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Test bank International Finance MCQ (word)Chap 901

FundamentalsofMultinatio;Chapter9TransactionExpos;9.1MultipleChoiceandTrue;1)________exposuredealsw;A)Operating;B)Transaction;C)Translation;D)Economic;Answer:B;Topic:TransactionExp


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Fundamentals of Multinational Finance, 3e (Moffett)

Chapter 9 Transaction Exposure

9.1 Multiple Choice and True/False Questions

1) ________ exposure deals with cash flows that result from existing contractual obligations.

A) Operating

B) Transaction

C) Translation

D) Economic

Answer: B

Topic: Transaction Exposure

Skill: Recognition

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

Answer: A

Topic: Operating Exposure

Skill: Recognition

3) Each of the following is another name for operating exposure EXCEPT ________.

A) economic exposure

B) strategic exposure

C) accounting exposure

D) competitive exposure

Answer: C

Topic: Accounting Exposure

Skill: Recognition

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

Answer: A

Topic: Transaction and Operating Exposure

Skill: Recognition

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

Answer: D

Topic: Accounting Exposure

Skill: Recognition

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

Answer: C

Topic: Transaction and Accounting Exposure

Skill: Recognition

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

Answer: D

Topic: Transaction and Accounting Exposure

Skill: Recognition

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

Answer: D

Topic: MNE Cash Flow Risk

Skill: Recognition

9) ________ is a technique used by MNEs to deal with currency exposure.

A) Do nothing

B) Speculation

C) Hedging

D) All are techniques MNEs could use.

Answer: D

Topic: MNE Cash Flow Risk

Skill: Recognition

10) Hedging, or reducing risk, is the same as adding value or return to the firm.

Answer: FALSE

Topic: MNE Cash Flow Risk

Skill: Conceptual

11) 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

Answer: B

Topic: Hedging

Skill: Conceptual

12) 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.

Answer: C

Topic: Hedging

Skill: Recognition

13) There is considerable question among investors and managers about whether hedging is a

good and necessary tool.

Answer: TRUE

Topic: Hedging

Skill: Recognition

14) 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.

Answer: D

Topic: Hedging

Skill: Recognition

15) The key arguments in opposition to currency hedging such as market efficiency, agency

theory, and diversification do not have financial theory at their core.

Answer: FALSE

Topic: Hedging

Skill: Conceptual

16) ________ exposure may result from a firm having a payable in a foreign currency.

A) Transaction

B) Accounting

C) Operating

D) None of the above

Answer: A

Topic: Hedging

Skill: Conceptual

17) 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,

A) backlog, quotation, and billing exposure.

B) billing, backlog, and quotation exposure.

C) quotation, backlog, and billing exposure.

D) quotation, billing, and backlog exposure.

Answer: C

Topic: Transaction Exposure

Skill: Recognition

18) A U.S. firm sells merchandise today to a British company for £100,000. The current

exchange rate is $2.03/£ , the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. The U.S. firm is at risk today of a loss if

A) the exchange rate changes to $2.00/£.

B) the exchange rate changes to $2.05/£.

C) the exchange rate doesn't change.

D) all of the above.

Answer: D

Topic: Transaction Exposure

Skill: Analytical

19) A U.S. firm sells merchandise today to a British company for £100,000. The current

exchange rate is $2.03/£ , the account is payable in three months, and the firm chooses to avoid any heding techniques designed to reduce or eliminate the risk of changes in the

exchange rate. If the exchange rate changes to $2.05/£ the U.S. firm will realize a ________ of ________.

A) loss; $2000

B) gain; $2000

C) loss; £2000

D) gain; £2000

Answer: B

Topic: Transaction Exposure

Skill: Analytical

20) A U.S. firm sells merchandise today to a British company for £100,000. The current

exchange rate is $2.03/£ , the account is payable in three months, and the firm chooses to avoid any heding techniques designed to reduce or eliminate the risk of changes in the

exchange rate. If the exchange rate changes to $2.01/£ the U.S. firm will realize a ________ of ________.

A) loss; $2,000

B) gain; $2,000

C) loss; £2000

D) gain; £2000

Answer: A

Topic: Transaction Exposure

Skill: Analytical

21) ________ is NOT a popular contractual hedge against foreign exchange transaction exposure.

A) Forward market hedge

B) Money market hedge

C) Options market hedge

D) All of the above are contractual hedges.

Answer: D

Topic: Contractual Hedges

Skill: Recognition

22) A ________ hedge refers to an offsetting operating cash flow such as a payable arising from

the conduct of business.

A) financial

B) natural

C) contractual

D) futures

Answer: B

Topic: Natural Hedge

Skill: Recognition

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