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Question;10.5 Trident Corporation's Translation Exposure;1) The main;technique to minimize translation exposure is called a/an ________ hedge.;A) balance sheet;B) income;statement;C) forward;D) translation;2) A balance;sheet hedge requires that the amount of exposed foreign currency assets and;liabilities;A) have a 2:1;ratio of assets to liabilities.;B) have a 2:1;ratio of liabilities to assets.;C) have a 2:1;ratio of liabilities to equity.;D) be equal.;3) If a firm's;balance sheet has an equal amount of exposed foreign currency assets and;liabilities and the firm translates by the temporal method, then;A) the net;exposed position is called monetary balance.;B) the change of;value of liabilities and assets due to a change in exchange rates will be of;equal but opposite direction.;C) both A and B;are true.;D) none of the;above.;4) If a firm's;subsidiary is using the local currency as the functional currency, which of the;following is NOT a circumstance that could justify the use of a balance sheet;hedge?;A) The foreign;subsidiary is about to be liquidated, so that the value of its Cumulative;Translation Adjustment (CTA) would be realized.;B) The firm has;debt covenants or bank agreements that state the firm's debt/equity ratio will;be maintained within specific limits.;C) The foreign;subsidiary is operating is a hyperinflationary environment.;D) All of the;above are appropriate reasons to use a balance sheet hedge.;5) A Canadian;subsidiary of a U.S. parent firm is instructed to bill an export to the parent;in U.S. dollars. The Canadian subsidiary records the accounts receivable in;Canadian dollars and notes a profit on the sale of goods. Later, when the U.S.;parent pays the subsidiary the contracted U.S. dollar amount, the Canadian;dollar has appreciated 10% against the U.S. dollar. In this example, the;Canadian subsidiary will record a;A) 10% foreign;exchange loss on the U.S. dollar accounts receivable.;B) 10% foreign;exchange gain on the U.S. dollar accounts receivable.;C) since the;Canadian firm is a U.S. subsidiary neither a gain nor loss will be recorded.;D) any gain or;loss will be recorded only by the parent firm.;6) ________ gains;and losses are "realized" whereas ________ gains and losses are only;paper.;A) Translation;transaction;B) Transaction;translation;C) Translation;operating;D) None of the;above;7) A balance;sheet hedge is the main technique for managing ________.;A) transaction;B) operating;C) translation;D) money market;8) If the;European subsidiary of a U.S. firm has net exposed assets of euro 500,000, and;the euro drops in value from $1.40/euro to $1.30/euro the U.S. firm has a;translation ________.;A) gain of;$50,000;B) loss of;$50,000;C) gain of;$450,000;D) loss of euro 450,000;9) If the;European subsidiary of a U.S. firm has net exposed assets of euro 500,000, and;the euro increases in value from $1.30/euro to $1.35/euro the U.S. firm has a;translation ________.;A) gain of;$25,000;B) loss of;$25,000;C) gain of;$525,000;D) loss of euro;525,000;10.6 Managerial Implications;1) If a European;subsidiary of a U.S. firm has net exposed liabilities of euro 500,000, and the;euro drops in value from $1.40/euro to $1.30/euro then the U.S. firm has a;translation ________.;A) gain of;$50,000;B) loss of;$50,000;C) gain of;$450,000;D) loss of euro;450,000;2) If a European;subsidiary of a U.S. firm has net exposed liabilities of euro 500,000, and the;euro increases in value from $1.30/euro to $1.35/euro then the U.S. firm has a;translation ________.;A) gain of;$25,000;B) loss of;$25,000;C) gain of;$525,000;D) loss of euro;525,000;3) Using the;table below, estimate the net exposure for Souris River Manufacturing of it's;wholly-owned Canadian subsidiary.;A) C$40,000;B) C$160,000;C) C$166,000;D) C$200,000

 

Paper#51182 | Written in 18-Jul-2015

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