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Question;11.4 Proactive Management of Operating Exposure;1) Which of the;following is NOT identified by your authors as a proactive management technique;to reduce exposure to foreign exchange risk?;A) matching;currency cash flows;B) currency swaps;C) remaining a;purely domestic firm;D) parallel loans;2) Which one of;the following management techniques is likely to best offset the risk of;long-run exposure to receivables denominated in a particular foreign currency?;A) borrow money;in the foreign currency in question;B) lend money in;the foreign currency in question;C) increase sales;to that country;D) increase sales;in this country;3) Which one of;the following management techniques is likely to best offset the risk of;long-run exposure to payables denominated in a particular foreign currency?;A) borrow money;in the foreign currency in question;B) lend money in;the foreign currency in question;C) rely on the;Federal Reserve Board to enact monetary policy favorable to your exposure risk;D) none of the;above;4) The particular;strategy of trying to offset inflows of cash from one country with outflows of;cash in the same currency is known as ________.;A) hedging;B);diversification;C) matching;D) balancing;5) Which of the;following is NOT an acceptable hedging technique to reduce risk caused by a;relatively predictable long-term foreign currency inflow of Japanese yen?;A) Import raw;materials from Japan denominated in yen to substitute for domestic suppliers.;B) Pay suppliers;from other countries in yen.;C) Import raw;materials from Japan denominated in dollars.;D) Acquire debt;denominated in yen.;6) An MNE has a;contract for a relatively predictable long-term inflow of Japanese yen that the;firm chooses to hedge by seeking out potential suppliers in Japan. This hedging;strategy is referred to as ________.;A) a natural;hedge;B);currency-switching;C) matching;D);diversification;7) An MNE has a;contract for a relatively predictable long-term inflow of Japanese yen that the;firm chooses to hedge by paying for imports from Canada in Japanese yen. This;hedging strategy is known as ________.;A) a natural;hedge;B);currency-switching;C) matching;D);diversification;8) A U.S. timber;products firm has a long-term contract to import unprocessed logs from Canada.;To avoid occasional and unpredictable changes in the exchange rate between the;U.S. dollar and the Canadian dollar, the firms agree to split between the two;firms the impact of any exchange rate movement. This type of agreement is;referred to as ________.;A) risk-sharing;B);currency-switching;C) matching;D) a natural;hedge;9) A;occurs when two business firms in separate countries arrange to borrow each;other's currency for a specified period of time.;A) natural hedge;loan;B) forward loan;C) currency;switch loan;D) back-to-back;loan;10) A Canadian;firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to;a parallel loan agreement. In such an agreement, the Canadian firm is making;a/an ________ loan to the ________ subsidiary while effectively financing the;subsidiary.;A) indirect;U.S., Canadian;B) indirect;Canadian, U.S.;C) direct, U.S.;Canadian;D) direct;Canadian, U.S.;11) Which of the;following is NOT an important impediment to widespread use of parallel loans?;A) difficulty in;finding an appropriate counterparty;B) the risk that;one of the parties will fail to return the borrowed funds when agreed;C) the process;does not avoid exchange rate risk;D) All of the;above are significant impediments.;12) A;resembles a back-to-back loan except that it does not appear on a firm's;balance sheet.;A) forward loan;B) currency hedge;C) counterparty;D) currency swap;13) A ________ is;the term used to describe a foreign currency agreement between two parties to;exchange a given amount of one currency for another, and after a period of;time, to give back the original amounts.;A) matched flow;B) currency swap;C) back-to-back;loan;D) none of the;above;14) Currency;swaps are exclusively for periods of time under one year.;15) A British;firm and a U.S. Corporation each wish to enter into a currency swap hedging;agreement. The British firm is receiving U.S. dollars from sales in the U.S.;but wants pounds. The U.S. firm is receiving pounds from sales in Britain but;wants dollars. Which of the following choices would best satisfy the desires of;the firms?;A) The British;firm pays dollars to a swap dealer and receives pounds from the dealer. The;U.S. firm pays pounds to the swap dealer and receives dollars.;B) The U.S. firm;pays dollars to a swap dealer and receives pounds from the dealer. The British;firm pays pounds to the swap dealer and receives dollars.;C) The British;firm pays pounds to a swap dealer and receives pounds from the dealer. The U.S.;firm pays dollars to the swap dealer and receives dollars.;D) The British;firm pays dollars to a swap dealer and receives dollars from the dealer. The;U.S. firm pays pounds to the swap dealer and receives pounds.;16) Most swap;dealers arrange swaps so that each firm that is a party to the transaction does;not know who the counterparty is.;17) Most swap;dealers arrange swaps so that each firm that is a party to the transaction;knows who the counterparty is.;18) Swap;agreements are treated as off-balance sheet transactions via U.S. accounting;methods.;19) Swap agreements;are treated as line items on the balance sheet via U.S. accounting methods.;20) After being;introduced in the 1980s, currency swaps have remained a relatively;insignificant financial derivative instrument.;21) After being;introduced in the 1980s, currency swaps have gained increasing importance as;financial derivative instruments.;22) Which of the;following is NOT one of the commonly employed financial policies used to manage;operating and transaction exposure?;A) use of natural;hedges by matching currency cash flows;B) back-to-back;or parallel loans;C) currency swaps;D) All of the;above are commonly used financial policies for managing operating exposure.;23) Contractual;approaches (i.e., options and forwards) have occasionally been used to hedge;operating exposure, but are costly and possibly ineffectual.;24) Which of the;following is NOT a proactive policy for managing operating exposure?;A) matching;currency of cash flow;B) back-to-back;loans;C) cross currency;swap agreements;D) All of the;above are proactive management policies for operating exposure.

 

Paper#51220 | Written in 18-Jul-2015

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