HTM EXAM 3 QUESTIONS AND ANSWERS
High pressure for cost reductions
High pressure for local responsiveness - CORRECT ANSWER✅✅Transnational Strategy
FutureForm, a U.S. company, imports microprocessors from Japan. The company must pay in yen to the
Japanese supplier within 30 days. In a particular exchange, the company must pay the Japanese supplier
¥150,000 for each microprocessor at the current dollar/yen spot exchange rate of $1 = ¥110.
FutureForm intends to resell the microprocessors the day they arrive for $1,600 each but it does not
have the funds to pay the Japanese supplier until these have been sold. What will happen if the
exchange rate after 30 days is $1 = ¥90?
A. The importer will earn a profit of approximately $236 per microprocessor.
B. The importer will earn a profit of approximately $67 per microprocessor.
C. The importer will incur a loss of approximately $236 per microprocessor.
D. The importer will incur a loss of approximately $67 per microprocessor.
E. The importer will incur a loss of approximately $90 per microprocessor. - CORRECT ANSWER✅✅D.
The importer will incur a loss of approximately $67 per microprocessor.
Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market. What is true of
the foreign exchange dealers' market's expectations about the dollar over the next 30 days?
A. The dollar will depreciate against the euro.
B. The market is undecided about the direction of currency movement.
C. The dollar will appreciate against the euro.
D. The dollar/euro exchange rate will be steady.
E. The dollar will buy more euros with a spot exchange than with a 30-day forward exchange. - CORRECT
ANSWER✅✅C. The dollar will appreciate against the euro.
hold the value of a currency within some range of a reference currency - CORRECT
ANSWER✅✅Managed Float or Dirty Float
,foreign exchange market determines the relative value of a currency
Examples: US dollar, euro, yen, pound - CORRECT ANSWER✅✅floating exchange rate
the process of buying a currency low and selling it high - CORRECT ANSWER✅✅Arbitrage
the values of a set of currencies are fixed against each other at some mutually agreed-on exchange rate
- CORRECT ANSWER✅✅fixed exchange rate
Steven converted $1,000 to ¥105,000 for a trip to Japan. However, he spent only ¥50,000. During this
period, the value of the dollar weakened against the yen. Using a current exchange rate of $1 = ¥100,
how many dollars does Steven have left?
A. $550
B. $523
C. $450
D. $600
E. $500 - CORRECT ANSWER✅✅A. $550
To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and
P¥ be the price of the same basket of goods in Japanese yen. What does the purchasing power parity
(PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E$/¥?
A. E$/¥ = (1 + P¥) ÷ P$
B. E$/¥ = (1 + P$) ÷ P¥
C. E$/¥ = P¥ ÷ P$
D. E$/¥ = P$ ÷ P¥
E. E$/¥ = (1 + P$) ÷ (1 + P¥) - CORRECT ANSWER✅✅D. E$/¥ = P$ ÷ P¥
Low pressure for cost reductions
, High pressure for local responsiveness - CORRECT ANSWER✅✅Localization Strategy
protecting against cost increases with contracts that allow a company to buy supplies in the future at
designated prices - CORRECT ANSWER✅✅Hedging
The foreign exchange trading center in ________ has the highest percentage of activity.
A. Frankfurt
B. London
C. Paris
D. Hong Kong
E. Sydney - CORRECT ANSWER✅✅B. London
Cyber Corp., based in Toronto, decided it wanted to collect all of its foreign currency receivables from
Indonesia early because the currency in Indonesia was expected to depreciate. This is an example of
A. the efficient market school.
B. the inefficient market school.
C. arbitration.
D. a lead strategy.
E. a lag strategy. - CORRECT ANSWER✅✅D. a lead strategy.
In terms of foreign exchange, what is true of leading and lagging strategies?
A. They primarily protect long-term cash flows from adverse changes in exchange rates.
B. They are used to minimize economic exposure of companies.
C. They can help firms minimize their transaction and translation exposure.
D. They involve accelerating payments from strong-currency to weak-currency countries.
High pressure for cost reductions
High pressure for local responsiveness - CORRECT ANSWER✅✅Transnational Strategy
FutureForm, a U.S. company, imports microprocessors from Japan. The company must pay in yen to the
Japanese supplier within 30 days. In a particular exchange, the company must pay the Japanese supplier
¥150,000 for each microprocessor at the current dollar/yen spot exchange rate of $1 = ¥110.
FutureForm intends to resell the microprocessors the day they arrive for $1,600 each but it does not
have the funds to pay the Japanese supplier until these have been sold. What will happen if the
exchange rate after 30 days is $1 = ¥90?
A. The importer will earn a profit of approximately $236 per microprocessor.
B. The importer will earn a profit of approximately $67 per microprocessor.
C. The importer will incur a loss of approximately $236 per microprocessor.
D. The importer will incur a loss of approximately $67 per microprocessor.
E. The importer will incur a loss of approximately $90 per microprocessor. - CORRECT ANSWER✅✅D.
The importer will incur a loss of approximately $67 per microprocessor.
Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market. What is true of
the foreign exchange dealers' market's expectations about the dollar over the next 30 days?
A. The dollar will depreciate against the euro.
B. The market is undecided about the direction of currency movement.
C. The dollar will appreciate against the euro.
D. The dollar/euro exchange rate will be steady.
E. The dollar will buy more euros with a spot exchange than with a 30-day forward exchange. - CORRECT
ANSWER✅✅C. The dollar will appreciate against the euro.
hold the value of a currency within some range of a reference currency - CORRECT
ANSWER✅✅Managed Float or Dirty Float
,foreign exchange market determines the relative value of a currency
Examples: US dollar, euro, yen, pound - CORRECT ANSWER✅✅floating exchange rate
the process of buying a currency low and selling it high - CORRECT ANSWER✅✅Arbitrage
the values of a set of currencies are fixed against each other at some mutually agreed-on exchange rate
- CORRECT ANSWER✅✅fixed exchange rate
Steven converted $1,000 to ¥105,000 for a trip to Japan. However, he spent only ¥50,000. During this
period, the value of the dollar weakened against the yen. Using a current exchange rate of $1 = ¥100,
how many dollars does Steven have left?
A. $550
B. $523
C. $450
D. $600
E. $500 - CORRECT ANSWER✅✅A. $550
To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and
P¥ be the price of the same basket of goods in Japanese yen. What does the purchasing power parity
(PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E$/¥?
A. E$/¥ = (1 + P¥) ÷ P$
B. E$/¥ = (1 + P$) ÷ P¥
C. E$/¥ = P¥ ÷ P$
D. E$/¥ = P$ ÷ P¥
E. E$/¥ = (1 + P$) ÷ (1 + P¥) - CORRECT ANSWER✅✅D. E$/¥ = P$ ÷ P¥
Low pressure for cost reductions
, High pressure for local responsiveness - CORRECT ANSWER✅✅Localization Strategy
protecting against cost increases with contracts that allow a company to buy supplies in the future at
designated prices - CORRECT ANSWER✅✅Hedging
The foreign exchange trading center in ________ has the highest percentage of activity.
A. Frankfurt
B. London
C. Paris
D. Hong Kong
E. Sydney - CORRECT ANSWER✅✅B. London
Cyber Corp., based in Toronto, decided it wanted to collect all of its foreign currency receivables from
Indonesia early because the currency in Indonesia was expected to depreciate. This is an example of
A. the efficient market school.
B. the inefficient market school.
C. arbitration.
D. a lead strategy.
E. a lag strategy. - CORRECT ANSWER✅✅D. a lead strategy.
In terms of foreign exchange, what is true of leading and lagging strategies?
A. They primarily protect long-term cash flows from adverse changes in exchange rates.
B. They are used to minimize economic exposure of companies.
C. They can help firms minimize their transaction and translation exposure.
D. They involve accelerating payments from strong-currency to weak-currency countries.
