FIN 370 CSUF Exam B Joseph Greco
Exam Questions and Answers Graded A+
MNE cash flows may be sensitive to changes in which of the following?
a. all of these
b. commodity prices
c. exchange rates
d. interest rates - Correct answer-a. All of these
Assuming no transaction costs (i.e., hedging is "free"), hedging currency exposures
should ________ the variability of expected cash flows to a firm and at the same
time, the expected value of the cash flows should ________. - Correct answer-
decrease; not change
Transaction exposures and operating exposures exist because of unexpected
changes in future cash flows. The difference between the two is that _______
exposure deals with cash flows already contracted for, while __________ exposure
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,deals with future cash flows that might change because of changes in exchange
rates. - Correct answer-transaction; operating
Losses from ________ exposure generally reduce taxable income in the year they
are realized. ________ exposure losses may reduce taxes over a series of years. -
Correct answer-Transaction; operating
A U.S firm sells merchandise today to a British company for 150,000pounds. The
current exchange rate is $1.55/pound, the account is payable in three months, and
the firm chooses to avoid any hedging techniques designed to reduce or eliminate
the risk of changes in the exchange rate. If the exchange rate changes to
$1.58/pound the U.S firm will realize a __________ of __________. - Correct
answer-Amt received now by US firm = Sales X exchange rate
= 150,000 X 1.55
= 232,500
After 3 months the exchange rate will be $1.58/pound
Amt received after 3 months by US firm = Sales x exchange rate
=150,000 X $1.58
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, =$237,000
Gain = Amt received after 3 months - amt received now
=237,000 - 232,500
= $4,500
GAIN of $4500
A U.S firm sells merchandise today to a British company for 150,000pounds. The
current exchange rate is $1.55/pound, the account is payable in three months, and
the firm chooses to avoid any hedging techniques designed to reduce or eliminate
the risk of changes in the exchange rate. The US firm is at risk today of a loss if:
a. The exchange rate changes to $1.52/pound
b. the exchange rate changes to $1.58/pound
c. All of these put the firm at risk
d. the exchange rate doesn't change - Correct answer-all of these put the firm at risk
Remaining unhedged is NOT an option when dealing with foreign exchange
transaction exposure. - Correct answer-FALSE
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Exam Questions and Answers Graded A+
MNE cash flows may be sensitive to changes in which of the following?
a. all of these
b. commodity prices
c. exchange rates
d. interest rates - Correct answer-a. All of these
Assuming no transaction costs (i.e., hedging is "free"), hedging currency exposures
should ________ the variability of expected cash flows to a firm and at the same
time, the expected value of the cash flows should ________. - Correct answer-
decrease; not change
Transaction exposures and operating exposures exist because of unexpected
changes in future cash flows. The difference between the two is that _______
exposure deals with cash flows already contracted for, while __________ exposure
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,deals with future cash flows that might change because of changes in exchange
rates. - Correct answer-transaction; operating
Losses from ________ exposure generally reduce taxable income in the year they
are realized. ________ exposure losses may reduce taxes over a series of years. -
Correct answer-Transaction; operating
A U.S firm sells merchandise today to a British company for 150,000pounds. The
current exchange rate is $1.55/pound, the account is payable in three months, and
the firm chooses to avoid any hedging techniques designed to reduce or eliminate
the risk of changes in the exchange rate. If the exchange rate changes to
$1.58/pound the U.S firm will realize a __________ of __________. - Correct
answer-Amt received now by US firm = Sales X exchange rate
= 150,000 X 1.55
= 232,500
After 3 months the exchange rate will be $1.58/pound
Amt received after 3 months by US firm = Sales x exchange rate
=150,000 X $1.58
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, =$237,000
Gain = Amt received after 3 months - amt received now
=237,000 - 232,500
= $4,500
GAIN of $4500
A U.S firm sells merchandise today to a British company for 150,000pounds. The
current exchange rate is $1.55/pound, the account is payable in three months, and
the firm chooses to avoid any hedging techniques designed to reduce or eliminate
the risk of changes in the exchange rate. The US firm is at risk today of a loss if:
a. The exchange rate changes to $1.52/pound
b. the exchange rate changes to $1.58/pound
c. All of these put the firm at risk
d. the exchange rate doesn't change - Correct answer-all of these put the firm at risk
Remaining unhedged is NOT an option when dealing with foreign exchange
transaction exposure. - Correct answer-FALSE
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