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C214 - Financial Management Study Guide -
WGU Questions with Detailed Verified
Answers
Hedging
⼀Answer:⼀ The process of eliminating risk
Tariffs
⼀Answer:⼀ Taxes levied on goods imported into a country
Foreign Exchange Risk (AKA FX Risk)
⼀Answer:⼀ Risks associated with the changing values of countries'
concurrences
Direct Quote
⼀Answer:⼀ If you are located in the United States, a direct quote is
one where the foreign currency is in the denominator of the quote.
EUR/USD = €1.11
Indirect Quote
⼀Answer:⼀ When a currency exchange rate is started with the
currency of interest in the denominator. USD/EUR = $0.901
Floating Exchange Rate
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⼀Answer:⼀ If a country follows a floating exchange rate policy, the
value of the currency is determined strictly by supply and demand in
the open market.
Fixed (Pegged) Exchange Rate
⼀Answer:⼀ A country's monetary authority (e.g., the Bank of
England for the UK) intervenes to maintain a constant value of the
country's currency.
Managed (Dirty Floating) Exchange Rate
⼀Answer:⼀ Currencies are generally allowed to float but the
fluctuations are managed. A managed float is essentially a policy of
allowing a currency to float within a minimum and maximum value.
The two primary methods used to hedge FX risk are:
⼀Answer:⼀ Financial derivatives and direct investment.
Financial Derivatives
⼀Answer:⼀ To use a derivative contract also known as a Currency
Forward.
Currency Forward
⼀Answer:⼀ An agreement for delayed delivery.
Direct Investment
⼀Answer:⼀ A direct investment strategy requires a firm build
infrastructure in the country where sales occur. It's very straight
forward.
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FX Hedging
⼀Answer:⼀ Allows firms to focus on making profits through their
operations and not trying to guess which direction FX rates will move.
Tariffs
⼀Answer:⼀ The motivation for tariffs is the protection of domestic
industries.
Currency Restrictions
⼀Answer:⼀ The idea is to limit the ability of a foreign firm to take
capital out of a country.
FASB (Financial Accounting Standards Board)
⼀Answer:⼀ The U.S. accounting system is governed by the Financial
Accounting Standards Board (FASB), which is a private non-profit
organization that attempts to establish and regulate the generally
accepted accounting principles of firms.
Outsourcing
⼀Answer:⼀ To produce a product or service outside of the country.
Outsourcing Disadvantage
⼀Answer:⼀ A potential disadvantage to this type of outsourcing is
that manufacturing jobs have dried up in the U.S.
Capital
C214 - Financial Management Study Guide -
WGU Questions with Detailed Verified
Answers
Hedging
⼀Answer:⼀ The process of eliminating risk
Tariffs
⼀Answer:⼀ Taxes levied on goods imported into a country
Foreign Exchange Risk (AKA FX Risk)
⼀Answer:⼀ Risks associated with the changing values of countries'
concurrences
Direct Quote
⼀Answer:⼀ If you are located in the United States, a direct quote is
one where the foreign currency is in the denominator of the quote.
EUR/USD = €1.11
Indirect Quote
⼀Answer:⼀ When a currency exchange rate is started with the
currency of interest in the denominator. USD/EUR = $0.901
Floating Exchange Rate
, Page | 2
⼀Answer:⼀ If a country follows a floating exchange rate policy, the
value of the currency is determined strictly by supply and demand in
the open market.
Fixed (Pegged) Exchange Rate
⼀Answer:⼀ A country's monetary authority (e.g., the Bank of
England for the UK) intervenes to maintain a constant value of the
country's currency.
Managed (Dirty Floating) Exchange Rate
⼀Answer:⼀ Currencies are generally allowed to float but the
fluctuations are managed. A managed float is essentially a policy of
allowing a currency to float within a minimum and maximum value.
The two primary methods used to hedge FX risk are:
⼀Answer:⼀ Financial derivatives and direct investment.
Financial Derivatives
⼀Answer:⼀ To use a derivative contract also known as a Currency
Forward.
Currency Forward
⼀Answer:⼀ An agreement for delayed delivery.
Direct Investment
⼀Answer:⼀ A direct investment strategy requires a firm build
infrastructure in the country where sales occur. It's very straight
forward.
, Page | 3
FX Hedging
⼀Answer:⼀ Allows firms to focus on making profits through their
operations and not trying to guess which direction FX rates will move.
Tariffs
⼀Answer:⼀ The motivation for tariffs is the protection of domestic
industries.
Currency Restrictions
⼀Answer:⼀ The idea is to limit the ability of a foreign firm to take
capital out of a country.
FASB (Financial Accounting Standards Board)
⼀Answer:⼀ The U.S. accounting system is governed by the Financial
Accounting Standards Board (FASB), which is a private non-profit
organization that attempts to establish and regulate the generally
accepted accounting principles of firms.
Outsourcing
⼀Answer:⼀ To produce a product or service outside of the country.
Outsourcing Disadvantage
⼀Answer:⼀ A potential disadvantage to this type of outsourcing is
that manufacturing jobs have dried up in the U.S.
Capital
