Transaction Exposure

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Question 1
Free
Multiple Choice

________ exposure deals with cash flows that result from existing contractual obligations.

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A

Operating

B

Transaction

C

Translation

D

Economic

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Question 2
Free
Multiple Choice

________ exposure measures the change in the present value of the firm resulting from unexpected changes in exchange rates.

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A

Operating

B

Transaction

C

Translation

D

Accounting

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Question 3
Free
Multiple Choice

Each of the following is another name for operating exposure EXCEPT:

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A

economic exposure.

B

strategic exposure.

C

accounting exposure.

D

competitive exposure.

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Question 4
Free
Multiple Choice

Transaction exposure and operating exposure exist because of unexpected changes in future cash flows. The difference between the two is that ________ exposure deals with cash flows already contracted for, while ________ exposure deals with future cash flows that might change because of changes in exchange rates.

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A

transaction; operating

B

operating; transaction

C

operating; accounting

D

none of the above

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Question 5
Free
Multiple Choice

________ exposure is the potential for accounting-derived changes in owner's equity to occur because of the need to translate foreign currency financial statements into a single reporting currency.

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A

Transaction

B

Operating

C

Economic

D

Accounting (aka translation)

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Question 6
Multiple Choice

Losses from ________ exposure generally reduce taxable income in the year they are realized. ________ exposure losses may reduce taxes over a series of years.

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A
accounting; Operating
B
operating; Transaction
C
transaction; Operating
D
transaction; Accounting
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Question 7
Multiple Choice

Losses from ________ exposure generally reduce taxable income in the year they are realized. ________ exposure losses are not cash losses and therefore, are not tax deductible.

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A
transaction; Operating
B
accounting; Operating
C
accounting; Transaction
D
transaction; Translation
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Question 8
Multiple Choice

MNE cash flows may be sensitive to changes in which of the following?

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A
exchange rates
B
interest rates
C
commodity prices
D
all of the above
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Question 9
Multiple Choice

Assuming no transaction costs (i.e., hedging is "free"), hedging currency exposures should ________ the variability of expected cash flows to a firm and at the same time, the expected value of the cash flows should ________ .

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A
increase; not change
B
decrease; not change
C
not change; increase
D
not change; not change
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Question 10
Multiple Choice

Which of the following is NOT cited as a good reason for hedging currency exposures?

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A
Reduced risk of future cash flows is a good planning tool.
B
Reduced risk of future cash flows reduces the probability that the firm may not meet required cash flows.
C
Currency risk management increases the expected cash flows to the firm.
D
Management is in a better position to assess firm currency risk than individual investors.
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Question 11
Multiple Choice

Which of the following is cited as a good reason for NOT hedging currency exposures?

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A
Shareholders are more capable of diversifying risk than management.
B
Currency risk management through hedging does not increase expected cash flows.
C
Hedging activities are often of greater benefit to management than to shareholders.
D
All of the above are cited as reasons NOT to hedge.
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Question 12
Multiple Choice

A ________ hedge refers to an offsetting operating cash flow such as a payable arising from the conduct of business.

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A
financial
B
natural
C
contractual
D
futures
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Question 13
True/False

As a generalized rule, only realized foreign exchange losses are deductible for tax purposes.

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True
False
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Question 14
True/False

Many MNE s manage foreign exchange exposure centrally, thus gains or losses are always matched with the country of origin.

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True
False
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Question 15
True/False

Hedging, or reducing risk, is the same as adding value or return to the firm.

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True
False
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Question 16
True/False

There is considerable question among investors and managers about whether hedging is a good and necessary tool.

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True
False
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Question 17
True/False

The key arguments in opposition to currency hedging such as market efficiency, agency theory, and diversification do not have financial theory at their core.

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True
False
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Question 18
True/False

Management often conducts hedging activities that benefit management at the expense of the shareholders. The field of finance called agency theory frequently argues that management is generally LESS risk averse than are shareholders.

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True
False
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Question 19
True/False

Managers CAN outguess the market. If and when markets are in equilibrium with respect to parity conditions, the expected net present value of hedging should be POSITIVE.

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True
False
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Question 20
True/False

Shareholders are LESS capable of diversifying currency risk than is the management of the firm.

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True
False
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