FIN 4213 INTERNATIONAL EXAM 3 QUESTIONS AND ANSWERS
Which of the following forecasting techniques would best represent the use of today's forward
exchange rate to forecast the future exchange rate? - CORRECT ANSWER✅✅Market -based 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? - CORRECT
ANSWER✅✅Technical Forecasting
Silicon Co. has forecasted the Canadian dollar for the most recent period to be $0.75. The realized value
of the Canadian dollar in the most recent period was $0.80. Thus, what is the absolute forecast error as
a percentage of the realized value - CORRECT ANSWER✅✅(0.75-0.80)/0.80= 6.25%
A portfolio of currency cash inflows is more volatile if the correlations between currencies are __ -
CORRECT ANSWER✅✅HIgh
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 these currencies as Diz Co. except that its euros
represent net cash outflows. Which firm has a higher exposure to exchange rate risk? - CORRECT
ANSWER✅✅Diz Co.
Economic exposure can affect: - CORRECT ANSWER✅✅Both MNCs and purely domestic firms
Generally, MNCs with less foreign costs than foreign revenues will be ( ) affected by a weaker foreign
currency. - CORRECT ANSWER✅✅adversely
Transaction exposure reflects - CORRECT ANSWER✅✅the exposure of a firm's financial statements to
exchange rate fluctuations
If a firm does not have foreign subsidiaries, it is not subject to ( ). - CORRECT ANSWER✅✅translation
exposure
, A US firm will need one million euros to pay its supplier in 6 months and decides to hedge the euro
payables. Which of the following is the right hedge? - CORRECT ANSWER✅✅buying euro call options
Which of the following is a hedge of net payables in euros by a US firm? - CORRECT ANSWER✅✅borrow
U.S. dollars, convert them to euros, and invest them in a euro deposit
A US firm is expecting to receive one million euros from its exports and wants to hedge the euro
receivables. Which of the following is a right hedge? - CORRECT ANSWER✅✅buying euro put options
Which of the following is a hedge of Canadian dollar receivables by a US firm? - CORRECT
ANSWER✅✅B.buying Canadian dollar
put options
C.borrow Canadian
dollars, convert them
to US dollars, and
invest them in a US
dollar deposit
***both B and C
Relations between economic factors (such as economic growth, inflation, and interest rates) and
exchange rate are used in ____ forecasting - CORRECT ANSWER✅✅Fundamental
Corporations tend to make only limited use of technical forecasting because it typically focuses on the
near future, which is not very helpful for developing corporate policies - CORRECT ANSWER✅✅True
If a US based MNC has a subsidiary in UK and British pound is expected to weaken substantially against
US dollar, the MNC's parent firm may prefer to ____ the remittance of its subsidiary earnings that are
denominated in pounds (assuming the same interest rate in US and UK). - CORRECT
ANSWER✅✅expedite
Which of the following forecasting techniques would best represent the use of today's forward
exchange rate to forecast the future exchange rate? - CORRECT ANSWER✅✅Market -based 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? - CORRECT
ANSWER✅✅Technical Forecasting
Silicon Co. has forecasted the Canadian dollar for the most recent period to be $0.75. The realized value
of the Canadian dollar in the most recent period was $0.80. Thus, what is the absolute forecast error as
a percentage of the realized value - CORRECT ANSWER✅✅(0.75-0.80)/0.80= 6.25%
A portfolio of currency cash inflows is more volatile if the correlations between currencies are __ -
CORRECT ANSWER✅✅HIgh
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 these currencies as Diz Co. except that its euros
represent net cash outflows. Which firm has a higher exposure to exchange rate risk? - CORRECT
ANSWER✅✅Diz Co.
Economic exposure can affect: - CORRECT ANSWER✅✅Both MNCs and purely domestic firms
Generally, MNCs with less foreign costs than foreign revenues will be ( ) affected by a weaker foreign
currency. - CORRECT ANSWER✅✅adversely
Transaction exposure reflects - CORRECT ANSWER✅✅the exposure of a firm's financial statements to
exchange rate fluctuations
If a firm does not have foreign subsidiaries, it is not subject to ( ). - CORRECT ANSWER✅✅translation
exposure
, A US firm will need one million euros to pay its supplier in 6 months and decides to hedge the euro
payables. Which of the following is the right hedge? - CORRECT ANSWER✅✅buying euro call options
Which of the following is a hedge of net payables in euros by a US firm? - CORRECT ANSWER✅✅borrow
U.S. dollars, convert them to euros, and invest them in a euro deposit
A US firm is expecting to receive one million euros from its exports and wants to hedge the euro
receivables. Which of the following is a right hedge? - CORRECT ANSWER✅✅buying euro put options
Which of the following is a hedge of Canadian dollar receivables by a US firm? - CORRECT
ANSWER✅✅B.buying Canadian dollar
put options
C.borrow Canadian
dollars, convert them
to US dollars, and
invest them in a US
dollar deposit
***both B and C
Relations between economic factors (such as economic growth, inflation, and interest rates) and
exchange rate are used in ____ forecasting - CORRECT ANSWER✅✅Fundamental
Corporations tend to make only limited use of technical forecasting because it typically focuses on the
near future, which is not very helpful for developing corporate policies - CORRECT ANSWER✅✅True
If a US based MNC has a subsidiary in UK and British pound is expected to weaken substantially against
US dollar, the MNC's parent firm may prefer to ____ the remittance of its subsidiary earnings that are
denominated in pounds (assuming the same interest rate in US and UK). - CORRECT
ANSWER✅✅expedite
