Test bank International Finance MCQ wordChap 9.docx
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TestbankInternationalFinanceMCQwordChap9
FundamentalsofMultinationalFinance,3e（Moffett）
Chapter9
TransactionExposure
9.1
MultipleChoiceandTrue/FalseQuestions
1）
________exposuredealswithcashflowsthatresultfromexistingcontractualobligations.
A）
Operating
B）
Transaction
C）
Translation
D）
Economic
Answer:
B
Topic:
TransactionExposure
Skill:
Recognition
2）
________exposuremeasuresthechangeinthepresentvalueofthefirmresultingfromunexpectedchangesinexchangerates.
A）
Operating
B）
Transaction
C）
Translation
D）
Accounting
Answer:
A
Topic:
OperatingExposure
Skill:
Recognition
3）
EachofthefollowingisanothernameforoperatingexposureEXCEPT________.
A）
economicexposure
B）
strategicexposure
C）
accountingexposure
D）
competitiveexposure
Answer:
C
Topic:
AccountingExposure
Skill:
Recognition
4）
Transactionexposureandoperatingexposureexistbecauseofunexpectedchangesinfuturecashflows.Thedifferencebetweenthetwoisthat________exposuredealswithcashflowsalreadycontractedfor,while________exposuredealswithfuturecashflowsthatmightchangebecauseofchangesinexchangerates.
A）
transaction;operating
B）
operating;transaction
C）
operating;accounting
D）
noneoftheabove
Answer:
A
Topic:
TransactionandOperatingExposure
Skill:
Recognition
5）
________exposureisthepotentialforaccounting-derivedchangesinowner'sequitytooccurbecauseoftheneedtotranslateforeigncurrencyfinancialstatementsintoasinglereportingcurrency.
A）
Transaction
B）
Operating
C）
Economic
D）
Accounting
Answer:
D
Topic:
AccountingExposure
Skill:
Recognition
6）
Lossesfrom________exposuregenerallyreducetaxableincomeintheyeartheyarerealized.________exposurelossesmayreducetaxesoveraseriesofyears.
A）
accounting;Operating
B）
operating;Transaction
C）
transaction;Operating
D）
transaction;Accounting
Answer:
C
Topic:
TransactionandAccountingExposure
Skill:
Recognition
7）
Lossesfrom________exposuregenerallyreducetaxableincomeintheyeartheyarerealized.________exposurelossesarenotcashlossesandtherefore,arenottaxdeductible.
A）
transaction;Operating
B）
accounting;Operating
C）
accounting;Transaction
D）
transaction;Translation
Answer:
D
Topic:
TransactionandAccountingExposure
Skill:
Recognition
8）
MNEcashflowsmaybesensitivetochangesinwhichofthefollowing?
A）
exchangerates
B）
interestrates
C）
commodityprices
D）
alloftheabove
Answer:
D
Topic:
MNECashFlowRisk
Skill:
Recognition
9）
________isatechniqueusedbyMNEstodealwithcurrencyexposure.
A）
Donothing
B）
Speculation
C）
Hedging
D）
AllaretechniquesMNEscoulduse.
Answer:
D
Topic:
MNECashFlowRisk
Skill:
Recognition
10）
Hedging,orreducingrisk,isthesameasaddingvalueorreturntothefirm.
Answer:
FALSE
Topic:
MNECashFlowRisk
Skill:
Conceptual
11）
Assumingnotransactioncosts（i.e.,hedgingis"free"）,hedgingcurrencyexposuresshould________thevariabilityofexpectedcashflowstoafirmandatthesametime,theexpectedvalueofthecashflowsshould________.
A）
increase;notchange
B）
decrease;notchange
C）
notchange;increase
D）
notchange;notchange
Answer:
B
Topic:
Hedging
Skill:
Conceptual
12）
WhichofthefollowingisNOTcitedasagoodreasonforhedgingcurrencyexposures?
A）
Reducedriskoffuturecashflowsisagoodplanningtool.
B）
Reducedriskoffuturecashflowsreducestheprobabilitythatthefirmmaynotmeetrequiredcashflows.
C）
Currencyriskmanagementincreasestheexpectedcashflowstothefirm.
D）
Managementisinabetterpositiontoassessfirmcurrencyriskthanindividualinvestors.
Answer:
C
Topic:
Hedging
Skill:
Recognition
13）
Thereisconsiderablequestionamonginvestorsandmanagersaboutwhetherhedgingisagoodandnecessarytool.
Answer:
TRUE
Topic:
Hedging
Skill:
Recognition
14）
WhichofthefollowingiscitedasagoodreasonforNOThedgingcurrencyexposures?
A）
Shareholdersaremorecapableofdiversifyingriskthanmanagement.
B）
Currencyriskmanagementthroughhedgingdoesnotincreaseexpectedcashflows.
C）
Hedgingactivitiesareoftenofgreaterbenefittomanagementthantoshareholders.
D）
AlloftheabovearecitedasreasonsNOTtohedge.
Answer:
D
Topic:
Hedging
Skill:
Recognition
15）
Thekeyargumentsinoppositiontocurrencyhedgingsuchasmarketefficiency,agencytheory,anddiversificationdonothavefinancialtheoryattheircore.
Answer:
FALSE
Topic:
Hedging
Skill:
Conceptual
16）
________exposuremayresultfromafirmhavingapayableinaforeigncurrency.
A）
Transaction
B）
Accounting
C）
Operating
D）
Noneoftheabove
Answer:
A
Topic:
Hedging
Skill:
Conceptual
17）
Thestagesinthelifeofatransactionexposurecanbebrokenintothreedistincttimeperiods.Thefirsttimeperiodisthetimebetweenquotingapriceandreachinganactualsaleagreementorcontract.Thenexttimeperiodisthetimelagbetweentakinganorderandactuallyfillingordeliveringit.Finally,thetimeittakestogetpaidafterdeliveringtheproduct.Inorder,thesestagesoftransactionexposuremaybeidentifiedas,
A）
backlog,quotation,andbillingexposure.
B）
billing,backlog,andquotationexposure.
C）
quotation,backlog,andbillingexposure.
D）
quotation,billing,andbacklogexposure.
Answer:
C
Topic:
TransactionExposure
Skill:
Recognition
18）
AU.S.firmsellsmerchandisetodaytoaBritishcompanyfor£100,000.Thecurrentexchangerateis$2.03/£,theaccountispayableinthreemonths,andthefirmchoosestoavoidanyhedgingtechniquesdesignedtoreduceoreliminatetheriskofchangesintheexchangerate.TheU.S.firmisatrisktodayofalossif
A）
theexchangeratechangesto$2.00/£.
B）
theexchangeratechangesto$2.05/£.
C）
theexchangeratedoesn'tchange.
D）
alloftheabove.
Answer:
D
Topic:
TransactionExposure
Skill:
Analytical
19）
AU.S.firmsellsmerchandisetodaytoaBritishcompanyfor£100,000.Thecurrentexchangerateis$2.03/£,theaccountispayableinthreemonths,andthefirmchoosestoavoidanyhedingtechniquesdesignedtoreduceoreliminatetheriskofchangesintheexchangerate.Iftheexchangeratechangesto$2.05/£theU.S.firmwillrealizea________of________.
A）
loss;$2000
B）
gain;$2000
C）
loss;£2000
D）
gain;£2000
Answer:
B
Topic:
TransactionExposure
Skill:
Analytical
20）
AU.S.firmsellsmerchandisetodaytoaBritishcompanyfor£100,000.Thecurrentexchangerateis$2.03/£,theaccountispayableinthreemonths,andthefirmchoosestoavoidanyhedingtechniquesdesignedtoreduceoreliminatetheriskofchangesintheexchangerate.Iftheexchangeratechangesto$2.01/£theU.S.firmwillrealizea________of________.
A）
loss;$2,000
B）
gain;$2,000
C）
loss;£2000
D）
gain;£2000
Answer:
A
Topic:
TransactionExposure
Skill:
Analytical
21）
________isNOTapopularcontractualhedgeagainstforeignexchangetransactionexposure.
A）
Forwardmarkethedge
B）
Moneymarkethedge
C）
Optionsmarkethedge
D）
Alloftheabovearecontractualhedges.
Answer:
D
Topic:
ContractualHedges
Skill:
Recognition
22）
A________hedgereferstoanoffsettingoperatingcashflowsuchasapayablearisingfromtheconductofbusiness.
A）
financial
B）
natural
C）
contractual
D）
futures
Answer:
B
Topic:
NaturalHedge
Skill:
Recognition
Instruction9.1:
Usetheinformationforfollowingproblem（s）.
PlainsStatesManufacturinghasjustsignedacontracttosellagriculturalequipmenttoBoschin,aGermanfirm,foreuro1,250,000.ThesalewasmadeinJunewithpaymentduesixmonthslaterinDecember.Becausethisisasizablecontractforthefirmandbecausethecontractisineurosratherthandollars,PlainsStatesisconsideringseveralhedgingalternativestoreducetheexchangerateriskarisingfromthesale.Tohelpthefirmmakeahedgingdecisionyouhavegatheredthefollowinginformation.
∙Thespotexchangerateis$1.40/euro
∙Thesixmonthforwardrateis$1.38/euro
∙PlainsStates'costofcapitalis11%
∙TheEurozone6-monthborrowingrateis9%（or4.5%for6months）
∙TheEurozone6-monthlendingrateis7%（or3.5%for6months）
∙TheU.S.6-monthborrowingrateis8%（or4%for6months）
∙TheU.S.6-monthlendingrateis6%（or3%for6months）
∙Decemberputoptionsforeuro625,000;strikeprice$1.42,premiumpriceis1.5%
∙PlainsStates'forecastfor6-monthspotratesis$1.43/euro
∙Thebudgetrate,orthelowestacceptablesalespriceforthisproject,is$1,075,000or$1.35/euro
23）
RefertoInstruction9.1.IfPlainsStateschoosesnottohedgetheireuroreceivable,theamounttheyreceiveinsixmonthswillbe________.
A）
$1,750,000
B）
$1,250,000
C）
$892,857
D）
undeterminabletoday
Answer:
D
Topic:
ForwardHedgeComputation
Skill:
Analytical
24）
RefertoInstruction9.1.IfPlainsStateschoosestohedgeitstransactionexposureinthefo
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