International Finance Final Exam (Answered) 100% Correct

International Finance Final Exam (Answered) 100% Correct 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. a. Jenco Co. imports raw materials from Japan, invoiced in U.S. dollars. The price it pays is not expected to change for the next several years. If the Japanese yen appreciates, its imports from Japan will probably ____ and if the Japanese yen depreciates, its imports from Japan will probably ____. a. increase; decrease b. decrease; increase c. increase; stay the same d. stay the same; stay the same d. Yomance Co. is a U.S. company that has exposure to Japanese yen and British pounds. It has net inflows of 5,000,000 yen and net outflows of 60,000 pounds. The present exchange rate of the Japanese yen is $.012 while the present exchange rate of the British pound is $1.50. Yomance Co. has not hedged its positions. The yen and pound movements against the dollar are highly and positively correlated. If the dollar strengthens, then Yomance Co. will: a. benefit, because the dollar value of its pound position exceeds the dollar value of its yen position. b. benefit, because the dollar value of its yen position exceeds the dollar value of its pound position. c. be adversely affected, because the dollar value of its pound position exceeds the dollar value of its yen position. d. be adversely affected, because the dollar value of its yen position exceeds the dollar value of its pound position. 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 b. If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in Switzerland, the appreciation of the Swiss franc has a ____ impact on the firm's ____. a. positive; interest expenses b. positive; gross profit c. negative; gross profit d. negative; interest expenses c. If a U.S. firm's sales in Australia are much greater than its cost of goods sold in Australia, the appreciation of the Australian dollar has a ____ impact on the firm's ____. a. positive; interest expenses b. positive; gross profit c. negative; interest expenses d. negative; gross profit b. U.S. based Majestic Co. sells products to U.S. consumers and purchases all of materials from U.S. suppliers. Its main competitor is located in Belgium. Majestic Co. is subject to: a. economic exposure. b. translation exposure. c. transaction exposure. d. no exposure to exchange rate fluctuations. a. Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except: a. the interest rate in the country of the subsidiary. b. proportion of business conducted by the subsidiary. c. its accounting method. d. the exchange rate movements of the subsidiary's currency. a. Treck Co. expects to pay €200,000 in one month for its imports from Greece. It also expects to receive €250,000 for its exports to Italy in one month. Treck Co. estimates the standard deviation of monthly percentage changes of the euro to be 3 percent over the last 40 months. Assume that these percentage changes are normally distributed. Using the value-at-risk (VAR) method based on a 95% confidence level, what is the maximum one-month loss in dollars if the expected percentage change of the euro during next month is 2%? Assume that the current spot rate of the euro (before considering the maximum one-month loss) is $1.23. a. -$38,468 b. -$21,371 c. -$17,097 d. -$4,274 d. Jensen Co. expects to pay €50,000 in one month for its imports from France. It also expects to receive €200,000 for its exports to Belgium in one month. Jensen estimates the standard deviation of monthly percentage changes of the euro to be 2.5 percent over the last 50 months. Assume that these percentage changes are normally distributed. Using the value-at-risk (VAR) method based on a 97.5% confidence level, what is the maximum one month loss in dollars if the expected percentage change of the euro during next month is 2%? Assume that current spot rate of the euro (before considering the maximum one-month loss) is $1.35. a. -$4,303 b. -$7,830 c. -$5,873 d. -$1,958 c. 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 the above. d. Lampon Co. is a U.S. firm that has a subsidiary in Hong Kong that produces light fixtures and sells them to Japan, denominated in Japanese yen. Its subsidiary pays all of its expenses, including the cost of goods sold, in U.S. dollars. The Hong Kong dollar is pegged to the U.S. dollar. If the Japanese yen appreciates against the U.S. dollar, the Hong Kong subsidiary's revenue will ____, and its expenses will ____. a. increase; decrease b. decrease; remain unchanged c. decrease; increase d. increase; remain unchanged d. Assume that the Japanese yen is expected to depreciate substantially over the next year. The U.S.-based MNC has a subsidiary in Japan, where its costs exceed revenues. The overall value of MNC will ____ because of the yen's depreciation. a. decrease b. increase c. remain unchanged d. A and C are possible b. Which of the following is not a form of exposure to exchange rate fluctuations? a. Transaction exposure b. Credit exposure c. Economic exposure d. Translation exposure b.