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general business data bank




Question;1Fundamentals of;Multinational Finance, 4e(Moffett);Chapter 10 Transaction and Translation Exposure;Multiple Choice;and True/False Questions;The stages in the life;of a transaction exposure can be broken into three distinct time periods. The;first time period is the time between quoting a price and reaching an actual;sale agreement or contract. The next time period is the time lag between taking;an order and actually filling or delivering it. Finally, the time it takes to;get paid after delivering the product. In order, these stages of transaction;exposure may be identified as;Answer;backlog;quotation, and billing exposure.;billing;backlog, and quotation exposure.;quotation, backlog, and billing;exposure.;quotation;billing, and backlog exposure.;)1;exposure deals with cash flows that result from existing contractual;obligations.;A) Operating;B) Transaction;C) Translation;D) Economic;2);exposure measures the change in the present value of the firm resulting from;unexpected changes in exchange rates.;A) Operating;B) Transaction;C) Translation;D) Accounting;3) Each of the;following is another name for operating exposure EXCEPT ________.;A) economic;exposure;B) strategic;exposure;C) accounting;exposure;D) competitive;exposure;4) 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.;A) transaction;operating;B) operating;transaction;C) operating;accounting;D) none of the;above;5);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.;A) Transaction;B) Operating;C) Economic;D) Accounting;6) Losses from;________ exposure generally reduce taxable income in the year they are;realized. ________ exposure losses may reduce taxes over a series of years.;A) accounting;Operating;B) operating;Transaction;C) transaction;Operating;D) transaction;Accounting;7) 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.;A) transaction;Operating;B) accounting;Operating;C) accounting;Transaction;D) transaction;Translation;8) MNE cash flows;may be sensitive to changes in which of the following?;A) exchange rates;B) interest rates;C) commodity;prices;D) all of the;above;10.2 Why Hedge?;1) ________ is a;technique used by MNEs to deal with currency exposure.;A) No;counter-measure;B) Speculation;C) Hedging;D) All are;techniques MNEs could use.;2) Hedging, or;reducing risk, is the same as adding value or return to the firm.;3) 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 ________.;A) increase, not;change;B) decrease, not;change;C) not change;increase;D) not change;not change;4) Which of the;following is NOT cited as a good reason for hedging currency exposures?;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.;5) There is;considerable question among investors and managers about whether hedging is a;good and necessary tool.;6) Which of the;following is cited as a good reason for NOT hedging currency exposures?;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.;7) The key;arguments in opposition to currency hedging such as market efficiency, agency;theory, and diversification do not have financial theory at their core.;8);exposure may result from a firm having a payable in a foreign currency.;A) Transaction;B) Accounting;C) Operating;D) None of the;above


Paper#51218 | Written in 18-Jul-2015

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