IBUS 401 FINAL COMPLETE
QUESTIONS & ANSWERS
Which forecasting technique would best represent the use of today's forward exchange
rate to
forecast the future exchange rate? - ANSWER market-based forecasting
Which forecasting technique would best represent sole use of today's spot exchange
rate of the
euro to forecast the euro's future exchange rate? - ANSWER market-based forecasting
Which forecasting technique would best represent the use of relationships between
economic
factors and exchange rate movements to forecast the future exchange rate? - ANSWER
fundamental forecasting
Which forecasting technique 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
If it was determined that the movement of exchange rates was not related to previous
exchange rate values, this
implies that a __________ is not valuable for speculating on expected exchange rate
movements. - ANSWER technical forecasting technique
What is not a limitation of fundamental forecasting? - ANSWER forecasts are needed
for factors that have a lagged impact
Translation exposure reflects: - ANSWER the exposure of a firm's financial statements
to exchange rate fluctuations.
Transaction exposure reflects: - ANSWER the exposure of a firm's ongoing international
transactions to exchange rate fluctuations.
Economic exposure refers to: - ANSWER the exposure of a firm's cash flows to
exchange rate fluctuations
Economic exposure can affect: - ANSWER MNCs and purely domestic firms
Generally, MNCs with less foreign costs than foreign revenue will be _______ affected
by a _______ foreign
currency. - ANSWER favorably; stronger
, When the dollar strengthens, the reported consolidated earnings of U.S.-based MNCs
are _______ affected by
translation exposure. When the dollar weakens, the reported consolidated earnings are
__________ affected. - ANSWER unfavorably; favorably
One argument for exchange rate irrelevance is that: - ANSWER diversified stakeholders
will not be affected by exchange rate movements because of offsetting effects.
____________ is(are) not a determinant of translation exposure. - ANSWER The local
(domestic) earnings of the MNC
MM Hedge steps: - ANSWER 1. Borrow
2. Convert
3. Invest
An example of cross-hedging is: - ANSWER find two currencies that are highly
positively correlated; match the payables of the one currency to the receivables of the
other currency
Which of the following reflects a hedge of net receivables in British pounds by a U.S.
firm? - ANSWER -purchase a currency put option in British pounds
OR
-sell pounds forward
Which of the following reflects a hedge of net payables on British pounds by a U.S.
firm? - ANSWER borrow U.S. dollars, convert them to pounds, and invest them in a
British pound deposit.
If a Salerno Inc. desired to lock in a minimum rate at which it could sell its net
receivables in Japanese yen but
wanted to be able to capitalize if the yen appreciates substantially against the dollar by
the time payment arrives,
the most appropriate hedge would be: - ANSWER purchasing yen put options
If interest rate parity exists, and transaction costs do not exist, the money market hedge
will yield the same result
as the ___________ hedge. - ANSWER forward
A put option will be exercised when - ANSWER the exercise price > future spot rate
Sycamore (a U.S. firm) has no subsidiaries and presently has sales to Mexican
customers amounting to MXP98
million, while its peso-denominated expenses amount to MXP41 million. If it shifts its
material orders from its
Mexican suppliers to U.S. suppliers, it could reduce peso-denominated expenses by
MXP12 million and increase
QUESTIONS & ANSWERS
Which forecasting technique would best represent the use of today's forward exchange
rate to
forecast the future exchange rate? - ANSWER market-based forecasting
Which forecasting technique would best represent sole use of today's spot exchange
rate of the
euro to forecast the euro's future exchange rate? - ANSWER market-based forecasting
Which forecasting technique would best represent the use of relationships between
economic
factors and exchange rate movements to forecast the future exchange rate? - ANSWER
fundamental forecasting
Which forecasting technique 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
If it was determined that the movement of exchange rates was not related to previous
exchange rate values, this
implies that a __________ is not valuable for speculating on expected exchange rate
movements. - ANSWER technical forecasting technique
What is not a limitation of fundamental forecasting? - ANSWER forecasts are needed
for factors that have a lagged impact
Translation exposure reflects: - ANSWER the exposure of a firm's financial statements
to exchange rate fluctuations.
Transaction exposure reflects: - ANSWER the exposure of a firm's ongoing international
transactions to exchange rate fluctuations.
Economic exposure refers to: - ANSWER the exposure of a firm's cash flows to
exchange rate fluctuations
Economic exposure can affect: - ANSWER MNCs and purely domestic firms
Generally, MNCs with less foreign costs than foreign revenue will be _______ affected
by a _______ foreign
currency. - ANSWER favorably; stronger
, When the dollar strengthens, the reported consolidated earnings of U.S.-based MNCs
are _______ affected by
translation exposure. When the dollar weakens, the reported consolidated earnings are
__________ affected. - ANSWER unfavorably; favorably
One argument for exchange rate irrelevance is that: - ANSWER diversified stakeholders
will not be affected by exchange rate movements because of offsetting effects.
____________ is(are) not a determinant of translation exposure. - ANSWER The local
(domestic) earnings of the MNC
MM Hedge steps: - ANSWER 1. Borrow
2. Convert
3. Invest
An example of cross-hedging is: - ANSWER find two currencies that are highly
positively correlated; match the payables of the one currency to the receivables of the
other currency
Which of the following reflects a hedge of net receivables in British pounds by a U.S.
firm? - ANSWER -purchase a currency put option in British pounds
OR
-sell pounds forward
Which of the following reflects a hedge of net payables on British pounds by a U.S.
firm? - ANSWER borrow U.S. dollars, convert them to pounds, and invest them in a
British pound deposit.
If a Salerno Inc. desired to lock in a minimum rate at which it could sell its net
receivables in Japanese yen but
wanted to be able to capitalize if the yen appreciates substantially against the dollar by
the time payment arrives,
the most appropriate hedge would be: - ANSWER purchasing yen put options
If interest rate parity exists, and transaction costs do not exist, the money market hedge
will yield the same result
as the ___________ hedge. - ANSWER forward
A put option will be exercised when - ANSWER the exercise price > future spot rate
Sycamore (a U.S. firm) has no subsidiaries and presently has sales to Mexican
customers amounting to MXP98
million, while its peso-denominated expenses amount to MXP41 million. If it shifts its
material orders from its
Mexican suppliers to U.S. suppliers, it could reduce peso-denominated expenses by
MXP12 million and increase
