Chapters 10 14

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Chapters 10-14
International Finance (University of Central Arkansas)
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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

1. Translation exposure reflects:
a. the exposure of a firm's international transactions to exchange rate fluctuations.
b. the exposure of a firm's local currency value to transactions between foreign exchange
traders.
c. the exposure of a firm's financial statements to exchange rate fluctuations.
d. the exposure of a firm's cash flows to exchange rate fluctuations.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: INFM.MADU.15.10.04
NATIONAL STANDARDS: United States - BUSPROG.INFM.MADU.15.03
STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02
KEYWORDS: Bloom's: Knowledge
2. Transaction exposure reflects:

a. the exposure of a firm's internationall transactions to exchange rate fluctuations.
traders.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
3. Economic exposure refers to:

a. the exposure of a firm's international transactions to exchange rate fluctuations.
traders.
e. the exposure of a country's economy (specifically GNP) to exchange rate fluctuations.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
4. Diz Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies
are highly correlated in their movements against the dollar. Yanta Co. is a U.S.-based MNC that has the same level of net
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cash flows in these currencies as Diz Co. except that its euros represent net cash outflows. Which firm has a higher
exposure to exchange rate risk?
a. Diz Co.
b. Yanta Co.
c. The firms have about the same level of
exposure.
d. Neither firm has any exposure.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
KEYWORDS: Bloom's: Analysis
5. Jacko Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs. These two
currencies are highly negatively correlated in their movements against the dollar. Kriner Co. is a U.S.-based MNC that has
the same exposure as Jacko Co. in these currencies, except that its Sunland francs represent cash outflows. Which firm has
a high surepoto exchange rate risk?
a. Jacko Co.
b. Kriner Co.
c. The firms have about the same level of
exposure.
d. Neither firm has any exposure.
ANSWER: b
POINTS: 1
6. According to the text, currency volatility levels ____ perfectly stable over time, and currency correlations ____
perfectly stable over time.
a. are; are not
b. are; are
c. are not; are not
d. are not; are
ANSWER: c
POINTS: 1
DIFFICULTY: Easy

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7. Which of the following operations benefits from appreciation of the firm's local currency?
a. borrowing in a foreign currency and converting the funds to the local currency prior to the
appreciation.
b. receiving earnings dividends from foreign subsidiaries
c. purchasing supplies locally rather than overseas
d. exporting to foreign countries
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's: Comprehension
8. Which of the following operations benefit(s) from depreciation of the firm's local currency?
a. borrowing in a foreign country and converting the funds to the local currency prior to the depreciation
b. purchasing foreign supplies
c. investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local
currency
d. A and B
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
9. Economic exposure can affect:

a. MNCs only.
b. purely domestic firms only.
c. A and B
d. none of the above
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
10. Under FASB 52:

a. translation gains and losses are included in the reported net
income.
b. translation gains and losses are included in stockholder's equity.

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c. A and B
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
11. Assume that the British pound and Swiss franc are highly correlated. A U.S. firm anticipates the equivalent of $1
million cash outflows in francs and the equivalent of $1 million cash outflows in pounds. During a ____ cycle, the firm is
____ affected by its exposure.
a. strong dollar; favorably
b. weak dollar; not
c. strong dollar; not
d. weak dollar; favorably
ANSWER: a
POINTS: 1
12. A U.S. MNC has the equivalent of $1 million cash outflows in each of two highly negatively correlated currencies.
During ____ dollar cycles, cash outflows are ____.
a. weak; somewhat stable
b. weak; favorably affected
c. weak; adversely affected
ANSWER: a
POINTS: 1
13. Magent Co. is a U.S. company that has exposure to the Swiss franc (SF) and Danish kroner (DK). It has net inflows of
SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $.40 while the present
exchange rate of the DK is $.10. Magent Co. has not hedged these positions. The SF and DK are highly correlated in their
movements against the dollar. If the dollar weakens, then Magent Co. will:
a. benefit, because the dollar value of its SF position exceeds the dollar value of its DK position.
b. benefit, because the dollar value of its DK position exceeds the dollar value of its SF position.

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c. be adversely affected, because the dollar value of its SF position exceeds the dollar value of its DK position.
d. be adversely affected, because the dollar value of its DK position exceeds the dollar value of its SF position.
ANSWER: a
POINTS: 1
KEYWORDS: Bloom's: Application
14. Generally, MNCs with less foreign costs than foreign revenues will be ____ affected by a ____ foreign currency.
a. favorably;
stronger
b. not; stronger
c. favorably; weaker
d. not; weaker
e. B and D
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
15. When the dollar strengthens, the reported consolidated earnings of U.S.-based MNCs are ____ affected by translation
exposure. When the dollar weakens, the reported consolidated earnings are ____.
a. favorably; favorably affected but by a smaller degree
b. favorably; favorably affected by a higher degree
c. unfavorably; favorably affected
d. favorably; unfavorably affected
ANSWER: c
POINTS: 1
16. A firm produces products for which substitute products are produced in all countries. Appreciation of the firm's local
currency should:
a. increase local sales as it reduces foreign competition in local markets.
b. increase the firm's exports denominated in the local currency.
c. increase the returns earned on the firm's foreign bank deposits.
d. increase the firm's cash outflow required to pay for imported supplies denominated in a foreign currency.

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e. none of the above

ANSWER: e
POINTS: 1
17. A firm produces products for which substitute products are produced in all countries. Depreciation of the firm's local
currency should:
a. decrease local sales as foreign competition in local markets is reduced.
b. decrease the firm's exports denominated in the local currency.
c. decrease the returns earned on the firm's foreign bank deposits.
d. decrease the firm's cash outflow required to pay for imported supplies denominated in a foreign currency.
ANSWER: e
POINTS: 1
18. If a U.S. firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a ____
overall impact of the Swiss franc's depreciation against the dollar on ____.
a. positive; interest expenses
b. positive; gross profit
c. negative; gross profit
d. negative; interest expenses
ANSWER: b
POINTS: 1
19. Assume that your firm is an importer of Mexican chairs denominated in pesos. Your competition is mainly U.S.
producers of chairs. You wish to assess the relationship between the percentage change in the firm’s stock price (SP t) and
the percentage change in the peso's value relative to the dollar (PESO t). SPt is the dependent variable. You apply the
regression model to an earlier subperiod and a more recent subperiod. In the recent subperiod, you increased your
importing volume. You should expect that the regression coefficient in the PESO t variable would be ____ in the first
subperiod and ____ in the second subperiod.
a. negative; positive

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b. positive; positive
c. positive; negative
d. negative; negative
ANSWER: d
POINTS: 1
20. A set of currency cash inflows is more volatile if the correlations are low.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
21. Which of the following is not a form of exposure to exchange rate fluctuations?
a. transaction exposure
b. credit exposure
c. economic exposure
d. translation exposure
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
22. The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:
a. the expected percentage change in the currency for the next day.
b. the standard deviation of the daily percentage changes in the currency over a previous
period.
c. the current level of interest rates.
d. the confidence level used.
ANSWER: c
RATIONALE: A$1,000,000 - A$1,500,000 = -A$500,000 ´ $.55 = -$275,000
POINTS: 1

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23. The maximum one-day loss computed for the value-at-risk (VaR) method does not depend on:
a. the expected percentage change in the currency for the next day.
b. the standard deviation of the daily percentage changes in the currency over a previous
period.
c. the current level of interest rates.
d. the confidence level used.
ANSWER: c
POINTS: 1
Volusia, Inc. is a U.S.-based exporting firm that expects to receive payments denominated in both euros and Canadian
dollars in one month. Based on today's spot rates, the dollar value of the funds to be received is estimated at $500,000 for
the euros and $300,000 for the Canadian dollars. Based on data for the last fifty months, Volusia estimates the standard
deviation of monthly percentage changes to be 8 percent for the euro and 3 percent for the Canadian dollar. The
correlation coefficient between the euro and the Canadian dollar is 0.30.
24. Refer to Exhibit 10-2. What is the portfolio standard deviation?
a. 3.00%
b. 5.44 percent
c. 17.98 percent
d. none of the
above
ANSWER: b
RATIONALE:
POINTS: 1
DIFFICULTY: Challenging
25. Refer to Exhibit 10-2. Assuming an expected percentage change of 0 percent for each currency during the next month,

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what is the maximum one-month loss of the currency portfolio? Use a 95 percent confidence level and assume the
monthly percentage changes for each currency are normally distributed.
a. -9.00 percent
b. -30.00 percent.
c. -5.00 percent
d. none of the
above
ANSWER: a
RATIONALE:
POINTS: 1
26. Appreciation in a firm's local currency causes a(n) ____ in cash inflows and a(n) ____ in cash outflows.
a. reduction;
reduction
b. increase; increase
c. increase; reduction
d. reduction; increase
ANSWER: a
POINTS: 1
27. In general, a firm that concentrates on local sales, has very little foreign competition, and obtains foreign supplies
(denominated in foreign currencies) will likely ____ a(n) ____ local currency.
a. be hurt by; appreciated
b. benefit from; depreciated
c. be hurt by; depreciated
ANSWER: c
POINTS: 1

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28. The ____ the percentage of an MNC's business conducted by its foreign subsidiaries, the ____ the percentage of a
given financial statement item that is susceptible to translation exposure.
a. greater; smaller
b. smaller; greater
c. greater; greater
d. none of the
above
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
29. Under FASB 52, consolidated earnings are sensitive to the functional currency's weighted average exchange rate.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
30. If the U.S. dollar appreciates, an MNC's:

a. U.S. sales will probably decrease.
b. exports denominated in U.S. dollars will probably increase.
c. interest owed on foreign funds borrowed will probably increase.
d. exports denominated in foreign currencies will probably
increase.
e. all of the above
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
31. Assume that Mill Corp., a U.S.-based MNC, has applied the following regression model to estimate the sensitivity of
its cash flows to exchange rate movements:

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PCFt = a0 + a1et + mt
where the term on the left-hand side is the percentage change in inflation-adjusted cash flows measured in the firm's home
currency over period t, and et is the percentage change in the exchange rate of the currency over period t. The regression
model estimates a coefficient of a1 of 2. This indicates that:
a. if the foreign currency appreciates by 1%, Mill's cash flows will decline by 2%.
b. if the foreign currency appreciates by 1%, Mill's cash flows will decline by .2%.
c. if the foreign currency depreciates by 1%, Mill's cash flows will increase by
2%.
d. if the foreign currency depreciates by 1%, Mill's cash flows will decline by 2%.
ANSWER: b
POINTS: 1
32. ____ is (are) not a determinant of translation exposure.

a. The MNC's degree of foreign involvement
b. The locations of foreign subsidiaries
c. The local (domestic) earnings of the MNC
d. The accounting methods used
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
33. The following regression model was run by a U.S.-based MNC to determine its degree of economic exposure as it
relates to the Australian dollar and Sudanese dinar (SDD):
PCFt = a0 + a1et + mt
where the term on the left-hand side is the percentage change in inflation-adjusted cash flows measured in the firm's home
currency over period t, and et is the percentage change in the exchange rate of the currency over period t. The regression
was run over two subperiods for each of the two currencies, with the following results:
Regression Coefficient (a1) Regression Coefficient (a1)

Currency Earlier Subperiod Recent Subperiod
Australian dollar (A$) -.80 .10
Sudanese dinar (SDD) .20 .25

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Based on these results, which of the following statements is probably not true?
a. The MNC was more sensitive to movements in the Australian dollar than in the dinar in the earlier subperiod.
b. The MNC was more sensitive to movements in the dinar than in the Australian dollar in the more recent
subperiod.
c. The MNC probably had more outflows than inflows in Australian dollars in the earlier subperiod.
d. The MNC probably had more inflows than outflows denominated in dinar in the more recent subperiod.
e. All of the above are true.
ANSWER: c
POINTS: 1
34. Consider an MNC that is exposed to the Taiwan dollar (TWD) and the Egyptian pound (EGP); 25 percent of the
MNC's funds are Taiwan dollars and 75 percent are pounds. The standard deviation of exchange movements is 7 percent
for Taiwan dollars and 5 percent for pounds. The correlation coefficient between movements in the value of the Taiwan
dollar and the pound is .7. Based on this information, the standard deviation of this two-currency portfolio is
approximately:
a. 5.13 percent.
b. 2.63 percent.
c. 4.33 percent.
d. 5.55 percent.
ANSWER: a
RATIONALE:
POINTS: 1
35. Consider an MNC that is exposed to the Bulgarian lev (BGL) and the Romanian leu (ROL); 30 percent of the MNC's
funds are lev and 70 percent are leu. The standard deviation of exchange movements is 10 percent for lev and 15 percent
for leu. The correlation coefficient between movements in the value of the lev and the leu is .85. Based on this
information, the standard deviation of this two-currency portfolio is approximately:
a. 17.28 percent.
b. 13.15 percent.
c. 14.50 percent.
d. 12.04 percent.
ANSWER: b

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RATIONALE:
POINTS: 1
36. One argument why exchange rate risk is irrelevant to corporations is that shareholders may be able to hedge this risk
individually.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
37. Because creditors may prefer that firms maintain low exposure to exchange rate risk, and because investors may prefer
corporations to perform hedging for them, exchange rate risk is probably relevant.
a. True
b. False
ANSWER: a
POINTS: 1
38. A firm's transaction exposure in any foreign currency is based solely on the size of its open position in that currency.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

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39. Two highly negatively correlated currencies move in tandem almost as if they are the same currency.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
40. The transaction exposure of two inflow currencies is offset when the correlation between the currencies is high.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
41. The Canadian dollar’s volatility has changed over time but is normally less than the volatility of other currencies.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
42. U.S. exporters may not necessarily benefit from weak-dollar periods if foreign competitors are willing to reduce their
profit margins.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

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43. If the functional currencies for reporting purposes are highly correlated, translation exposure is magnified.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
44. An MNC can avoid translation exposure if its foreign subsidiaries do not remit their earnings to the parent.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
45. Assume a regression model in which the dependent variable is the firm's stock price percentage change, and the
independent variable is the percentage change in the foreign currency. The coefficient is negative. This implies that the
company's stock price increases if the foreign currency appreciates.
a. True
b. False
ANSWER: b
POINTS: 1
46. A company may become more exposed or sensitive to an individual currency's movements over time for several
reasons, including a reduction in hedging, a greater involvement in the foreign country, or an increased use of the foreign
currency.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

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47. Regression analysis cannot be used to assess the sensitivity of a company's performance to economic conditions
because economic conditions are unpredictable.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
48. A high correlation between two currencies would be desirable for achieving low exchange rate risk if one is an inflow
currency and the other is an outflow currency.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
49. Firms with more in foreign costs than in foreign revenues will be favorably affected by a stronger foreign currency.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
50. The exposure of an MNC's consolidated financial statements to exchange rate fluctuations is known as transaction
exposure.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

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51. In general, translation exposure is larger with MNCs that have a larger proportion of earnings generated by foreign
subsidiaries.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
52. A reduction in hedging will probably reduce transaction exposure.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
53. The VaR method presumes that the distribution of exchange rate movements is normal.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
54. The VaR method assumes that the volatility (standard deviation) of exchange rate movements changes over time.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

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55. Assume that exchange rate movements were unusually stable in a recent period (but will not continue to be so stable
in the future) that was used to derive the estimated maximum expected loss based on the VaR method. The estimated
expected loss derived using VaR based on that recent period will likely overestimate the actual maximum expected loss in
the future.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
56. Some MNCs are subject to economic exposure without being subject to transaction exposure.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
57. If positions in a specific currency among an MNC's subsidiaries offset each other, the decision by one subsidiary to
hedge its position in that currency would increase the MNC's overall exposure.
a. True
b. False
ANSWER: a
POINTS: 1
58. Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located in Japan. Vada is
subject to:
a. economic exposure.

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b. transaction exposure.
c. translation exposure.
d. economic and transaction exposure.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
59. Jenco Co. imports raw materials from Japan, invoiced in U.S. dollars. The price it pays is not expected to change for
the next several years. If the Japanese yen appreciates, Jenco’s imports from Japan will probably ____ and if the Japanese
yen depreciates, its imports from Japan will probably ____.
a. increase; decrease
b. decrease; increase
c. increase; stay the same
d. stay the same; stay the
same
ANSWER: d
POINTS: 1
60. Yomance Co. is a U.S. company that has exposure to Japanese yen and British pounds. It has net inflows of 5,000,000
yen and net outflows of 60,000 pounds. The present exchange rate of the Japanese yen is $.012 while the present
exchange rate of the British pound is $1.50. Yomance Co. has not hedged its positions. The yen and pound movements
against the dollar are highly and positively correlated. If the dollar strengthens, then Yomance Co. will:
a. benefit, because the dollar value of its pound position exceeds the dollar value of its yen position.
b. benefit, because the dollar value of its yen position exceeds the dollar value of its pound position.
c. be adversely affected, because the dollar value of its pound position exceeds the dollar value of its yen
position.
d. be adversely affected, because the dollar value of its yen position exceeds the dollar value of its pound
position.
ANSWER: a
POINTS: 1
61. Generally, MNCs with less foreign revenues than foreign costs will be ____ affected by a ____ foreign currency.

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a. favorably;
stronger
b. favorably; weaker
c. not; stronger
d. not; weaker
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
62. If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in Switzerland, the appreciation of the
Swiss franc has a ____ impact on the firm's ____.
c. negative; gross profit
d. negative; interest expenses
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
63. If a U.S. firm's sales in Australia are much greater than its cost of goods sold in Australia, the appreciation of the
Australian dollar has a ____ impact on the firm's ____.
c. negative; interest expenses
d. negative; gross profit
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
64. U.S. based Majestic Co. sells products to U.S. consumers and purchases all of its materials from U.S. suppliers. Its
main competitor is located in Belgium. Majestic Co. is subject to:
a. economic exposure.
b. translation exposure.

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c. transaction exposure.
d. no exposure to exchange rate fluctuations.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
65. Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except:
a. the interest rate in the country of the subsidiary.
b. the proportion of business conducted by the subsidiary.
c. its accounting method.
d. the exchange rate movements of the subsidiary's currency.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
66. Treck Co. expects to pay €200,000 in one month for its imports from Spain. It also expects to receive €250,000 for its
exports to Italy in one month. Treck Co. estimates the standard deviation of monthly percentage changes of the euro to be
3 percent over the last 40 months. Assume that these percentage changes are normally distributed. Using the value-at-risk
(VaR) method based on a 95 percent confidence level, what is the maximum one-month loss in dollars if the expected
percentage change of the euro during next month is -2 percent? Assume that the current spot rate of the euro (before
considering the maximum one-month loss) is $1.23.
a. -$38,468
b. -$21,371
c. -$17,097
d. -$4,274
ANSWER: d
RATIONALE: Net exposure = €250,000 - €200,000 = €50,000
Maximum one-month loss: -2% - (1.65 ´ 3%) = -6.95%
$1.23 ´ (-.0695%) ´ €50,000 = -$4,274
POINTS: 1
67. Jensen Co. expects to pay €50,000 in one month for its imports from France. It also expects to receive €200,000 for its

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exports to Belgium in one month. Jensen estimates the standard deviation of monthly percentage changes of the euro to be
2.5 percent over the last 50 months. Assume that these percentage changes are normally distributed. Using the value-at-
risk (VaR) method based on a 97.5 percent confidence level, what is the maximum one month loss in dollars if the
expected percentage change of the euro during next month is 2 percent? Assume that the current spot rate of the euro
(before considering the maximum one-month loss) is $1.35.
a. -$4,303
b. -$7,830
c. -$5,873
d. -$1,958
ANSWER: c
RATIONALE: Net exposure = €200,000 - €50,000 = €150,000
Maximum one-month loss: 2% - (1.96 ´ 2.5%) = -2.9%
€150,000 ´ $1.35 ´ (-0.029) = -$5,873
POINTS: 1
68. Lazer Co. is a U.S. firm that exports computers to Belgium invoiced in euros and to Italy invoiced in dollars.
Additionally, Lazer Co. has a subsidiary in South Korea that produces computers and sells them there. Lazer also has
competitors in different countries. Lazer Co. is subject to:
a. transaction exposure.
b. economic exposure.
c. translation exposure.
d. all of the above.
ANSWER: d
POINTS: 1
INFM.MADU.15.10.03
INFM.MADU.15.10.04
69. Lampon Co. is a U.S. firm that has a subsidiary in Hong Kong that produces light fixtures and sells them to Japan,
denominated in Japanese yen. Its subsidiary pays all of its expenses, including the cost of goods sold, in U.S. dollars. The
Hong Kong dollar is pegged to the U.S. dollar. If the Japanese yen appreciates against the U.S. dollar, the Hong Kong
subsidiary's revenue will ____, and its expenses will ____.
a. increase; decrease
b. decrease; remain
unchanged
c. decrease; increase
d. increase; remain unchanged

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ANSWER: d
POINTS: 1
70. Assume that the Japanese yen is expected to depreciate substantially over the next year. A U.S.-based MNC has a
subsidiary in Japan, where its costs exceed revenues. The overall value of the MNC will ____ because of the yen's
depreciation.
a. decrease
b. increase
c. remain unchanged
d. A and C are possible
ANSWER: b
POINTS: 1
71. If the net inflow of one currency is about the same amount as a net outflow in another currency, the firm will benefit if
these two currencies are negatively correlated because the transaction exposure is offset.
a. True
b. False
ANSWER: b
POINTS: 1
72. A purely domestic firm is never exposed to exchange rate fluctuations.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

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73. An MNC’s stock valuation will not be affected by translation exposure if the MNC’s consolidated financial statements
are prepared according to the accounting rules in FASB 52.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
74. Currency correlations are generally negative.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
75. Dollar cash flows associated with two foreign inflow currencies will normally be less volatile if the standard
deviations of the individual currencies are lower.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
76. The maximum one-day loss estimated using the value-at-risk (VaR) method is independent of the confidence level
used.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

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77. The degree to which a firm's present value of future cash flows can be influenced by exchange rate fluctuations is
referred to as transaction exposure.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
78. Purely domestic firms are never affected by economic exposure.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
79. Translation exposure affects an MNC's cash flows.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
80. Since earnings can affect stock prices, many MNCs are concerned about translation exposure.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

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81. Which of the following is not true regarding currency correlations?

a. Two highly positively correlated currencies act almost as if they are the same currency.
b. If two inflow currencies are highly positively correlated, transaction exposure is somewhat offset.
c. If two inflow currencies are negatively correlated, transaction exposure is somewhat offset.
d. If two currencies, one an inflow currency and the other an outflow currency, are highly positively correlated,
transaction exposure is somewhat offset.
ANSWER: b
POINTS: 1
82. Which of the following is not true regarding economic exposure?

a. Even purely domestic firms can be affected by economic exposure.
b. In general, depreciation of the firm's local currency causes a decrease in both cash inflows and outflows.
c. The degree of economic exposure will likely be much greater for a firm involved in international business than
for a purely domestic firm.
d. The impact of a change in the local currency on inflow and outflow variables can sometimes be indirect and
therefore different from what is expected.
ANSWER: b
POINTS: 1
1. Assume zero transaction costs. If the 90-day forward rate of the euro is an accurate estimate of the spot rate 90 days
from now, then the real cost of hedging payables will be:
a. positive.
b. negative.
c. positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a
discount.
d. zero.
ANSWER: d
POINTS: 1

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2. Assume zero transaction costs. If the 180-day forward rate overestimates the spot rate 180 days from now, then the real
cost of hedging payables will be:
a. positive.
b. negative.
discount.
d. zero.
ANSWER: a
POINTS: 1
3. Assume the following information:

U.S. deposit rate for 1 year = 11%
U.S. borrowing rate for 1 year = 12%
Swiss deposit rate for 1 year = 8%
Swiss borrowing rate for 1 year = 10%
Swiss forward rate for 1 year = $.40
Swiss franc spot rate = $.39
Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF600,000 in 1
year.
Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the
firm executes a forward hedge?
a. $234,000
b. $238,584
c. $240,000
d. $236,127
ANSWER: c
RATIONALE: SF600,000 ´ $.40 = $240,000
POINTS: 1
4. An example of cross-hedging is:


lOMoARcPSD|35292726
a. find two currencies that are highly positively correlated; match the payables in one currency to the receivables
in the other currency.
b. use the forward market to sell forward whatever currencies you will receive.
c. use the forward market to buy forward whatever currencies you will receive.
d. B and C
ANSWER: a
POINTS: 1
5. Which of the following reflects a hedge of net payables in British pounds by a U.S. firm?
a. Purchase a currency put option in British pounds.
b. Sell pounds forward.
c. Sell a currency call option in British pounds.
d. Borrow U.S. dollars, convert them to pounds, and invest them in a British pound
deposit.
e. A and B
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
6. If Salerno Inc. desires to lock in a minimum rate at which it could sell its net receivables in Japanese yen but wants to
be able to capitalize if the yen appreciates substantially against the dollar by the time payment arrives, the most
appropriate hedge would be:
a. a money market hedge.
b. a forward sale of yen.
c. purchasing yen call options.
d. purchasing yen put options.
e. selling yen put options.
ANSWER: d
POINTS: 1
7. The real cost of hedging payables with a forward contract equals:


lOMoARcPSD|35292726
a. the dollar cost of hedging minus the dollar cost of not hedging.
b. the dollar cost of not hedging minus the dollar cost of hedging.
c. the dollar cost of hedging divided by the dollar cost of not
hedging.
d. the dollar cost of not hedging divided by the dollar cost of
hedging.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
8. >From the perspective of Detroit Co., which has payables in Mexican pesos, hedging the payables is especially
beneficial if the expected real cost of hedging the payables is:
a. negative.
b. zero.
c. positive and large.
d. positive and
small.
ANSWER: a
POINTS: 1
9. Assume that Cooper Co. will not use its cash balances in a money market hedge. When deciding between a forward
hedge and a money market hedge, it ____ determine which hedge is preferable before implementing the hedge. It ____
determine whether either hedge will outperform an unhedged strategy before implementing the hedge.
a. can; can
b. can; cannot
c. cannot; can
d. cannot;
cannot
ANSWER: b
POINTS: 1

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10. Foghat Co. has 1,000,000 euros as receivables due in 30 days, and is certain that the euro will depreciate substantially
over time. Assuming that the firm is correct, the ideal strategy is to:
a. sell euros forward.
b. purchase euro currency put options.
c. purchase euro currency call options.
d. purchase euros forward.
e. remain unhedged.
ANSWER: a
POINTS: 1
11. Spears Co. will receive SF1,000,000 in 30 days. Use the following information to determine the total dollar amount
received (after accounting for the option premium) if the firm purchases and exercises a put option:
Exercise price = $.61
Premium = $.02
Spot rate = $.60
Expected spot rate in 30 days = $.56
30-day forward rate = $.62
a. $630,000
b. $610,000
c. $600,000
d. $590,000
e. $580,000
ANSWER: d
RATIONALE: ($.61 - $.02) ´ SF1,000,000 = $590,000
POINTS: 1
12. A ____ involves an exchange of currencies between two parties, with a promise to re-exchange currencies at a
specified exchange rate and future date.
a. long-term forward contract
b. currency option contract
c. parallel loan
d. money market hedge
ANSWER: c
POINTS: 1
DIFFICULTY: Easy

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13. If interest rate parity exists and transaction costs are zero, the hedging of payables in euros with a forward hedge will
____.
a. have the same result as a call option hedge on payables
b. have the same result as a put option hedge on payables
c. have the same result as a money market hedge on
payables
d. require more dollars than a money market hedge
e. A and D
ANSWER: c
POINTS: 1
14. Assume that Parker Co. will receive SF200,000 in 360 days. Assume the following interest rates:
U.S. Switzerland
360-day borrowing rate 7% 5%
360-day deposit rate 6% 4%
Assume the forward rate of the Swiss franc is $.50 and the spot rate of the Swiss franc is $.48. If Parker Co. uses a money
market hedge, it will receive ____ in 360 days.
a. $101,904
b. $101,923
c. $98,769
d. $96,914
e. $92,307
ANSWER: d
RATIONALE: 1. Borrow SF190,476 (SF200,000/1.05) = SF190,476.
2. Convert SF190,476 to $91,428 (SF190,476 ´ $.48) = $91,428.
3. Invest $91,428 at 6% to accumulate $96,914 ($91,428 ´ 1.06) = $96,914.
POINTS: 1
15. Your company will receive C$600,000 in 90 days. The 90-day forward rate in the Canadian dollar is $.80. If you use a
forward hedge, you will:

lOMoARcPSD|35292726
a. receive $750,000 today.

b. receive $750,000 in 90 days.
c. pay $750,000 in 90 days.
d. receive $480,000 today.
e. receive $480,000 in 90 days.
ANSWER: a
RATIONALE: C$600,000 ´ $0.80 = $480,000
POINTS: 1
16. Assume that Smith Corp. will need to purchase 200,000 British pounds in 90 days. A call option exists on British
pounds with an exercise price of $1.68, a 90-day expiration date, and a premium of $.04. A put option exists on British
pounds with an exercise price of $1.69, a 90-day expiration date, and a premium of $.03. Smith Corporation plans to
purchase options to cover its future payables. It will exercise the option in 90 days (if at all). It expects the spot rate of the
pound to be $1.76 in 90 days. Determine the amount of dollars it will pay for the payables, including the amount paid for
the option premium.
a. $360,000
b. $338,000
c. $332,000
d. $336,000
e. $344,000
ANSWER: e
RATIONALE: ($1.68 + $.04) ´ £200,000 = $344,000
POINTS: 1
17. Assume that Kramer Co. will receive SF800,000 in 90 days. Today's spot rate of the Swiss franc is $.62, and the 90-
day forward rate is $.635. Kramer has developed the following probability distribution for the spot rate in 90 days:
Possible Spot Rate
in 90 Days Probability
$.61 10%
$.63 20%
$.64 40%
$.65 30%
The probability that the forward hedge will result in more dollars received than not hedging is:
a. 10 percent.
b. 20 percent.

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c. 30 percent.
d. 50 percent.
e. 70 percent.
ANSWER: c
RATIONALE: The forward hedge will result in more dollars if the spot rate is less than the forward rate,
which is true in the first two cases.
POINTS: 1
18. Assume that Patton Co. will receive 100,000 New Zealand dollars (NZ$) in 180 days. Today's spot rate of the NZ$ is
$.50, and the 180-day forward rate is $.51. A call option on NZ$ exists, with an exercise price of $.52, a premium of $.02,
and a 180-day expiration date. A put option on NZ$ exists with an exercise price of $.51, a premium of $.02, and a 180-
day expiration date. Patton Co. has developed the following probability distribution for the spot rate in 180 days:
Possible Spot Rate
in 90 Days Probability
$.48 10%
$.49 60%
$.55 30%
The probability that the forward hedge will result in more U.S. dollars received than the options hedge is ____ (deduct the
amount paid for the premium when estimating the U.S. dollars received on the options hedge).
a. 10 percent
b. 30 percent
c. 40 percent
d. 70 percent
e. none of the
above
ANSWER: d
RATIONALE: The put option will be exercised in the first two cases, resulting in an amount received per
unit of $.51 - $.02 = $.49. Thus, the forward hedge will result in more U.S. dollars received
($.51 per unit).
POINTS: 1
19. The ____ hedge is not a technique to eliminate transaction exposure discussed in your text.
a. index
b. futures

lOMoARcPSD|35292726
c. forward
d. money market
e. currency option
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
20. Money Corp. frequently uses a forward hedge to hedge its Malaysian ringgit (MYR) receivables. For the next month,
Money has identified its net exposure to the ringgit as being MYR1,500,000. The 30-day forward rate is $.23.
Furthermore, Money's financial center has indicated that the possible values of the Malaysian ringgit at the end of next
month are $.20 and $.25, with probabilities of .30 and .70, respectively. Based on this information, the revenue from
hedging minus the revenue from not hedging receivables is____.
a. $0.
b. -$7,500.
c. $7,500.
d. none of the
above
ANSWER: c
RATIONALE: RCH(1) = (MYR1,500,000 ´ $0.20) - (MYR1,500,000 ´ $0.23)
= -$45,000
RCH(2) = (MYR1,500,000 ´ $0.25) - (MYR1,500,000 ´ $0.23)
= $30,000
E[RCH] = (.30)(-45,000) + (.7)(30,000) = 7,500
POINTS: 1
U.S. Jordan
360-day borrowing rate 6% 5%
360-day deposit rate 5% 4%
21. Refer to Exhibit 11-1. Perkins Corp. will receive 250,000 Jordanian dinar (JOD) in 360 days. The current spot rate of
the dinar is $1.48, while the 360-day forward rate is $1.50. How much will Perkins receive in 360 days from
implementing a money market hedge (assume any receipts before the date of the receivable are invested)?
a. $377,115
b. $373,558
c. $363,019

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d. $370,000
ANSWER: d
RATIONALE: 1. Borrow JOD238,095.24 (JOD250,000/1.05) = JOD238,095.24.
2. Convert JOD238,095.24 to $352,380.95 (JOD238,095.24 ´ $1.48) =

$352,380.95.
3. Invest $352,380.95 at 5% to accumulate $370,000 ($352,280.95 ´ 1.05) =

$370,000.
POINTS: 1
22. Refer to Exhibit 11-1. Pablo Corp. will need 150,000 Jordanian dinar (JOD) in 360 days. The current spot rate of the
dinar is $1.48, while the 360-day forward rate is $1.46. What is Pablo's cost from implementing a money market hedge
(assume Pablo does not have any excess cash)?
a. $224,135
b. $226,269
c. $224,114
d. $223,212
ANSWER: b
RATIONALE: 1. Need to invest JOD144,230.76 (JOD150,000/1.04) = JOD144,230.76.
2. Need to convert $213,461.52 to obtain the JOD144,230.76 dinar (JOD144,230.76
´ $1.48) = $213,461.52.
3. At the end of 360 days, need $226,269.22 ($213,461.52 ´ 1.06) = $226,269.21.
POINTS: 1
23. Lorre Co. needs 200,000 Canadian dollars (C$) in 90 days and is trying to determine whether or not to hedge this
position. Lorre has developed the following probability distribution for the Canadian dollar:
Possible Value of
Canadian Dollar in 90 Days Probability
$0.54 15%
0.57 25%
0.58 35%
0.59 25%

lOMoARcPSD|35292726

The 90-day forward rate of the Canadian dollar is $.575, and the expected spot rate of the Canadian dollar in 90 days is
$.55. If Lorre implements a forward hedge, what is the probability that hedging will be more costly to the firm than not
hedging?
a. 40 percent
b. 60 percent
c. 15 percent
d. 85 percent
ANSWER: a
RATIONALE: Since Lorre locks into the $.575 with a forward contract, the first two cases would have
been cheaper had Lorre not hedged (15% + 25% = 40%).
POINTS: 1
24. Quasik Corp. will be receiving 300,000 Canadian dollars (C$) in 90 days. Currently, a 90-day call option with an
exercise price of $.75 and a premium of $.01 is available. Also, a 90-day put option with an exercise price of $.73 and a
premium of $.01 is available plans to purchase options to hedge its receivables position. Assuming that the spot rate in 90
days is $.71, what is the net amount received from the currency option hedge?
a. $219,000
b. $222,000
c. $216,000
d. $213,000
ANSWER: c
RATIONALE: ($.73 - $.01) ´ 300,000 = $216,000.
POINTS: 1
25. FAB Corp. will need 200,000 Canadian dollars (C$) in 90 days to cover a payables position. Currently, a 90-day call
option with an exercise price of $.75 and a premium of $.01 is available. Also, a 90-day put option with an exercise price
of $.73 and a premium of $.01 is available. FAB plans to purchase options to hedge its payables position. Assuming that
the spot rate in 90 days is $.71, what is the net amount paid, assuming FAB wishes to minimize its cost?
a. $144,000
b. $148,000
c. $152,000
d. $150,000
ANSWER: a
RATIONALE: ($.71 + $.01) ´ 200,000 = $144,000. Note: the call option is not exercised since the spot
rate is less than the exercise price.

lOMoARcPSD|35292726
POINTS: 1
26.
You are the treasurer of Arizona Corp. and must decide how to hedge (if at all) future receivables of 350,000 Australian
dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise price of $.50 per
Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is:
Future Spot Rate Probability

$.46 20%
$.48 30%
$.52 50%
The 90-day forward rate of the Australian dollar is $.50.
What is the probability that the put option will be exercised (assuming Arizona purchased it)?
a. 0 percent
b. 80 percent
c. 50 percent
d. none of the
above
ANSWER: c
RATIONALE: Arizona will exercise when the exercise price is greater than the future spot (20% + 30% =
50%).
POINTS: 1
27. If interest rate parity exists, and transaction costs do not exist, the money market hedge will yield the same result as
the ____ hedge.
a. put option
b. forward
c. call option
d. none of the
above
ANSWER: b
POINTS: 1

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28. Which of the following might be used to hedge exposure in the long run?
b. money market hedge
c. parallel loan
d. A and C
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
29. When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least
reduce exposure, such as ____.
a. leading
b. lagging
c. cross-hedging
d. currency diversification
e. all of the above
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
30. Sometimes the overall performance of an MNC may already be insulated by offsetting effects between subsidiaries,
and it may not be necessary to hedge the position of each individual subsidiary.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
31. To hedge a ____ in a foreign currency, a firm may ____ a currency futures contract for that currency.
a. receivable; purchase
b. payable; sell

lOMoARcPSD|35292726
c. payable; purchase
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
32. A forward contract hedge is very similar to a futures contract hedge, except that ____ contracts are commonly used for
____ transactions.
a. forward; small
b. futures; large
c. forward; large
d. none of the
above
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
33. Celine Co. will need €500,000 in 90 days to pay for German imports. Today's 90-day forward rate of the euro is $1.07.
The spot rate of the euro in 90 days is forecasted to be $1.02. Based on this information, the expected value of the real
cost of hedging payables is $____.
a. -25,000
b. 25,000
c. -107,000
d. 10,700
ANSWER: a
RATIONALE: E[RCHp] = 500,000 × [−$.05] = -$25,000
POINTS: 1
34. In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables
will be:
a. highly positive.
b. highly negative.

lOMoARcPSD|35292726
c. zero.
d. none of the
above
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
35. The real cost of hedging payables in Japanese yen is especially high when the yen appreciates over time.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
36. Samson Inc. needs €1,000,000 in 30 days. Samson can earn 5 percent annualized on a German security. The current
spot rate for the euro is $1.00. Samson can borrow funds in the United States at an annualized interest rate of 6 percent. If
Samson uses a money market hedge, how much should it borrow in the United States?
a. $952,381
b. $995,851
c. $943,396
d. $995,025
ANSWER: b
RATIONALE: 1,000,000/[1 + (5% ´ 30/360) = $995,851
POINTS: 1
37. Blake Inc. needs €1,000,000 in 30 days. It can earn 5 percent annualized on a German security. The current spot rate
for the euro is $1.00. Blake can borrow funds in the United States at an annualized interest rate of 6 percent. If Blake uses
a money market hedge to hedge the payable, what is the cost of implementing the hedge?
a. $1,000,000
b. $1,055,602
c. $1,000,830
d. $1,045,644

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ANSWER: c
RATIONALE: 1. Borrow $995,851 from a U.S. bank (€1,000,000 ´ $1.00 ´ [1 + (.05 ´ 30/360)]
2. Convert $995,851 to €995,851, given the exchange rate of $1.00 per euro.
3. Use the euros to purchase a German security that offers 0.42% interest over 30
days.
4. Repay the U.S. loan in 30 days, plus interest; the amount owed is $1,000,830
(computed as $995,851 ´ [1 + (.06 ´ 30/360)]).
POINTS: 1
38. Since the results of both a money market hedge and a forward hedge are known beforehand, an MNC can implement
the one that is more feasible.
a. True
b. False
ANSWER: a
POINTS: 1
39. If interest rate parity exists, the forward hedge will always outperform the money market hedge.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
40. To hedge a contingent exposure, in which an MNC's exposure is contingent on a specific event occurring, the
appropriate hedge would be a(n) ____ hedge.
a. money market
b. futures
c. forward

lOMoARcPSD|35292726
d. options
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
41. A ____ is not normally used for hedging long-term transaction exposure.
a. long-term forward contact
b. futures contract
c. currency swap
d. parallel loan
ANSWER: b
POINTS: 1
42. A ____ does not represent an obligation.

b. currency swap
c. parallel loan
d. currency option
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
43. Hedging the position of individual subsidiaries is generally necessary, even if the overall performance of the MNC is
already insulated by the offsetting positions between subsidiaries.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

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44. If an MNC is extremely risk-averse, it may decide to hedge even though its hedging analysis indicates that remaining
unhedged will probably be less costly than hedging.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
45. A money market hedge involves taking a money market position to cover a future payables or receivables position.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
46. To hedge a payables position with a currency option hedge, an MNC would write a call option.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
47. Many MNCs use selective hedging, in which they consider each type of transaction separately.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

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48. Currency futures are very similar to forward contracts, except that they are standardized and are more appropriate for
firms that prefer to hedge in smaller amounts.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
49. To hedge payables with futures, an MNC would sell futures; to hedge receivables with futures, an MNC would buy
futures.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
50. When the real cost of hedging payables is positive, this implies that hedging was more favorable than not hedging.
a. True
b. False
ANSWER: b
POINTS: 1
51. A futures hedge involves taking a money market position to cover a future payables or receivables position.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

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52. If interest rate parity (IRP) exists, then the money market hedge will yield the same result as the options hedge.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
53. The price at which a currency put option allows the holder to sell a currency is called the settlement price.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
54. A put option essentially represents two swaps of currencies: one swap at the inception of the loan contract and another
swap at a specified date in the future.
a. True
b. False
ANSWER: b
POINTS: 1
55. The hedging of a foreign currency for which no forward contract is available with a highly correlated currency for
which a forward contract is available is referred to as cross-hedging.
a. True
b. False
ANSWER: a
POINTS: 1

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56. The exact cost of hedging with call options (as measured in the text) is not known with certainty at the time that the
options are purchased.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
57. The tradeoff when considering alternative call options to hedge a currency position is that an MNC can obtain a call
option with a higher exercise price, but would have to pay a higher premium.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
58. When comparing the forward hedge to the options hedge, the MNC can easily determine which hedge is more
desirable, because the cost of each hedge can be determined with certainty.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
59. When comparing the forward hedge to the money market hedge, the MNC can easily determine which hedge is more
desirable, because the cost of each hedge can be determined with certainty.
a. True
b. False

lOMoARcPSD|35292726
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
60. Assume zero transaction costs. If the 90-day forward rate of the euro underestimates the spot rate 90 days from now,
then the real cost of hedging payables will be:
a. positive.
b. negative.
discount.
d. zero.
ANSWER: b
POINTS: 1
61. Johnson Co. has 1,000,000 euros as payables due in 30 days, and is certain that the euro is going to appreciate
substantially over time. Assuming the firm is correct, the ideal strategy is to:
a. sell euros forward
e. remain unhedged.
ANSWER: d
POINTS: 1
62. Linden Co. has 1,000,000 euros as payables due in 90 days, and is certain that the euro is going to depreciate
substantially over time. Assuming the firm is correct, the ideal strategy is to:
a. sell euros forward
e. remain unhedged.

lOMoARcPSD|35292726
ANSWER: a
POINTS: 1
63. Mender Co. will be receiving 500,000 Australian dollars in 180 days. Currently, a 180-day call option with an exercise
price of $.68 and a premium of $.02 is available. Also, a 180-day put option with an exercise price of $.66 and a premium
of $.02 is available. Mender plans to purchase options to hedge its receivables position. Assuming that the spot rate in 180
days is $.67, what is the amount received from the currency option hedge (after considering the premium paid)?
a. $330,000
b. $325,000
c. $320,000
d. $340,000
ANSWER: b
POINTS: 1
64. You are the treasurer of Montana Corp. and must decide how to hedge (if at all) future payables of 1,000,000 Japanese
yen 90 days from now. Call options are available with a premium of $.01 per unit and an exercise price of $.01031 per
Japanese yen. The forecasted spot rate of the Japanese yen in 90 days is:
Future Spot Rate Probability
$.01035 20%
$.01032 20%
$.01030 30%
$.01029 30%
The 90-day forward rate of the Japanese yen is $.01033.
What is the probability that the call option will be exercised (assuming Montana purchased it)?
a. 30 percent
b. 60 percent
c. 20 percent
d. 40 percent
ANSWER: d
POINTS: 1

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65. A cross-hedging strategy is most effective with currencies that are _____, whereas currency diversification is most
effective with currencies that are ______.
a. highly positively correlated; not highly correlated
b. highly negatively correlated; not highly
correlated
c. expected to appreciate; expected to depreciate
d. expected to depreciate; expected to appreciate
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
66. A money market hedge on payables would involve, among others, borrowing ____ and investing in the ____.
a. the foreign currency; United States
b. the foreign currency; foreign
country
c. dollars; foreign country
d. dollars; United States
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
67. If a firm is hedging payables with futures contracts, it may end up paying more for the payables than it would have
had it remained unhedged if the foreign currency depreciates.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
68. A money market hedge involves taking a money market position to cover a future payables or receivables position.
a. True

lOMoARcPSD|35292726
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
69. To hedge a payables position in a foreign currency with a money market hedge, the MNC would borrow the foreign
currency, convert it to dollars, and invest that amount in the United States until the payables are due.
a. True
b. False
ANSWER: b
POINTS: 1
70. If interest rate parity exists, and transaction costs do not exist, the option hedge will yield the same results as no hedge.
a. True
b. False
ANSWER: b
POINTS: 1
71. MNCs should hedge receivables using bear spreads only for currencies that are expected to appreciate substantially
prior to option expiration.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
72. An advantage of using options to hedge is that the MNC can let the option expire. However, a disadvantage of using

lOMoARcPSD|35292726

options is that a premium must be paid for it.
a. True
b. False
ANSWER: a
POINTS: 1
73. To hedge a receivables position with a currency option hedge, an MNC would buy a put option.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
74. Futures, forward, and money market hedges all lock into a certain price to be received from hedging a receivable. For
a currency option hedge with a put option, however, the exact amount received is not known until the option is (or is not)
exercised.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
75. If hedging projections cause a firm to believe that it will definitely be adversely affected by its transaction exposure, a
currency option hedge is more appropriate than other methods.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

lOMoARcPSD|35292726
76. Overhedging refers to the hedging of a larger amount in a currency than the actual transaction amount.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
77. Most MNCs can completely hedge all of their transactions.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
78. When a parent company tries to convince a subsidiary to hedge its transaction exposure, this is called leading.
a. True
b. False
ANSWER: b
POINTS: 1
79. Lagging refers to the delay of payment by a subsidiary if the currency denominating the payable is expected to
depreciate.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

lOMoARcPSD|35292726
80. Cross-hedging may involve taking a forward position in a currency that is highly correlated with the currency an MNC
needs to hedge.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
81. Since forward contracts are easy to use for hedging, any exposure to exchange rate movements should be hedged.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
1. Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based MNC’s reported earnings (from the
consolidated income statement) to ____. If a firm desired to protect against this possibility, it could stabilize its reported
earnings by ____ euros forward in the foreign exchange market.
a. be reduced; purchasing
b. be reduced; selling
c. increase; selling
d. increase; purchasing
ANSWER: b
POINTS: 1
2. Springfield Co., based in the United States, has costs from orders of foreign material that exceed its foreign revenue. All
foreign transactions are denominated in the foreign currency of concern. This firm would ____ a stronger dollar and
would ____ a weaker dollar.
a. benefit from; be unaffected by
b. benefit from; be adversely affected by

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c. be unaffected by; be adversely affected by

d. be unaffected by; benefit from
e. benefit from; benefit from
ANSWER: b
POINTS: 1
3. Whitewater Co. is a U.S. company with sales to Canada amounting to C$8 million. Its cost of materials attributable to
the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Based on these
exact figures, the dollar value of Whitewater's "earnings before interest and taxes" would ____ if the Canadian dollar
appreciates; the dollar value of Whitewater's cash flows would ____ if the Canadian dollar appreciates.
a. increase; increase
b. decrease; increase
c. decrease; decrease
d. increase; decrease
e. increase; be unaffected
ANSWER: d
POINTS: 1
4. Sycamore (a U.S. firm) has no subsidiaries and presently has sales to Mexican customers amounting to MXP98 million,
while its peso-denominated expenses amount to MXP41 million. If it shifts its material orders from its Mexican suppliers
to U.S. suppliers, it could reduce peso-denominated expenses by MXP12 million and increase dollar-denominated
expenses by $800,000. This strategy would ____ Sycamore's exposure to changes in the peso's movements against the
U.S. dollar. Regardless of whether the firm shifts expenses, it is likely to perform better when the peso is valued ____
relative to the dollar.
a. reduce; high
b. reduce; low
c. increase; low
d. increase; high
ANSWER: d
POINTS: 1
5. Which of the following is an example of economic exposure but not an example of transaction exposure?

lOMoARcPSD|35292726
a. An increase in the dollar's value hurts a U.S. firm's domestic sales because foreign competitors are able to
increase their sales to U.S. customers.
b. An increase in the pound's value increases a U.S. firm's cost of British pound payables.
c. A decrease in the peso's value decreases a U.S. firm's dollar value of peso receivables.
d. A decrease in the Swiss franc's value decreases the dollar value of interest payments on a Swiss deposit sent to
a U.S. firm by a Swiss bank.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
6. Rockford Co. is a U.S. manufacturing firm that produces products in the United States and sells all the products to retail
stores in the United Kingdom; the sales are denominated in pounds. It finances a small portion of its business with pound-
denominated loans from British banks. Which of the following is true? (Assume that the amount of products to be sold is
guaranteed by contracts.)
a. The dollar value of sales is higher if the pound depreciates against the dollar.
b. The dollar value of sales is unaffected by the pound's exchange rate.
c. A and B
d. None of the above
ANSWER: d
POINTS: 1
7. If a U.S. firm's expenses are more susceptible to exchange rate movements than its revenue is, the firm will ____ if the
dollar ____.
a. benefit; weakens
b. be unaffected; weakens
c. be unaffected; strengthens
d. benefit; strengthens
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
8. Laketown Co. has some expenses and revenue in euros. If its expenses are more sensitive to exchange rate movements

lOMoARcPSD|35292726

than its revenue is, it could reduce economic exposure by ____. If its revenues are more sensitive than its expenses, it
could reduce economic exposure by ____.
a. decreasing foreign revenues; decreasing foreign
expenses
b. decreasing foreign revenues; increasing foreign expenses
c. increasing foreign revenues; decreasing foreign revenues
d. decreasing foreign expenses; increasing foreign revenues
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
9. Any restructuring of operations that ____ the difference between a foreign currency's inflows and outflows may ____
economic exposure.
a. reduces; increase
b. increases; reduce
c. reduces; reduce
d. A and B
e. none of the
above
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
10. It is generally least difficult to effectively hedge various types of:

a. translation exposure
b. transaction exposure
c. economic exposure
d. A and C
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
11. With regard to hedging translation exposure, translation losses ____, and gains on forward contracts used to hedge

lOMoARcPSD|35292726

translation exposure ____.
a. are not tax deductible; are taxed
b. are tax deductible; are taxed
c. are not tax deductible; are not taxed
d. are tax deductible; are not taxed
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
12. If a firm does not have foreign subsidiaries, it is not subject to ____.
a. transaction exposure
b. economic exposure
c. A and B
d. translation exposure
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
13. If the Singapore dollar appreciates against the U.S. dollar over this year, the consolidated earnings of a U.S. company
with a subsidiary in Singapore will be ____ as a result of the exchange rate movement.
a. negative
b. adversely affected
c. favorably affected
d. unaffected
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
14. Assume a U.S. firm uses a forward contract to hedge all of its translation exposure. Also assume that the firm
underestimated what its foreign earnings would be. Assume that the foreign currency depreciated over the year. The firm
would generate a translation ____, which would be ____ than the gain generated by the forward contract.
a. loss; smaller
b. loss; larger

lOMoARcPSD|35292726
c. gain; larger
d. gain; smaller
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
15. A perfect hedge (full coverage) on translation exposure can usually be achieved when:
a. using a money market hedge.
b. using a forward hedge.
c. using a futures hedge.
d. none of the above, since a perfect hedge is nearly
impossible.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
16. Assume that a Japanese car manufacturer exports cars that are priced in yen to U.S. dealerships. The demand for those
cars declines when the yen is strong. The manufacturer also produces some cars in the United States with U.S. materials,
and those cars are priced in dollars. The manufacturer could reduce its economic exposure by:
a. closing down most of its plants in the United States.
b. producing more automobiles in the United States.
c. relying completely on Japanese suppliers for its
parts.
d. pricing its exports in dollars.
ANSWER: b
POINTS: 1
17. Wisconsin, Inc. conducts business in Zambia. Years ago, Wisconsin established a subsidiary in Zambia that has
consistently generated very large profits denominated in Zambian kwacha. Wisconsin wishes to restructure its operations
to reduce economic exposure. Which of the following is not a feasible way of accomplishing this?
a. increase Zambian supply orders
b. increase Zambian sales

lOMoARcPSD|35292726
c. restructure debt to increase debt payments in Zambia

d. reduce Zambian sales
ANSWER: b
POINTS: 1
18. Which of the following firms is not exposed to translation exposure?

a. Firm X, with a fully owned subsidiary that periodically remits earnings generated in Great Britain to the U.S.-
based parent.
b. Firm Y, with a fully owned subsidiary that periodically generates foreign losses in Sweden. The parent covers
at least some of these losses.
c. Firm Z, with a fully owned subsidiary that generates substantial earnings in Germany. The subsidiary never
remits earnings but reinvests them in Germany.
d. All of the above firms are exposed to translation exposure.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
19. ____ represents any impact of exchange rate fluctuations on a firm's future cash flows.
a. Translation exposure
b. Economic exposure
c. Transaction exposure
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
20. An effective way for an MNC to assess its economic exposure is to review the firm's:
a. income statement
b. liquidity
c. retained earnings
d. level of stockholders' equity
ANSWER: a

lOMoARcPSD|35292726
POINTS: 1
DIFFICULTY: Easy
21. If revenues and costs are equally sensitive to exchange rate movements, MNCs may reduce their economic exposure
by restructuring their operations to shift the sources of costs or revenues to other locations so that:
a. cash inflows exceed cash outflows in each foreign currency.
b. cash outflows exceed cash inflows in each foreign currency.
c. cash inflows match cash outflows in each foreign currency.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
22. Managing economic exposure is generally perceived to be ____ managing transaction exposure.
a. more difficult than
b. less difficult than
c. just as difficult as
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
23. As opposed to transaction exposure, managing economic exposure involves developing a(n) ____ solution.
a. short-term
b. long-term
c. immediate
d. none of the
above
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

lOMoARcPSD|35292726

24. Cierra, Inc. is attempting to assess its degree of economic exposure in euros. In order to do so, it has applied
regression analysis to determine whether the percentage change in its total cash flows is related to the percentage change
in the euro. A ____ and statistically significant slope coefficient resulting from this analysis implies that the cash flows are
____ related to the percentage changes in the euro.
a. positive; positively
b. positive; negatively
c. negative; positively
d. B and C
ANSWER: a
POINTS: 1
25. Assume that an MNC's cash flows are positively related to the movements in a foreign currency. If the MNC expects
the foreign currency to weaken, it could purchase the currency forward to reduce its degree of economic exposure.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
26. An MNC is attempting to reduce its economic exposure by financing a portion of its business with loans in the foreign
currency. If the foreign currency weakens, the MNC will need ____ of the foreign currency to cover the loan payment,
while the MNC's foreign currency revenues will convert to ____ dollars.
a. more;
fewer
b. more; more
c. less; fewer
d. less; more
ANSWER: c
POINTS: 1
DIFFICULTY: Easy

lOMoARcPSD|35292726

27. An MNC has fixed assets in Europe that it expects to sell in the distant future. In order to hedge the sale of these assets
in the distant future, the MNC could create a(n) ____ that ____ the expected value of the assets in the future.
a. asset; matches
b. asset; exceeds
c. liability; matches
d. liability; is less than
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
28. Long-term forward contracts are a possible way to hedge the distant sale of fixed assets in foreign countries, but they
may not be available for many emerging market currencies.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
29. ____ exposure occurs when an MNC translates each subsidiary's financial data to its home currency for consolidated
financial statements.
a. Translation
b. Transaction
c. Economic
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
30. ____ is (are) not a limitation of hedging translation exposure.


lOMoARcPSD|35292726
a. Inaccurate stock price forecasts

b. Inadequate forward contracts for some currencies
c. Taxation on gains from forward contracts
d. Increased transaction exposure
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
31. To hedge translation exposure, MNCs could ____ that their foreign subsidiaries receive as earnings to create a cash
outflow in the currency to offset the earnings received in that currency.
a. purchase the currency forward
b. sell the currency forward
c. purchase futures contracts of the
currency
d. A or C
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
32. Which of the following is a possible strategy for reducing economic exposure?
a. hedging with forward contracts
b. purchasing foreign supplies
c. financing with foreign funds
d. all of the above
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
33. In general, it is more difficult to effectively hedge economic or translation exposure than to hedge transaction
exposure.
a. True
b. False

lOMoARcPSD|35292726
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
34. A foreign subsidiary with expenses that are more susceptible to exchange rate movements than its revenue will be
favorably affected by an appreciation of the foreign currency.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
35. U.S. firms can attempt to hedge the translation exposure of their European subsidiaries with a forward purchase of
euros.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
36. Hedging translation exposure with forward contracts can backfire if the currency being hedged depreciates.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
37. A limitation of hedging translation exposure is that translation losses are not tax deductible, whereas gains on forward
contracts used to hedge translation exposure are taxed.

lOMoARcPSD|35292726
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
38. The translation gain (or loss) is simply a paper gain (or loss). Conversely, the gain (or loss) resulting from a hedge
strategy is a real gain (or loss).
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
39. All MNCs are subject to translation exposure.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
40. U.S.-based MNCs invoicing in Asian currencies and incurring expenses in Asian currencies will probably be less
affected by weakness in Asian currencies than U.S.-based MNCs that invoice in Asian currencies but do not incur
expenses in those currencies.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

lOMoARcPSD|35292726
41. The management of economic exposure is normally focused completely on transactions that will occur in the next
three months.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
42. Transaction exposure results when an MNC translates each subsidiary's financial data to its home currency for
consolidated financial statements.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
43. Although forward contracts may reduce translation exposure at the expense of increasing transaction exposure, they
are sometimes used to hedge translation exposure.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
44. Vermont Co. has foreign expenses denominated in euros that exceed foreign revenues. Appreciation of the euro
relative to the U.S. dollar will cause this firm's reported earnings (from the consolidated income statement) to ____. If the
firm desires to protect against this possibility, it could stabilize its reported earnings by ____ euros forward in the foreign
exchange market.
a. decrease; purchasing
b. decrease; selling
c. increase; selling
d. increase; purchasing
ANSWER: a

lOMoARcPSD|35292726
POINTS: 1
45. If a U.S. firm has much more revenue than expenses denominated in euros, the firm will likely ____ if the euro ____.
a. benefit; weakens
b. be unaffected; weakens
c. be unaffected; strengthens
d. benefit; strengthens
ANSWER: d
POINTS: 1
46. Assume that Atlanta Co. is producing motorcycles and selling them to U.S. customers. Atlanta Co. obtains all of its
supplies from American firms and has no competition in the United States. It has one major competitor in Japan. Now
assume that Phoenix Co. is producing office furniture and obtains its supplies from a Canadian firm. Based on this
information, Atlanta Co. has ____ exposure and Phoenix Co. has ____ exposure.
a. transaction;
translation
b. translation;
transaction
c. economic; transaction
d. economic; translation
ANSWER: c
POINTS: 1
47. Tennessee Co. conducts business in the United States and Canada. The net cash flows from Canadian operations are
expected to be C$500,000 next year. The Canadian dollar is valued at about $.90. The net cash flows from U.S. operations
are expected to be $200,000. To reduce the sensitivity of its net cash flows without reducing its volume of business in
Canada, Tennessee Co. could:
a. purchase Canadian supplies
b. increase its borrowings in United
States.
c. decrease prices on Canadian goods.

lOMoARcPSD|35292726
d. decrease its borrowed funds in Canada.

ANSWER: a
POINTS: 1
48. Mercury Co. has a subsidiary based in Italy and is exposed to translation exposure. Mercury forecasts that its earnings
next year will be €10 million. Mercury decides to hedge the expected earnings by selling €10 million forward. During the
next year, the euro appreciated. Mercury's consolidated earnings were ____ affected by the euro's movement, and
Mercury's hedge position was ____ affected by the euro's movement.
a. favorably; favorably
b. favorably; adversely
c. adversely; favorably
d. adversely; adversely
ANSWER: b
POINTS: 1
49. All MNCs are subject to transaction exposure.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
50. A foreign subsidiary with more revenue than expenses denominated in a foreign currency will be favorably affected by
appreciation of the foreign currency.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

lOMoARcPSD|35292726

51. Economic exposure represents any impact of exchange rate fluctuations on a firm's future cash flows and thus includes
transaction exposure.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
52. To reduce economic exposure when a foreign currency has a greater impact on cash inflows than on cash outflows, an
MNC could reduce its level of foreign sales, increase its foreign supply orders, or restructure debt to increase debt
payments in the foreign currency.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
53. Even if translation exposure does not affect cash flows, it is a concern of many MNCs.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
54. Translation exposure results when an MNC translates each subsidiary's financial data to its home currency for
consolidated financial statements.
a. True
b. False
ANSWER: a
POINTS: 1

lOMoARcPSD|35292726
DIFFICULTY: Easy
55. Implementing a forward or money market hedge to hedge translation exposure may increase transaction exposure.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
56. Thornton Corp. is based in the U.S. and has no foreign subsidiaries. It has extensive liabilities denominated in Indian
rupees resulting from imports from India. However, Thornton's revenues are denominated solely in U.S. dollars. Which of
the following is probably not true?
a. Thornton would benefit from a depreciation of the Indian rupee.
b. Thornton has at least some transaction exposure.
c. Thornton has at least some economic exposure.
d. Thornton has at least some translation exposure.
ANSWER: d
POINTS: 1
57. A U.S.-based MNC has a subsidiary in Barbados that generates substantial net cash inflows denominated in Barbados
dollars. Given this information, the MNC would ____ from a(n) ____ of the Barbados dollar.
a. benefit; appreciation
b. benefit; depreciation
c. not benefit; appreciation
ANSWER: a
POINTS: 1

lOMoARcPSD|35292726
58. ____ is (are) a limitation of hedging translation exposure.

a. Inaccurate earnings forecasts
b. Inadequate forward contracts for some currencies
c. Accounting distortions
d. Increased transaction exposure
e. All of the above
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

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International Finance (University of Central Arkansas)

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

2. Transaction exposure reflects:

3. Economic exposure refers to:

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

9. Economic exposure can affect:

10. Under FASB 52:

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

e. none of the above

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

30. If the U.S. dollar appreciates, an MNC's:

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

32. ____ is (are) not a determinant of translation exposure.

Regression Coefficient (a1) Regression Coefficient (a1)

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

LEARNING OBJECTIVES: INFM.MADU.15.10.02

52. A reduction in hedging will probably reduce transaction exposure.

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

LEARNING OBJECTIVES: INFM.MADU.15.10.02

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations

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Chapter 10: Measuring Exposure to Exchange Rate Fluctuations