Monetary System
The Balance of Payments
Financial Goals and Corporate Governance
The Foreign Exchange Market
International Parity Conditions
Foreign Currency Derivatives: Futures and Options
Interest Risk and Swaps
Foreign Exchange Rate Determination and Intervention
Transaction Exposure
Translation Exposure
Operating Exposure
Global Cost and Availability of Capital
Funding the Multinational Firm
Multinational Tax Management
International Trade Finance
Foreign Direct Investment and Political Risk
Multinational Capital Budgeting and Cross-Border Acquisitions

All Questions

Question 1

Free

Multiple Choice

Another name for operating exposure is ________ exposure.

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economic

competitive

strategic

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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transaction exposure

accounting exposure

operating exposure

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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Financing; operating

Operating; financing

Operating; accounting

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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parent invested equity capital

interest on intrafirm lending

payment for goods and services

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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management fees and distributed overhead

royalties and license fees

rent and lease payments

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.

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Operating; translation; transaction

Transaction; operating; translation

Accounting; translation; transaction

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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$102,000

$101,000

$100,000

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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fixed/contracted; contracted.

fixed/contracted; completely flexible.

completely flexible; completely flexible.

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?

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Coventry might choose to maintain its domestic sales prices constant in pound terms.

Coventry might try to raise domestic prices because competing imports are now priced higher in England.

Coventry might try to lower domestic prices because competing imports are now priced higher in England.

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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Tall Timber Exports might lower export prices in an effort to maintain market share.

Tall Timber Exports might raise export prices only slightly in an effort to increase market share.

Tall Timber Exports might leave export prices as they are and wait to determine what actions to take if any in the future.

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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fewer; greater

fewer; fewer

greater; greater

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

increase; increase

decrease; decrease

increase; decrease

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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Operating Exposure

Another name for operating exposure is ________ exposure.

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?

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

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

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

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

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 ________ .

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.

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

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

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.

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

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?

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.

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.)

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.

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

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

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

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 .

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.

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.)