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? - 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? - 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 - ANSWER -(0.75-0.80)/0.80= 6.25%
A portfolio of currency cash inflows is more volatile if the correlations between currencies are __ -
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? - ANSWER -Diz Co.
Economic exposure can affect: - ANSWER -Both MNCs and purely domestic firms
Generally, MNCs with less foreign costs than foreign revenues will be ( ) affected by a weaker foreign
currency. - ANSWER -adversely
Transaction exposure reflects - 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 ( ). - 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? - ANSWER -buying euro call options
Which of the following is a hedge of net payables in euros by a US firm? - 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? - ANSWER -buying euro put options
Which of the following is a hedge of Canadian dollar receivables by a US firm? - 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 - 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 - 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). - ANSWER -expedite
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? - 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? - 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 - ANSWER -(0.75-0.80)/0.80= 6.25%
A portfolio of currency cash inflows is more volatile if the correlations between currencies are __ -
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? - ANSWER -Diz Co.
Economic exposure can affect: - ANSWER -Both MNCs and purely domestic firms
Generally, MNCs with less foreign costs than foreign revenues will be ( ) affected by a weaker foreign
currency. - ANSWER -adversely
Transaction exposure reflects - 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 ( ). - 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? - ANSWER -buying euro call options
Which of the following is a hedge of net payables in euros by a US firm? - 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? - ANSWER -buying euro put options
Which of the following is a hedge of Canadian dollar receivables by a US firm? - 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 - 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 - 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). - ANSWER -expedite
