Chapter 12—Managing Economic Exposure and Translation Exposure
1. Depreciation of the euro relative to the U.S. dollar will cau a U.S.-bad multinational firm's
reported earnings (from the consolidated income statement) to ____. If a firm desired to protect against this possibility, it could stabilize its reported earnings by ____ euros forward in the foreign exchange market.
a. be reduced; purchasing
b. be reduced; lling
c. increa; lling
d. increa; purchasing
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ANS: B PTS: 1
2. Springfield Co., bad in the U.S., has a cost from orders of foreign material that exceeds its foreign
revenue. All foreign transactions are denominated in the foreign currency of concern. This firm would _
___ a stronger dollar and would ____ a weaker dollar.
a. benefit from; be unaffected by
b. benefit from; be adverly affected by
c. be unaffected by; be adverly affected by
d. be unaffected by; benefit from
e. benefit from; benefit from
ANS: B PTS: 1
3. Whitewater Co. is a U.S. company with sales to Canada amounting to C$8 million. Its cost of
materials attributable to the purcha of Canadian goods is C$6 million. Its interest expen on
Canadian loans is C$4 million. Given the exact figures above, the dollar value of Whitewater's
"earnings before interest and taxes" would ____ if the Canadian dollar appreciates; the dollar value of Whitewater's cash flows would ____ if the Canadian dollar appreciates.
a. increa; increa
b. decrea; increa
c. decrea; decrea
d. increa; decrea
e. increa; be unaffected
ANS: D PTS: 1
4. Sycamore (a U.S. firm) has no subsidiaries and prently has sales to Mexican customers amounting to
MXP98 million, while its peso-denominated expens amount to MXP41 million. If it shifts its
material orders from its Mexican suppliers to U.S. suppliers, it could reduce peso-denominated
expens by MXP12 million and increa dollar-denominated expens by $800,000. This strategy
would ____ the Sycamore's exposure to changes in the peso's movements against the U.S. dollar.
Regardless of whether the firm shifts expens, it is likely to perform better when the peso is valued ____ relative to the dollar.
a. reduce; high
b. reduce; low
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c. increa; low
d. increa; high
ANS: D PTS: 1
5. Which of the following is an example of economic exposure but not an example of transaction
exposure?
a. An increa in the dollar's value hurts a U.S. firm's domestic sales becau foreign
competitors are able to increa their sales to U.S. customers.
b. An increa in the pound's value increas the U.S. firm's cost of British pound payables.
c. A decrea in the peso's value decreas a U.S. firm's dollar value of peso receivables.
d. A decrea in the Swiss franc's value decreas the dollar value of interest payments on a
Swiss deposit nt to a U.S. firm by a Swiss bank.
ANS: A PTS: 1
6. Rockford Co. is a U.S. manufacturing firm that produces goods in the U.S. and lls all products to
retail stores in the U.K.; the goods are denominated in pounds. It finances a small portion of its
business with pound-denominated loans from British banks. Which of the following is true? (Assume that the amount of products to be sold is guaranteed by contracts.)
a. The dollar value of sales is higher if the pound depreciates against the dollar.
b. The dollar value of sales is unaffected by the pound's exchange rate.
c. A and B
d. None of the above
ANS: D PTS: 1
7. If a U.S. firm's expens are more susceptible to exchange rate movements than revenue, the firm will
____ if the dollar ____.
a. benefit; weakens
b. be unaffected; weakens
c. be unaffected; strengthens
d. benefit; strengthens
ANS: D PTS: 1
8. Laketown Co. has some expens and revenue in euros. If its expens are more nsitive to exchange
rate movements than revenue, it could reduce economic exposure by ____. If its revenues are more nsitive than expens, it could reduce economic exposure by ____.
a. decreasing foreign revenues; decreasing foreign expens
b. decreasing foreign revenues; increasing foreign expens
c. increasing foreign revenues; decreasing foreign revenues
d. decreasing foreign expens; increasing foreign revenues
ANS: D PTS: 1
9. Any restructuring of operations that ____ the difference between a foreign currency's inflows and
outflows may ____ economic exposure.
a. reduces; increa
b. increas; reduce
c. reduces; reduce
d. A and B
e. none of the above
ANS: C PTS: 1
10. It is generally least difficult to effectively hedge various types of:
a. translation exposure.
b. transaction exposure.
c. economic exposure.
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d. A and C
ANS: B PTS: 1
11. With regard to hedging translation exposure, translation loss ____, and gains on forward contracts
ud to hedge translation exposure ____.
a. are not tax deductible; are taxed
b. are tax deductible; are taxed
c. are not tax deductible; are not taxed
d. are tax deductible; are not taxed
ANS: A PTS: 1
12. If a firm does not have foreign subsidiaries, it is not subject to ____.
a. transaction exposure
b. economic exposure
抽样计划c. A and B
d. translation exposure
ANS: D PTS: 1
13. If the Singapore dollar appreciates against the U.S. dollar over this year, the consolidated earnings of a
U.S. company with a subsidiary in Singapore will be ____ as a result of the exchange rate movement.
a. negative
b. adverly affected
c. favorably affected
d. unaffected
ANS: C PTS: 1
14. Assume a U.S. firm us a forward contract to hedge all of its translation exposure. Also assume that
the firm underestimated what its foreign earnings would be. Assume that the foreign currency
depreciated over the year. The firm would generate a translation ____, which would be ____ than the gain generated by the forward contract.
a. loss; smaller
b. loss; larger
c. gain; larger
d. gain; smaller
ANS: B PTS: 1
15. A perfect hedge (full coverage) on translation exposure can usually be achieved when:
a. using the money market hedge.
b. using the forward hedge.
c. using the futures hedge.
d. none of the above, since a perfect hedge is nearly impossibl
e.
ANS: D PTS: 1
16. Assume that a Japane car manufacturer exports cars to U.S. dealerships, which are priced in yen.
The demand for tho cars declines when the yen is strong. The manufacturer also produces some cars in the U.S. with U.S. materials and tho cars are priced in dollars. The manufacturer could reduce its economic exposure by:
a. closing down most of its plants in the U.S.
b. producing more automobiles in the U.S.
c. relying completely on Japane suppliers for its parts.
d. pricing its exports in dollars.
ANS: B PTS: 1
17. Wisconsin Inc. conducts business in Zambia. Years ago, Wisconsin established a subsidiary in Zambia
that has consistently generated very large profits denominated in Zambian kwacha. Wisconsin wishes to restructure its operations to reduce economic exposure. Which of the following is not a feasible way of accomplishing this?
a. increa Zambian supply orders.
b. increa Zambian sales.
c. restructure debt to increa debt payments in Zambia.
d. reduce Zambian sales.
ANS: B PTS: 1无烟日
18. Which of the following firms is not expod to translation exposure?
a. Firm X, with a fully owned subsidiary that periodically remits earnings generated in Great
Britain to the U.S.-bad parent.
b. Firm Y, with a fully owned subsidiary that periodically generates foreign loss in
Sweden. The parent covers at least some of the loss.
c. Firm Z, with a fully owned subsidiary that generates substantial earnings in Germany. The
subsidiary never remits earnings but reinvests them in Germany.
d. All of the above firms are expod to translation exposur
e.
ANS: D PTS: 1
19. ____ reprents any impact of exchange rate fluctuations on a firm's future cash flows.
a. Translation exposure
b. Economic exposure
c. Transaction exposure
d. None of the above
ANS: B PTS: 1
20. An effective way for an MNC to asss its economic exposure is to review the firm's:
a. income statement.
b. liquidity.
c. retained earnings.
d. level of stockholders' equity.
ANS: A PTS: 1
21. If revenues and costs are equally nsitive to exchange rate movements, MNCs may reduce their
economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that:
日本大逼a. cash inflows exceed cash outflows in each foreign currency.
b. cash outflows exceed cash inflows in each foreign currency.
c. cash inflows match cash outflows in each foreign currency.
d. none of the above
ANS: C PTS: 1
22. Managing economic exposure is generally perceived to be ____ managing transaction exposure.
a. more difficult than
b. less difficult than
c. just as difficult as
冷冻肉怎么快速解冻d. none of the above
ANS: A PTS: 1
23. As oppod to transaction exposure, managing economic exposure involves developing a(n) ____
solution.
a. short-term
b. long-term
c. immediate
d. none of the above
ANS: B PTS: 1
24. Cierra, Inc. is attempting to asss its degree of economic exposure in euros. In order to do so, it has
applied regression analysis to determine whether the percentage change in its total cash flow is relat
ed to the percentage change in the euro. A ____ and statistically significant slope coefficient resulting from this analysis implies that the cash flows are ____ related to the percentage changes in the euro.
a. positive; positively
b. positive; negatively
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c. negative; positively
d. B and C
e. none of the above
ANS: A PTS: 1
25. Assume that an MNC's cash flows are positively related to the movements in a foreign currency. If the
MNC expects the foreign currency to weaken, it could purcha the currency forward to reduce its degree of economic exposure.
a. True
b. Fal
ANS: F PTS: 1
26. An MNC is attempting to reduce its economic exposure by financing a portion of its business with
loans in the foreign currency. If the foreign currency weakens, the MNC will need ____ of the foreign currency to cover the loan payment, while the MNC's foreign currency revenues will convert to ____ dollars.
a. more; fewer
b. more; more
c. less; fewer
d. less; more
ANS: C PTS: 1
27. An MNC expects to ll fixed asts it utilizes in Europe in the distant future. In order to hedge the
sale of the asts in the distant future, the MNC could create a(n) ____ that ____ the expected value of the asts in the future.
a. ast; matches
b. ast; exceeds
c. liability; matches
d. liability; is less than
ANS: C PTS: 1
28. Long-term forward contracts are a possible way to hedge the distant sale of fixed asts in foreign
countries, but they may not be available for many emerging market currencies.
a. True
b. Fal
