Ch 11 If

Front 1

Anothername for operating exposure is ________ exposure.

Back 1

all of the above

Front 2

net operating exposure

Back 2

is the net result of all cash outflows and inflows by currency

Front 3

Whattype of international risk exposure measures the change in present value of afirm resulting from changes in future operating cash flows caused by anyunexpected change in exchange rates?

Back 3

operating exposure

Front 4

The goal of operating exposure analysis is toidentify strategic operating techniques the firm might adopt to enhance valuein the face of unanticipated exchange rate changes.

Back 4

true

Front 5

________cash flows arise from intracompany and intercompany receivables and paymentswhile ________ cash flows are payments for the use of loans and equity.

Back 5

operating, financing

Front 6

Operating cash flows may occur in differentcurrencies and at different times, but financing cash flows may occur only in asingle currency.

Back 6

false

Front 7

Whichof the following is NOT an example of a financial cash flow?

Back 7

payment for goods and services

Front 8

Whichof the following is NOT an example of an operating cash flow?

Back 8

dividend paid to parent company

Front 9

________exposure is far more important for the long-run health of a business thanchanges caused by ________ or ________ exposure.

Back 9

operating, translation, transaction

Front 10

Expected changes in foreign exchange ratesshould already be factored into anticipated operating results by management andinvestors.

Back 10

true

Front 11

Underconditions of equilibrium, management would use ________ exchange rate as anunbiased predictor of future spot rates when preparing operating budgets.

Back 11

the forward rate

Front 12

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 rateis $1.02/C$ and the forward rate is $1.01/C$. Under conditions of equilibrium,management would use today ________ when preparing operating budgets.A) $102,000

Back 12

101,000

Front 13

the three main types of foreign exchange risk are

Back 13

operating, transaction, and translation

Front 14

Operatingexposure referred to as MEDIUM RUN: EQUILIBRIUM has which of the following setof characteristics?

Back 14

it lasts two to five years, has complete pass-through of exchange rate changes, and existing competitors begin partial responses

Front 15

operating exposure

Back 15

is the possibility that future cash flows will change due to an unexpected change in foreign exchange rates

Front 16

An unexpected change in exchange rates impacts afirm's cash flows at what level(s)?

Back 16

all of the above

Front 17

Diversificationas a strategic tool to manage operating exposure includes

Back 17

all of the above

Front 18

Whichof the following is NOT an operating cash flow?

Back 18

interest payment by a subsidiary to a parent company

Front 19

Whichof the following is NOT an example of diversifying operations?

Back 19

raising funds in more than one country

Front 20

Whichof the following is NOT an example of diversification in financing?

Back 20

diversifying sales

Front 21

Managementmust be able to predict disequilibria in international markets to takeadvantage of diversification strategies.

Back 21

false

Front 22

When disequilibria in international marketsoccur, management can take advantage by

Back 22

all of the above

Front 23

Purelydomestic firms will be at a disadvantage to MNEs in the event of market disequilibriabecause

Back 23

domestic firms lack comparative data from its own sources

Front 24

Which of the following is NOT an advantage offoreign exchange risk management?

Back 24

all of the above are potential advantages of foreign exchange risk management

Front 25

Theprimary method by which a firm may protect itself against operating exposureimpacts is

Back 25

diversification

Front 26

Anadvantage of international diversification is the

Back 26

all of the above

Front 27

Diversifyingsources of financing, regardless of the currency of denomination, can lower afirm's cost of capital and increase its availability of capital.

Back 27

true

Front 28

Whichof the following is NOT identified by your authors as a proactive managementtechnique to reduce exposure to foreign exchange risk?

Back 28

remaining a purely domestic firm

Front 29

Whichone of the following management techniques is likely to best offset the risk oflong-run exposure to receivables denominated in a particular foreign currency?

Back 29

borrow money in the foreign currency in question

Front 30

Cash flow matching can be effective hedgingtechnique when

Back 30

the exposure cash flow is relatively constant and predictable over time

Front 31

which one of the following management techniques is likely to best offset therisk of long-run exposure to payables denominated in a particular foreigncurrency

Back 31

lend money in the foreign currency in question

Front 32

Theparticular strategy of trying to offset inflows of cash from one country withoutflows of cash in the same currency is known as

Back 32

matching

Front 33

Whichof the following is NOT an acceptable hedging technique to reduce risk causedby a relatively predictable long-term foreign currency inflow of Japanese yen?

Back 33

import raw materials from japan denominated in dollars

Front 34

AnMNE has a contract for a relatively predictable long-term inflow of Japaneseyen that the firm chooses to hedge by seeking out potential suppliers in Japan.This hedging strategy is referred to as

Back 34

a natural hedge

Front 35

AnMNE has a contract for a relatively predictable long-term inflow of Japaneseyen that the firm chooses to hedge by paying for imports from Canada inJapanese yen. This hedging strategy is known as

Back 35

currency switching

Front 36

AU.S. timber products firm has a long-term contract to import unprocessed logsfrom Canada. To avoid occasional and unpredictable changes in the exchange ratebetween the U.S. dollar and the Canadian dollar, the firms agree to split betweenthe two firms the impact of any exchange rate movement. This type of agreementis referred to as

Back 36

risk sharing

Front 37

Risksharing agreements were especially popular during the Bratton Woods Agreement,but lately have lost its significance in the long-term customer-supplierrelationship.

Back 37

false

Front 38

A________ occurs when two business firms in separate countries arrange to borroweach other's currency for a specified period of time.

Back 38

back to back loan

Front 39

A Canadian firm with a U.S. subsidiary and aU.S. firm with a Canadian subsidiary agree to a parallel loan agreement. Insuch an agreement, the Canadian firm is making a/an ________ loan to the________ subsidiary while effectively financing the ________ subsidiary.

Back 39

direct, us, Canadian

Front 40

Oneof the main risks eliminated with Cross-Currency Swaps once compared toback-to-back loans is

Back 40

counter party risk because the intermediary serves as a guarantor

Front 41

Whichof the following is NOT an important impediment to widespread use of parallelloans

Back 41

the process does not avoid exchange rate risk

Front 42

A ________ resembles a back-to-back loan exceptthat it does not appear on a firm's balance sheet.

Back 42

currency swap

Front 43

A ________ is the term used to describe aforeign currency agreement between two parties to exchange a given amount ofone currency for another, and after a period of time, to give back the originalamounts.

Back 43

currency swap

Front 44

Currency swaps are exclusively for periods of time under one year.

Back 44

false

Front 45

ABritish firm and a U.S. Corporation each wish to enter into a currency swaphedging agreement. The British firm is receiving U.S. dollars from sales in theU.S. but wants pounds. The U.S. firm is receiving pounds from sales in Britainbut wants dollars. Which of the following choices would best satisfy thedesires of the firms?

Back 45

TheBritish 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.

Front 46

Mostswap dealers arrange swaps so that each firm that is a party to the transactiondoes not know who the counterparty is.

Back 46

true

Front 47

Mostswap dealers arrange swaps so that each firm that is a party to the transactionknows who the counterparty is.

Back 47

false

Front 48

)Swap agreements are treated as off-balance sheet transactions via U.S.accounting methods.

Back 48

true

Front 49

Swapagreements are treated as line items on the balance sheet via U.S. accountingmethods.

Back 49

false

Front 50

Afterbeing introduced in the 1980s, currency swaps have remained a relativelyinsignificant financial derivative instrument.

Back 50

false

Front 51

Afterbeing introduced in the 1980s, currency swaps have gained increasing importanceas financial derivative instruments.

Back 51

true

Front 52

Whichof the following is NOT one of the commonly employed financial policies used tomanage operating and transaction exposure?

Back 52

all of the above are commonly used financial policies for managing operating exposure

Front 53

Contractualapproaches (i.e., options and forwards) have occasionally been used to hedgeoperating exposure, but are costly and possibly ineffectual.

Back 53

true

Front 54

Which of the following is NOT a proactive policyfor managing operating exposure?

Back 54

all of the above are proactive management policies for operating exposure