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29 Cards in this Set
- Front
- Back
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Translation exosure reflects
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the exposure of a firm's finicial statements to exchange rate flucuations
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economic exposure refers to
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ht exposure of a firm's cash flow to exchange rate fluctuations
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Firm X is a U.S. based MNC with net cash inflows of euros and net cashh inflows of Swiss Franc. THese two currencies are highly correlated intheir movements against the dolla. Firm Y is a U.S> Bades MNC that has the same level of net cash flows in these currencies as X except that tis eura repreentthe net cash outflows. Which firl has a higher exposure to exchange rate risk?
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Firm X
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According to the text, concurrency variablity levels __perfectly stable over time, and concurrency correlations______perfectly stable over time
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are not are not
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Which of the following operations benifits from appreciation of the firm's local curency?
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borrowing in a foreign country and converting the funds to the local currency prior to the appreciation
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Under FASB-52
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translation gains and losses are included in stockholder's equity
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Under FASB-52
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translation gains and losses are included in stockholder's equity
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A U.S. MNC had the equivalent of 1 millioon cash outflows in each of two highly negatively correlated currencies. During__________dollar cycles, cash outflows are _____.
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weak, somewhat stable
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Gnerally, MNCs with less foreign costs than foreign revenure will be _______affected by a _____foreign currency
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favorably, stronger
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A firm produces goods for which substitue goods are produced in all countries. Appreciation of the firm's lacal currency should
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None of the above
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Assume that your firm is an imprter of Mexican chairs dominated in pesos. Your compettion is mainly US producers of charis. You wish to assass the realtionship between the percentage change in its stock price and th epercentage change in the peso's value ralative to the dollar. ......
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negative negative
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A set of currency cash flows is more volatile if the correlations are low
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false
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WHich of the following is not a form of exposure to exchange rate flucutations
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credit exposure
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If the U.S. dollar appreciates
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an MNC's U.S. sales will probably decrease
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Assume that the Mill corporation, a U.S. based MNC, has applied the followig regression model to estimate the sensitivity of its cash flows to exchange rate movements....
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if the 2% foreign currency appreciated by 1%. Mill's cash flows will decline by 2%
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Because creditors may prefer that the firms maintain low exposure to exchange rate risk, exchange rate movements may cuse earnings to be more volitile, and because investors may prefer corporations to perform hedign for them, exchange rate risk is probably relevant
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true
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A firm's transaction exposure in any foreign currency is based soley on the size of its open posisiton in that currency
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false
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Two highly negatively correlated currencies act almost as if they are the same currency
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false
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The Canadian dollare consistently appears to move almost independently of other currencies. That is it exibits low correlations with the other currencies
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TRUE
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U.S. exporters may not necessarly benifit form weak dollar periods if foreign competitiors are willing to reduce their profit margin
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ture
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Translation exposure is less of a concern when earnings are not remitted by subsidary to the parent
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true
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A company may become more exposed or sensitve to an individual's currency's movements over time for several reasons, including a reduction inhedging, a greater involvemet in the foreign country, or an increased use of hte foreign currency
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true
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A high correlation between two currencies wouls be desireable for scheiving low exchange rate risk if one is an inflow cureency and the other is an outflow currency
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true
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An argument for MNCs to have debt-intensive capotal structure is
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they are well diversified
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According to the text, there is evidence that the debt ratios of MNCs based in
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the U.S. tend to be lower than MNC headquaters based in JApan
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WHich of the following factors is not expected to generallyt have favorable impact on the firms cost of capotal accordig to the text?
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volitile exchange rate fluncuations
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The capital asset pricing theory is based on the premise that
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only systematic and varubility in cash flows is relevant
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The term "global" target capital strunctur for and MNC represents the MNC's capital structure
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where it has its largest subsudairy
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Accoridng to the text, am MNC'c global target capital structure is
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someetimes different form an MNC's local capital sturctures
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