FIN 4213 INTERNATIONAL (EXAM 3) UPDATED
QUESTIONS AND CORRECT ANSWERS
Question:
1. Which of the following forecasting techniques would best represent the use of today's forward
ex-change rate to forecast the future exchange rate?
Answer:
Market -based forecasting
Question:
2. 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
Question:
3. 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 pe-riod 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%
Question:
4. A portfolio of currency cash inflows is more volatile if the correlations between currencies are __
Answer:
HIgh
Question:
5. 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 move-ments 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 high-er exposure to exchange rate risk?
Answer:
Diz Co.
Question:
6. Economic exposure can affect:
Answer:
Both MNCs and purely domestic firms
Question:
7. Generally, MNCs with less foreign costs than for-eign revenues will be ( ) affected by a weaker
for-eign currency.
Answer:
adversely
, Question:
8. Transaction exposure reflects
Answer:
the exposure of a firm's finan-cial statements to exchange rate fluctuations
Question:
9. If a firm does not have foreign subsidiaries, it is not subject to ( ).
Answer:
translation exposure
Question:
10. 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
Question:
11. 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
Question:
12. A US firm is expecting to receive one million euros from its exports and wants to hedge the euro
re-ceivables. Which of the following is a right hedge?
Answer:
buying euro put options
Question:
13. Which of the following is a hedge of Canadian dol-lar 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
Question:
14. Relations between economic factors (such as eco-nomic growth, inflation, and interest rates) and
ex-change rate are used in ____ forecasting
Answer:
Fundamental
Question:
15. Corporations tend to make only limited use of tech-nical forecasting because it typically focuses
on the near future, which is not very helpful for develop-ing corporate policies
Answer:
True
QUESTIONS AND CORRECT ANSWERS
Question:
1. Which of the following forecasting techniques would best represent the use of today's forward
ex-change rate to forecast the future exchange rate?
Answer:
Market -based forecasting
Question:
2. 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
Question:
3. 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 pe-riod 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%
Question:
4. A portfolio of currency cash inflows is more volatile if the correlations between currencies are __
Answer:
HIgh
Question:
5. 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 move-ments 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 high-er exposure to exchange rate risk?
Answer:
Diz Co.
Question:
6. Economic exposure can affect:
Answer:
Both MNCs and purely domestic firms
Question:
7. Generally, MNCs with less foreign costs than for-eign revenues will be ( ) affected by a weaker
for-eign currency.
Answer:
adversely
, Question:
8. Transaction exposure reflects
Answer:
the exposure of a firm's finan-cial statements to exchange rate fluctuations
Question:
9. If a firm does not have foreign subsidiaries, it is not subject to ( ).
Answer:
translation exposure
Question:
10. 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
Question:
11. 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
Question:
12. A US firm is expecting to receive one million euros from its exports and wants to hedge the euro
re-ceivables. Which of the following is a right hedge?
Answer:
buying euro put options
Question:
13. Which of the following is a hedge of Canadian dol-lar 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
Question:
14. Relations between economic factors (such as eco-nomic growth, inflation, and interest rates) and
ex-change rate are used in ____ forecasting
Answer:
Fundamental
Question:
15. Corporations tend to make only limited use of tech-nical forecasting because it typically focuses
on the near future, which is not very helpful for develop-ing corporate policies
Answer:
True
