FIN 6420 CH 10 EXAM QUESTIONS WITH VERIFIED SOLUTIONS GRADED A+
Generally, MNCs with less foreign revenues than foreign costs will be ____ affected by a ____
foreign currency.
a. favorably; stronger
b. favorably; weaker
c. not; stronger
d. not; weaker - Answers favorably; weaker
Lazer Co. is a U.S. firm that exports computers to Belgium invoiced in euros and to Italy invoiced
in dollars. Additionally, Lazer Co. has a subsidiary in Korea that produces computers in South
Korea and sells them there. Lazer also has competitors in different countries. Lazer Co. is
subject to:
a. transaction exposure.
b. economic exposure.
c. translation exposure.
d. all of these are correct. - Answers all of these are correct
Which of the following is not a form of exposure to exchange rate fluctuations?
a. transaction exposure
b. economic exposure
c. translation exposure
d. credit exposure - Answers credit exposure
Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located
in Japan. Vada is subject to:
a. economic exposure.
, b. transaction exposure.
c. translation exposure.
d. economic and transaction exposure. - Answers a. economic exposure
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
c. purchasing supplies locally rather than overseas
d. exporting to foreign countries - Answers borrowing in a foreign currency and converting the
funds to the local currency prior to the appreciation
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 Jacko Co. in these
currencies, except that its Sunland francs represent cash outflows. Which firm has a high
exposure to exchange rate risk?
a. Jacko Co.
b. Kriner Co.
c. the firms have about the same level of exposure.
d. neither firm has any exposure. - Answers Kriner Co
Currency correlations are generally negative. T/F? - Answers FALSE
Generally, MNCs with less foreign costs than foreign revenues will be ____ affected by a ____
foreign currency.
a. be favorably; stronger
b. not be; stronger
c. be favorably; weaker
Generally, MNCs with less foreign revenues than foreign costs will be ____ affected by a ____
foreign currency.
a. favorably; stronger
b. favorably; weaker
c. not; stronger
d. not; weaker - Answers favorably; weaker
Lazer Co. is a U.S. firm that exports computers to Belgium invoiced in euros and to Italy invoiced
in dollars. Additionally, Lazer Co. has a subsidiary in Korea that produces computers in South
Korea and sells them there. Lazer also has competitors in different countries. Lazer Co. is
subject to:
a. transaction exposure.
b. economic exposure.
c. translation exposure.
d. all of these are correct. - Answers all of these are correct
Which of the following is not a form of exposure to exchange rate fluctuations?
a. transaction exposure
b. economic exposure
c. translation exposure
d. credit exposure - Answers credit exposure
Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located
in Japan. Vada is subject to:
a. economic exposure.
, b. transaction exposure.
c. translation exposure.
d. economic and transaction exposure. - Answers a. economic exposure
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
c. purchasing supplies locally rather than overseas
d. exporting to foreign countries - Answers borrowing in a foreign currency and converting the
funds to the local currency prior to the appreciation
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 Jacko Co. in these
currencies, except that its Sunland francs represent cash outflows. Which firm has a high
exposure to exchange rate risk?
a. Jacko Co.
b. Kriner Co.
c. the firms have about the same level of exposure.
d. neither firm has any exposure. - Answers Kriner Co
Currency correlations are generally negative. T/F? - Answers FALSE
Generally, MNCs with less foreign costs than foreign revenues will be ____ affected by a ____
foreign currency.
a. be favorably; stronger
b. not be; stronger
c. be favorably; weaker
