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59Test bank International Finance MCQ (word)Chap 10

FundamentalsofMultinatio;Chapter10OperatingExposu;10.1MultipleChoiceandTru;1)Anothernameforoperatin;A)economic;B)competitive;C)strategic;D)alloftheabove;Answer:D;Topic:OperatingExp


Fundamentals of Multinational Finance, 3e (Moffett)

Chapter 10 Operating Exposure

10.1 Multiple Choice and True/False Questions

1) Another name for operating exposure is ________ exposure.

A) economic

B) competitive

C) strategic

D) all of the above

Answer: D

Topic: Operating Exposure

Skill: Recognition

2) What type of international risk exposure measures the change in present value of a firm

resulting from changes in future operating cash flows caused by any unexpected change in exchange rates?

A) transaction exposure

B) accounting exposure

C) operating exposure

D) translation exposure

Answer: C

Topic: Operating Exposure

Skill: Recognition

3) The goal of operating exposure analysis is to identify strategic operating techniques the firm

might adopt to enhance value in the face of unanticipated exchange rate changes.

Answer: TRUE

Topic: Operating Exposure

Skill: Conceptual

4) ________ cash flows arise from intracompany and intercompany receivables and payments

while ________ cash flows are payments for the use of loans and equity.

A) Financing; operating

B) Operating; financing

C) Operating; accounting

D) Accounting; financing

Answer: B

Topic: Operating and Financial Cash Flows

Skill: Recognition

5) Operating cash flows may occur in different currencies and at different times, but financing

cash flows may occur only in a single currency.

Answer: FALSE

Topic: Operating and Financial Cash Flows

Skill: Recognition

6) Which of the following is NOT an example of a financial cash flow?

A) parent invested equity capital

B) interest on intrafirm lending

C) payment for goods and services

D) intrafirm principal payments

Answer: C

Topic: Financial Cash Flows

Skill: Recognition

7) Which of the following is NOT an example of an operating cash flow?

A) management fees and distributed overhead

B) royalties and license fees

C) rent and lease payments

D) dividend paid to parent company

Answer: D

Topic: Operating Cash Flows

Skill: Recognition

8) ________ exposure is far more important for the long -run health of a business than changes caused by ________ or ________ exposure.

A) Operating; translation; transaction

B) Transaction; operating; translation

C) Accounting; translation; transaction

D) Translation; operating; transaction

Answer: A

Topic: Operating; Transaction; and Translation Exposure

Skill: Conceptual

9) Expected changes in foreign exchange rates should already be factored into anticipated

operating results by management and investors.

Answer: TRUE

Topic: Expectations

Skill: Conceptual

10) Under conditions of equilibrium, management would use ________ exchange rate as an

unbiased predictor of future spot rates when preparing operating budgets.

A) the current spot

B) the forward rate

C) the black market

D) none of the above

Answer: B

Topic: Forward Rate

Skill: Conceptual

11) Simpson Sign Company based in Frostbite Falls, Minnesota has a 6 -month C$100,000

contract to complete sign work in Winnipeg , Manitoba, Canada. The current spot rate is $1.02/C$ and the forward rate is $1.01/C$. Under conditions of equilibrium, management would use today ________ when preparing operating budgets.

A) $102,000

B) $101,000

C) $100,000

D) None of the above

Answer: B

Topic: Forward Rate

Skill: Analytical

12) In equilibrium, expected cash flow to amortize international debt obligations should reflect

the ________.

A) current spot rate

B) the spot rate when the loan was contracted

C) the international Fisher effect

D) none of the above

Answer: C

Topic: Exchange Rate Equilibrium

Skill: Conceptual

13) From an investor's perspective, if the foreign exchange market is efficient, information about

expected changes in exchange rates should be widely known and thus reflected in a firm's market value. Only ________ in exchange rates or an ________ foreign exchange market, should cause market value to change.

A) expected changes; efficient

B) unexpected changes; efficient

C) expected changes; inefficient

D) unexpected changes; inefficient

Answer: D

Topic: Exchange Rate Equilibrium

Skill: Conceptual

14) Which of the following is NOT an example of diversifying operations?

A) diversifying sales

B) diversifying location of operations

C) raising funds in more than one country

D) sourcing raw materials in more than one country

Answer: C

Topic: Foreign Exchange Diversification

Skill: Recognition

15) Which of the following is NOT an example of diversification in financing?

A) raising funds in more than one market

B) raising funds in more than one country

C) diversifying sales

D) All of the above qualify.

Answer: C

Topic: Foreign Exchange Diversification

Skill: Recognition

16) Management must be able to predict disequilibria in international markets to take advantage

of diversification strategies.

Answer: FALSE

Topic: Foreign Exchange Diversification

Skill: Conceptual

17) When disequilibria in international markets occur, management can take advantage by

A) doing nothing if they are already diversified and able to realize beneficial portfolio

effects.

B) recognizing disequilibria faster than purely domestic competitors.

C) shifting operational of financing activities to take advantage of the disequilibria.

D) all of the above.

Answer: D

Topic: Foreign Exchange Diversification

Skill: Conceptual

18) Purely domestic firms will be at a disadvantage to MNEs in the event of market disequilibria

because

A) domestic firms lack comparative data from its own sources.

B) international firms are already so large.

C) all of the domestic firm's raw materials are imported.

D) None of the above. Domestic firms are not at a disadvantage.

Answer: A

Topic: Foreign Exchange Diversification

Skill: Conceptual

19) Which of the following is probably NOT an advantage of foreign exchange risk management?

A) the reduction of the variability of cash flows due to domestic business cycles

B) increased availability of capital

C) reduced cost of capital

D) All of the above are potential advantages of foreign exchange risk management.

Answer: D

Topic: Foreign Exchange Diversification

Skill: Recognition

20) Which of the following is NOT an example of a form of political risk that might be avoided or

reduced by foreign exchange risk management?

A) expropriation of assets

B) destruction of raw materials through natural disaster

C) war

D) unfavorable legal changes

Answer: B

Topic: Political Risk

Skill: Recognition

21) 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

Answer: C

Topic: Management of Foreign Exchange Risk

Skill: Recognition

22) 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

Answer: A

Topic: Management of Foreign Exchange Risk

Skill: Conceptual

23) 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

Answer: B

Topic: Management of Foreign Exchange Risk

Skill: Conceptual

24) The particular strategy of trying to offset stable 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

Answer: C

Topic: Management of Foreign Exchange Risk

Skill: Recognition

25) 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.

Answer: C

Topic: Management of Foreign Exchange Risk

Skill: Recognition

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