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Finance Transaction Exposure Multiple Choice Questions

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Question;Question 1___________ a certain currency exposure means establishing an offsetting currency position so that the gain or loss from the exposure on the original currency is exactly offset by the gain or loss from the currency hedge.Answer Risk-Shifting Hedging Arbitraging Cross-hedging1 points Question 2Firms that attempt to reduce risk and beat the market simultaneously may end up withAnswer a loss as well as reduced risk a profit as well as reduced risk less risk more risk, not less1 points Question 3In a forward market hedge, a company that is long a foreign currency will _______ the foreign currency forward, whereas a company that is short a foreign currency will _______ the currency forward.Answer borrow, sell lend, buy sell, buy buy, sell1 points Question 4A ________ involves simultaneously borrowing and lending activities in two different currencies to lock in the currency?s value of a future foreign currency cash flow.Answer money-market hedge currency option forward contract currency collar1 points Question 5____________ exposure results from the possibility of incurring a gain or loss related to a sale or purchase already entered into and denominated in another currency.Answer operating translation forward exchange transaction1 points Question 6Dell Computer has a ?5 million receivable that it expects to collect in one year. Suppose the interest rate on pounds is 10%. How could Dell protect this receivable using a money market hedge?Answer borrow ?5 million pounds today lend ?5 million pounds today borrow ?4.545m pounds today lend ?4.545m pounds today1 points Question 7A Japanese firm sells TV sets to an American importer for two billion yen payable in 90 days. To protect against exchange risk, the importer couldAnswer buy a futures contract for yen on the IMM sell a call option on yen sell yen on the forward market borrow yen, convert to dollars, and lend dollars for the interim period1 points Question 8Suppose that the spot rate and the 90day forward rate on the pound sterling are $1.52 and $1.495, respectively. Your company, wishing to avoid foreign exchange risk, sells ?2m forward 90 days. Assuming that the spot rate remains the same 90 days hence, your company wouldAnswer receive ?2m 90 days hence receive more than ?2m in 90 days have been better off not to have sold pounds forward receive $2.99m1 points Question 9The following information is to be usedU.S. borrowing rate for 1 year = 9.5%U.S. deposit rate for 1 year = 8.7%Danish borrowing rate for 1 year = 11.3%Danish deposit rate for 1 year = 10.2%Danish Krone spot quote = $0.176378Danish Krone 1year forward quote = $0.172947What value can Alcoa lock in for a receivable of DKK 3 million due in one year if it executes a money market hedge today?Answer $530,012 $520,940 $525,540 $516,5451 points Question 10The following information is to be usedU.S. borrowing rate for 1 year = 9.5%U.S. deposit rate for 1 year = 8.7%Danish borrowing rate for 1 year = 11.3%Danish deposit rate for 1 year = 10.2%Danish Krone spot quote = $0.176378Danish Krone 1year forward quote = $0.172947What value can Alcoa lock in for its DKK 3 million receivable if it executes a forward contract today?Answer $524,100 $528,900 $532,410 $518,7001 points Question 11During a home currency appreciation, exporters may pull out of markets that foreign competition makes ________.Answer profitable more liquid unprofitable more competitive1 points Question 12 _______ exposure arises because currency fluctuations can alter a company?s future revenues and expenses.Answer Operational Country risk Transaction Political1 points Question 13With respect to home currency (HC) appreciation, the key issue for a domestic firm is its degree of ______.Answer marketing plan market share pricing flexibility product differentiation1 points Question 14During periods of exchange rate volatility, firms dealing in _______ products face more exchange rate risk that the firms selling _________ products.Answer undifferentiated, differentiated differentiated, undifferentiated low supply, high supply low demand, high demand1 points Question 15One way an MNC may improve productivity in the face of exchange rate volatility is by revising ________.Answer the promotional strategy and shifting production between plants the input mix product offerings1 points Question 16A weak dollar willAnswer enable American exporters to improve their profit margins enable American importers to reduce their dollar costs cost American exporters market share abroad force American exporters to raise their foreign currency prices1 points Question 17In the face of an appreciating yen, Toyota should considerAnswer coming out with new cars targeted at the low end of the market raising its research and development investment investing in U.S. production facilities b and c1 points Question 18Nissan, the Japanese car manufacturer, exports a substantial fraction of its output to the United States. What financial measures would be suitable for Nissan to take to reduce its currency risk?Answer buy yen forward in the amount of its annual shipments to the U.S. borrow dollars to finance part of its operations sell yen forward in the amount of its annual shipments to the U.S. borrow only yen to finance its operations1 points Question 19When we examine operating exposure, the key issue for a domestic firm is itsAnswer asset valuation adjustment low import content prior import competition pricing flexibility1 points Question 20A U.S. exporter that anticipates a long-term appreciation of the dollar shouldAnswer borrow foreign currencies consider raising dollar prices on exports scout out possible foreign production sites sell foreign currencies forward

 

Paper#48338 | Written in 18-Jul-2015

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