Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is no
c.purchase Canadian dollar put options.
Graylon, Inc., based in Washington, exports products to a German firm and will receive payment of �200,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, Graylon negotiated a forward con
b.220,000
The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward ____ is ____ percent.
a.discount; 1.9
b.discount; 1.8
c.premium; 1.9
d.premium; 1.8
b.discount; 1.8
The 90-day forward rate for the euro is $1.07, while the current spot rate of the euro is $1.05. What is the annualized forward premium or discount of the euro?
a.1.9 percent discount.
b.1.9 percent premium.
c.7.6 percent premium.
d.7.6 percent discount.
c.7.6 percent premium.
Thornton, Inc. needs to invest five million Nepalese rupees in its Nepalese subsidiary to support local operations. Thornton would like its subsidiary to repay the rupees in one year. Thornton would like to engage in a swap transaction. Thus, Thornton wou
c.convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at today's forward rate.
In the U.S., the typical currency futures contract is based on a currency value in terms of:
a.euros.
b.U.S. dollars.
c.British pounds.
d.Canadian dollars.
c.British pounds.
Currency futures contracts sold on an exchange:
a.contain a commitment to the owner, and are standardized.
b.contain a commitment to the owner, and can be tailored to the desire of the owner.
c.contain a right but not a commitment to the owner, and can be
a.contain a commitment to the owner, and are standardized.
Currency options sold through an options exchange:
a.contain a commitment to the owner, and are standardized.
b.contain a commitment to the owner, and can be tailored to the desire of the owner.
c.contain a right but not a commitment to the owner, and can
d.contain a right but not a commitment to the owner, and are standardized.
Currency options are commonly traded through the ____ system.
a.robot
b.Euro
c.GLOBEX
d.Scope
c.GLOBEX
Forward contracts:
a.contain a commitment to the owner, and are standardized.
b.contain a commitment to the owner, and can be tailored to the desire of the owner.
c.contain a right but not a commitment to the owner, and can be tailored to the desire of th
b.contain a commitment to the owner, and can be tailored to the desire of the owner.
Which of the following is the most likely strategy for a U.S. firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?
a.purchase a call option on francs.
b.sell
b.sell a futures contract on francs.
Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?
a.purchase a call option on francs.
b.o
c.sell a futures contract on francs.
If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market.
a.selling; selling
b.selling; purchasing
c.purchasing; purchasing
d.purchasing; selling
a.selling; selling
When you own ____, there is no obligation on your part; however, when you own ____, there is an obligation on your part.
a.call options; put options
b.futures contracts; call options
c.forward contracts; futures contracts
d.put options; forward contracts
d.put options; forward contracts
The greater the variability of a currency, the ____ will be the premium of a call option on this currency, and the ____ will be the premium of a put option on this currency, other things equal.
a.greater; lower
b.greater; greater
c.lower; greater
d.lower;
b.greater; greater
When currency options are not standardized and traded over-the-counter, there is ____ liquidity and a ____ bid/ask spread.
a.less; narrower
b.more; narrower
c.more; wider
d.less; wider
d.less; wider
The shorter the time to the expiration date for a currency, the ____ will be the premium of a call option, and the ____ will be the premium of a put option, other things equal.
a.greater; greater
b.greater; lower
c.lower; lower
d.lower; greater
c.lower; lower
Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises
b.?$1,562.50.
Which of the following is true?
a.The futures market is primarily used by speculators while the forward market is primarily used for hedging.
b.The futures market is primarily used for hedging while the forward market is primarily used for speculating.
c.
a.The futures market is primarily used by speculators while the forward market is primarily used for hedging.
Which of the following is true?
a.Most forward contracts between firms and banks are for speculative purposes.
b.Most future contracts represent a conservative approach by firms to hedge foreign trade.
c.The forward contracts offered by banks have maturit
d.none of the above
If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.
a.buy a euro call and buy a euro put
b.buy a euro call and sell a euro put
c.sell a euro call and sell a euro put
d.sell a euro call and buy a euro put
d.sell a euro call and buy a euro put
If you expect the British pound to appreciate, you could speculate by ____ pound call options or ____ pound put options.
a.purchasing; selling
b.purchasing; purchasing
c.selling; selling
d.selling; purchasing
a.purchasing; selling
Which of the following is correct?
a.The longer the time to maturity, the less the value of a currency call option, other things equal.
b.The longer the time to maturity, the less the value of a currency put option, other things equal.
c.The higher the sp
d.The lower the exercise price relative to the spot rate, the greater the value of a currency call option, other things equal.
Research has found that the options market is:
a.efficient before controlling for transaction costs.
b.efficient after controlling for transaction costs.
c.highly inefficient.
d.none of the above
b.efficient after controlling for transaction costs.
Assume no transactions costs exist for any futures or forward contracts. The price of British pound futures with a settlement date 180 days from now will:
a.definitely be above the 180-day forward rate.
b.definitely be below the 180-day forward rate.
c.be
d.none of the above; there is no relation between the futures and forward prices.
Assume that a currency's spot and future prices are the same, and the currency's interest rate is higher than the U.S. rate. The actions of U.S. investors to lock in this higher foreign return would ____ the currency's spot rate and ____ the currency's fu
c.put upward pressure on; put downward pressure on
A firm sells a currency futures contract, and then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:
a.buying an identical futures contract.
b.selling an identical futures contract.
c
a.buying an identical futures contract.
If the spot rate of the euro increased substantially over a one-month period, the futures price on euros would likely ____ over that same period.
a.increase slightly
b.decrease substantially
c.increase substantially
d.stay the same
c.increase substantially
A U.S. firm is bidding for a project needed by the Swiss government. The firm will not know if the bid is accepted until three months from now. The firm will need Swiss francs to cover expenses but will be paid by the Swiss government in dollars if it is
d.buying franc call options.
A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?
a
d.$6,500,000.
If you purchase a straddle on euros, this implies that you:
a.finance the purchase of a call option by selling a put option in the euros.
b.finance the purchase of a call option by selling a call option in the euros.
c.finance the purchase of a put option
e.none of the above
The premium on a pound put option is $.03 per unit. The exercise price is $1.60. The break-even point is ____ for the buyer of the put, and ____ for the seller of the put. (Assume zero transactions costs and that the buyer and seller of the put option are
e.none of the above
The existing spot rate of the Canadian dollar is $.82. The premium on a Canadian dollar call option is $.04. The exercise price is $.81. The option will be exercised on the expiration date if at all. If the spot rate on the expiration date is $.87, the pr
c.50 percent.
You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of $1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $1.65, your net profit per unit is:
a.?
b.?$.02.
You purchase a put option on Swiss francs for a premium of $.02, with an exercise price of $.61. The option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $.58, your net profit per unit is:
a.?$.03.
e.none of the above
You are a speculator who sells a call option on Swiss francs for a premium of $.06, with an exercise price of $.64. The option will not be exercised until the expiration date, if at all. If the spot rate of the Swiss franc is $.69 on the expiration date,
c.$.01.
You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit, with an exercise price of $.86. The option will not be exercised until the expiration date, if at all. If the spot rate of the Canadian dollar is $.78 on the e
e.none of the above
European currency options can be exercised ____; American currency options can be exercised ____.
a.any time up to the expiration date; any time up to the expiration date
b.any time up to the expiration date; only on the expiration date
c.only on the expi
d.only on the expiration date; any time up to the expiration date
Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports.
a.sell yen put options
b.buy yen call options
c.buy futures contracts on
d.sell futures contracts on yen
A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate is $.59. This call option can be referred to as:
a.in the money.
b.out of the money.
c.at the money.
d.at a discount.
a.in the money.
A put option on British pounds has a strike (exercise) price of $1.48. The present exchange rate is $1.55. This put option can be referred to as:
a.in the money.
b.out of the money.
c.at the money.
d.at a discount.
b.out of the money.
Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions?
a.forward contracts.
b.futures contracts.
c.non-deliverable forward contracts.
d.options.
e.all of the above are instruments used to cover forei
e.all of the above are instruments used to cover foreign currency positions.
When the futures price on euros is below the forward rate on euros for the same settlement date, astute investors may attempt to simultaneously ____ euros forward and ____ euro futures.
a.sell; sell
b.buy; sell
c.sell; buy
d.buy; buy
b.buy; sell
When the futures price is equal to the spot rate of a given currency, and the foreign country exhibits a higher interest rate than the U.S. interest rate, astute investors may attempt to simultaneously ____ the foreign currency, invest it in the foreign c
c.buy; sell
Which of the following would result in a profit of a euro futures contract when the euro depreciates?
a.buy a euro futures contract; sell a futures contract after the euro has depreciated.
b.sell a euro futures contract; buy a futures contract after the e
b.sell a euro futures contract; buy a futures contract after the euro has depreciated.
Which of the following is not true regarding options?
a.Options are traded on exchanges, never over-the-counter.
b.Similar to futures contracts, margin requirements are normally imposed on option traders.
c.Although commissions for options are fixed per t
a.Options are traded on exchanges, never over-the-counter.
A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time of maturity is $.85, what is the net amount received b
b.$84,000.
A U.S. corporation has purchased currency call options to hedge a 70,000 pound payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if
d.$36,400.
Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current level of $.19 to $.21. Currently, kroner call options are available with an exercise price of $.18 and a premium of $.02. Should Frank attempt to buy this optio
b.yes; $0.01.
Carl is an option writer. In anticipation of a depreciation of the British pound from its current level of $1.50 to $1.45, he has written a call option with an exercise price of $1.51 and a premium of $.02. If the spot rate at the option's maturity turns
a.?$0.01.
Which of the following forecasting techniques would best represent the use of today's forward exchange rate to forecast the future exchange rate?
a.fundamental forecasting.
b.market-based forecasting.
c.technical forecasting.
d.mixed forecasting.
b.market-based forecasting.
Which of the following forecasting techniques would best represent sole use of today's spot exchange rate of the euro to forecast the euro's future exchange rate?
a.fundamental forecasting.
b.market-based forecasting.
c.technical forecasting.
d.mixed fore
b.market-based forecasting.
Which of the following forecasting techniques would best represent the use of relationships between economic factors and exchange rate movements to forecast the future exchange rate?
a.fundamental forecasting.
b.market-based forecasting.
c.technical forec
a.fundamental forecasting.
Which of the following forecasting techniques would best represent the sole use of the pattern of historical currency values of the euro to predict the euro's future currency value?
a.fundamental forecasting.
b.market-based forecasting.
c.technical foreca
c.technical forecasting.
If a particular currency is consistently declining substantially over time, then a market-based forecast will usually have:
a.underestimated the future exchange rates over time.
b.overestimated the future exchange rates over time.
c.forecasted future exch
b.overestimated the future exchange rates over time.
According to the text, the analysis of currencies forecasted with use of the forward rate suggests that:
a.currencies exhibited about the same mean forecast errors as a percent of the realized value.
b.the Canadian dollar can be forecasted by U.S. firms w
b.the Canadian dollar can be forecasted by U.S. firms with greater accuracy than other currencies.
Given this information, the mean absolute forecast error as a percentage of the realized value is about:
a.1.5%.
b.26%.
c.6%.
d.6.5%.
e.none of the above
d.6.5%.
If it was determined that the movement of exchange rates was not related to previous exchange rate values, this implies that a ____ is not valuable for speculating on expected exchange rate movements.
a.technical forecast technique
b.fundamental forecast
a.technical forecast technique
Which of the following is true?
a.Forecast errors cannot be negative.
b.Forecast errors are negative when the forecasted rate exceeds the realized rate.
c.Absolute forecast errors are negative when the forecasted rate exceeds the realized rate.
d.None of
d.None of the above.
Which of the following is true according to the text?
a.Forecasts in recent years have been very accurate.
b.Use of the absolute forecast error as a percent of the realized value is a good measure to use in detecting a forecast bias.
c.Forecasting errors
d.None of the above.
A fundamental forecast that uses multiple values of the influential factors is an example of:
a.sensitivity analysis.
b.discriminant analysis.
c.technical analysis.
d.factor analysis.
a.sensitivity analysis.
When the value from the prior period of an influential factor affects the forecast in the future period, this is an example of a(n):
a.lagged input.
b.instantaneous input.
c.simultaneous input.
d.B and C
a.lagged input
Assume a forecasting model uses inflation differentials and interest rate differentials to forecast the exchange rate. Assume the regression coefficient of the interest rate differential variable is ?.5, and the coefficient of the inflation differential v
b.The interest rate variable is inversely related to the exchange rate, and the inflation variable is directly related to the exchange rate.
Which of the following is not a limitation of fundamental forecasting?
a.uncertain timing of impact.
b.forecasts are needed for factors that have a lagged impact.
c.omission of other relevant factors from the model.
d.possible change in sensitivity of the
b.forecasts are needed for factors that have a lagged impact.
Assume that interest rate parity holds. The U.S. five-year interest rate is 5% annualized, and the Mexican five-year interest rate is 8% annualized. Today's spot rate of the Mexican peso is $.20. What is the approximate five-year forecast of the peso's sp
e.$.174.
Assume that the forward rate is used to forecast the spot rate. The forward rate of the Canadian dollar contains a 6% discount. Today's spot rate of the Canadian dollar is $.80. The spot rate forecasted for one year ahead is:
a.$.860.
b.$.848.
c.$.740.
d.
d.$.752.
If today's exchange rate reflects all relevant public information about the euro's exchange rate, but not all relevant private information, then ____ would be refuted.
a.weak-form efficiency
b.semistrong-form efficiency
c.strong-form efficiency
d.A and B
d.A and B
According to the text, research generally supports ____ in foreign exchange markets.
a.weak-form efficiency
b.semistrong-form efficiency
c.strong-form efficiency
d.A and B
e.B and C
d.A and B
Assume that the U.S. interest rate is 11 percent, while Australia's one-year interest rate is 12 percent. Assume interest rate parity holds. If the one-year forward rate of the Australian dollar was used to forecast the future spot rate, the forecast woul
a.depreciation in the Australian dollar's value over the next year.
If the forward rate was expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then:
a.covered interest arbitrage is feasible.
b.the international Fisher effect (IFE) is supported.
c.the international Fisher effect (I
b.the international Fisher effect (IFE) is supported.
Which of the following is not a forecasting technique mentioned in your text?
a.accounting-based forecasting.
b.technical forecasting.
c.fundamental forecasting.
d.market-based forecasting.
a.accounting-based forecasting.
The following regression model was estimated to forecast the value of the Malaysian ringgit (MYR):
MYRt = a0 + a1INCt ? 1 + a2INFt ? 1 + ?t,
where MYR is the quarterly change in the ringgit, INF is the previous quarterly percentage change in the inflation
b.?1.80%.
The following regression model was estimated to forecast the value of the Indian rupee (INR):
INRt = a0 + a1INTt + a2INFt ? 1 + ?t,
where INR is the quarterly change in the rupee, INT is the real interest rate differential in period t between the U.S. and
a.3.40%.
Huge Corporation has just initiated a market-based forecast system using the forward rate as an estimate of the future spot rate of the Japanese yen (�) and the Australian dollar (A$). Listed below are the forecasted and realized values for the last perio
a.more accurate than
Gamma Corporation has incurred large losses over the last ten years due to exchange rate fluctuations of the Egyptian pound (EGP), even though the company has used a market-based forecast based on the forward rate. Consequently, management believes its fo
b.underestimated
Which of the following is not a method of forecasting exchange rate volatility?
a.using the absolute forecast error as a percentage of the realized value.
b.using the volatility of historical exchange rate movements as a forecast for the future.
c.using a
a.using the absolute forecast error as a percentage of the realized value.
If a foreign currency is expected to ____ substantially against the parent's currency, the parent may prefer to ____ the remittance of subsidiary earnings.
a.weaken; delay
b.weaken; expedite
c.appreciate; expedite
d.none of the above
b.weaken; expedite
If an MNC invests excess cash in a foreign county, it would like the foreign currency to ____; if an MNC issues bonds denominated in a foreign currency, it would like the foreign currency to ____.
a.appreciate; depreciate
b.appreciate; appreciate
c.deprec
a.appreciate; depreciate
If both interest rate parity and the international Fisher effect hold, then between the forward rate and the spot rate, the ____ rate should provide more accurate forecasts for currencies in ____-inflation countries.
a.spot; high
b.spot; low
c.forward; hi
c.forward; high
If a foreign country's interest rate is similar to the U.S. rate, the forward rate premium or discount will be ____, meaning that the forward rate and spot rate will provide ____ forecasts.
a.substantial; similar
b.substantial; very different
c.close to z
c.close to zero; similar
Factors such as economic growth, inflation, and interest rates are an integral part of ____ forecasting.
a.technical
b.fundamental
c.market-based
d.none of the above
b.fundamental
The absolute forecast error of a currency is ____, on average, in periods when the currency is more ____.
a.lower; volatile
b.higher; stable
c.lower; stable
d.none of the above
c.lower; stable
If the foreign exchange market is ____ efficient, then historical and current exchange rate information is not useful for forecasting exchange rate movements.
a.weak-form
b.semistrong-form
c.strong form
d.all of the above
d.all of the above
Foreign exchange markets are generally found to be at least ____ efficient.
a.weak-form
b.semistrong-form
c.strong form
d.none of the above
b.semistrong-form
Translation exposure reflects:
a.the exposure of a firm's international contractual transactions to exchange rate fluctuations.
b.the exposure of a firm's local currency value to transactions between foreign exchange traders.
c.the exposure of a firm's fi
c.the exposure of a firm's financial statements to exchange rate fluctuations.
Transaction exposure reflects:
a.the exposure of a firm's international contractual transactions to exchange rate fluctuations.
b.the exposure of a firm's local currency value to transactions between foreign exchange traders.
c.the exposure of a firm's fi
a.the exposure of a firm's international contractual transactions to exchange rate fluctuations.
Economic exposure refers to:
a.the exposure of a firm's international contractual transactions to exchange rate fluctuations.
b.the exposure of a firm's local currency value to transactions between foreign exchange traders.
c.the exposure of a firm's fina
d.the exposure of a firm's cash flows to exchange rate fluctuations.
Diz Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly correlated in their movements against the dollar. Yanta Co. is a U.S.-based MNC that has the same level of net cash flows in t
a.Diz Co.
Jacko Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Kriner Co. is a U.S.-based MNC that has the same exposure as
b.Kriner Co.
According to the text, currency variability levels ____ perfectly stable over time, and currency correlations ____ perfectly stable over time.
a.are; are not
b.are; are
c.are not; are not
d.are not; are
c.are not; are not
Which of the following operations benefits from appreciation of the firm's local currency?
a.borrowing in a foreign currency and converting the funds to the local currency prior to the appreciation.
b.receiving earnings dividends from foreign subsidiaries
a.borrowing in a foreign currency and converting the funds to the local currency prior to the appreciation.
Which of the following operations benefit(s) from depreciation of the firm's local currency?
a.borrowing in a foreign country and converting the funds to the local currency prior to the depreciation.
b.purchasing foreign supplies.
c.investing in foreign b
c.investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency.
Economic exposure can affect:
a.MNCs only.
b.purely domestic firms only.
c.A and B
d.none of the above
c.A and B
Under FASB 52:
a.translation gains and losses are included in the reported net income.
b.translation gains and losses are included in stockholder's equity.
c.A and B
d.none of the above
b.translation gains and losses are included in stockholder's equity.
Assume that the British pound and Swiss franc are highly correlated. A U.S. firm anticipates the equivalent of $1 million cash outflows in francs and the equivalent of $1 million cash outflows in pounds. During a ____ cycle, the firm is ____ affected by i
a.strong dollar; favorably
A U.S. MNC has the equivalent of $1 million cash outflows in each of two highly negatively correlated currencies. During ____ dollar cycles, cash outflows are ____.
a.weak; somewhat stable
b.weak; favorably affected
c.weak; adversely affected
d.none of th
a.weak; somewhat stable
Magent Co. is a U.S. company that has exposure to the Swiss francs (SF) and Danish kroner (DK). It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $.40 while the present exchange rate of the
a.benefit, because the dollar value of its SF position exceeds the dollar value of its DK position.
Generally, MNCs with less foreign costs than foreign revenues will be ____ affected by a ____ foreign currency.
a.favorably; stronger
b.not; stronger
c.favorably; weaker
d.not; weaker
e.B and D
a.favorably; stronger
When the dollar strengthens, the reported consolidated earnings of U.S.-based MNCs are ____ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are ____ affected.
a.favorably; favorably affected but by a smaller d
c.unfavorably; favorably affected
A firm produces goods for which substitute goods are produced in all countries. Appreciation of the firm's local currency should:
a.increase local sales as it reduces foreign competition in local markets.
b.increase the firm's exports denominated in the l
e.none of the above
A firm produces goods for which substitute goods are produced in all countries. Depreciation of the firm's local currency should:
a.decrease local sales as foreign competition in local markets is reduced.
b.decrease the firm's exports denominated in the l
e.none of the above
If a U.S. firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a ____ overall impact of the Swiss franc's depreciation against the dollar on ____.
a.positive; interest expenses
b.positive; gross profit
c.nega
b.positive; gross profit
Assume that your firm is an importer of Mexican chairs denominated in pesos. Your competition is mainly U.S. producers of chairs. You wish to assess the relationship between the percentage change in its stock price (SPt) and the percentage change in the p
d.negative; negative
Which of the following is not a form of exposure to exchange rate fluctuations?
a.transaction exposure.
b.credit exposure.
c.economic exposure.
d.translation exposure.
b.credit exposure.
A set of currency cash inflows is more volatile if the correlations are low.
a. True
b. False
b. False
Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What is the net inflow or outflow
d.$275,000 outflow.
Dubas Co. is a U.S.-based MNC that has a subsidiary in Germany and another subsidiary in Greece. Both subsidiaries frequently remit their earnings back to the parent company. The German subsidiary generated a net outflow of �2,000,000 this year, while the
b.$525,000 outflow
One argument for exchange rate irrelevance is that:
a.MNCs can hedge exchange rate exposure much more effectively than individual investors.
b.investors can invest in a diversified stock portfolio of MNCs that have different exposures to exchange rates.
c
b.investors can invest in a diversified stock portfolio of MNCs that have different exposures to exchange rates.
____ exposure is the degree to which the value of contractual transactions can be affected by exchange rate fluctuations.
a.Transaction
b.Economic
c.Translation
d.None of the above
a.Transaction
If an MNC expects cash inflows of equal amounts in two currencies, and the two currencies are ____ correlated, the MNC's transaction exposure is relatively ____.
a.negatively; high
b.negatively; low
c.positively; low
d.none of the above
b.negatively; low
If an MNC has a net inflow in one currency and a net outflow of about the same amount in another currency, then the MNCs' transaction exposure is ____ if the two currencies are ____ correlated.
a.high; positively
b.low; negatively
c.high; negatively
d.non
c.high; negatively
Refer to Exhibit 10-1. What is the maximum one-day loss if the expected percentage change of the euro tomorrow is 0.5%?
a.?0.5%
b.?2.2%
c.?1.5%
d.?1.2%
d.?1.2%
Refer to Exhibit 10-1. What is the maximum one-day loss in dollars if the expected percentage change of the euro tomorrow is 0.5%? The current spot rate of the euro (before considering the maximum one-day loss) is $1.01.
a.?$75,750.
b.?$60,600.
c.?$111,10
b.?$60,600.
The maximum one-day loss computed for the value-at-risk (VAR) method does not depend on:
a.the expected percentage change in the currency for the next day.
b.the standard deviation of the daily percentage changes in the currency over a previous period.
c.
c.the current level of interest rates.
Appreciation in a firm's local currency causes a(n) ____ in cash inflows and a(n) ____ in cash outflows.
a.reduction; reduction
b.increase; increase
c.increase; reduction
d.reduction; increase
a.reduction; reduction
In general, a firm that concentrates on local sales, has very little foreign competition, and obtains foreign supplies (denominated in foreign currencies) will likely ____ a(n) ____ local currency.
a.be hurt by; appreciated
b.benefit from; depreciated
c.b
c.be hurt by; depreciated
The ____ the percentage of an MNC's business conducted by its foreign subsidiaries, the ____ the percentage of a given financial statement item that is susceptible to translation exposure.
a.greater; smaller
b.smaller; greater
c.greater; greater
d.none of
c.greater; greater
Under FASB 52, consolidated earnings are sensitive to the functional currency's weighted average exchange rate.
a. True
b. False
a. True
If the U.S. dollar appreciates, an MNC's:
a.U.S. sales will probably decrease.
b.exports denominated in U.S. dollars will probably increase.
c.interest owed on foreign funds borrowed will probably increase.
d.exports denominated in foreign currencies will
a.U.S. sales will probably decrease.
Assume that Mill Corporation, a U.S.-based MNC, has applied the following regression model to estimate the sensitivity of its cash flows to exchange rate movements:
PCFt = a0 + a1et + ?t
where the term on the left-hand side is the percentage change in inf
b.if the foreign currency appreciates by 1%, Mill's cash flows will decline by .2%.
____ is (are) not a determinant of translation exposure.
a.The MNC's degree of foreign involvement
b.The locations of foreign subsidiaries
c.The local (domestic) earnings of the MNC
d.The accounting methods used
c.The local (domestic) earnings of the MNC
The following regression model was run by a U.S.-based MNC to determine its degree of economic exposure as it relates to the Australian dollar and Sudanese dinar (SDD):
PCFt = a0 + a1et + ?t
where the term on the left-hand side is the percentage change in
c.The MNC probably had more outflows than inflows in Australian dollars in the earlier subperiod.