International Finance Management- Quiz II

55 Questions | Total Attempts: 1017

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Business Finance Quizzes & Trivia

Questions and Answers
  • 1. 
    The extent to which the value of the firm is affected by unanticipated changes in exchange rates, that can have a profound effect on the firm's competitive position and thus on its cash flows and market value.
    • A. 

      Economic exposure

    • B. 

      Transaction exposure

    • C. 

      Translation exposure

    • D. 

      Coefficient exposure

  • 2. 
    The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes.
    • A. 

      Transaction exposure

    • B. 

      Economic exposure

    • C. 

      Translation exposure

    • D. 

      Operating exposure

  • 3. 
    This refers to the potential that the firm's consolidated financial statements can be affected by changes in exchange rates. Consolidation involves the translation of subsidiaries' financial statements from local currencies to the home currency.
    • A. 

      Translation exposure

    • B. 

      Economic exposure

    • C. 

      Transaction exposure

    • D. 

      Operating exposure

  • 4. 
    Consider a Canadian multinational firm that has subsidiaries in the United Kingdom and Japan. Each subsidiary produces financial statements in local currency. When the company consolidates a report in the home currency, it shows financial losses. What type of exposure does this scenario exemplify?
    • A. 

      Translation exposure

    • B. 

      Transaction exposure

    • C. 

      Economic exposure

    • D. 

      Asset exposure

  • 5. 
    A Canadian company, which sold its products in Italy, realized financial losses when sending money back to Canada because the Canadian Dollar has appreciated against Euro. What type of exposure does this scenario exemplify?
    • A. 

      Transaction exposure

    • B. 

      Translation exposure

    • C. 

      Economic exposure

    • D. 

      Asset exposure

  • 6. 
    A Canadian firm sells its products only in the domestic market, which means there is no transaction risk involved in its business. However, the company revenues went down in the domestic market since the Canadian Dollar appreciated against the US Dollar. What type of exposure does this scenario exemplify?
    • A. 

      Operating exposure

    • B. 

      Translation exposure

    • C. 

      Asset exposure

    • D. 

      Transaction exposure

  • 7. 
    The extent to which the firm's operating cash flows would be affected by changes in exchange rates is the definition of...
    • A. 

      Operating exposure

    • B. 

      Transaction exposure

    • C. 

      Translation exposure

    • D. 

      Asset exposure

  • 8. 
    Suppose that a Canadian computer company, NTK operates a wholly-owned French subsidiary, Calais Computers, that assembles and sells NTK computers throughout Europe. Calais Computers imports microprocessors from Intel, at a cost of $512 per unit at the current exchange rate of $1.60 per euro. The projected operating cash flow is €7,250.000 per year, which is equivalent to $11,600,000. A Euro depreciation would result in what kind of effect?
    • A. 

      Competitive effect & conversion effect

    • B. 

      Competitive effect only

    • C. 

      Conversion effect only

    • D. 

      There is no effect

  • 9. 
    What type of exposure the two following factors are related? 1). The structure of the markets in which the firm sources its inputs (labor, materials, sells its products). 2). The firm's ability to mitigate the effect of exchange rate changes by adjusting its markets, product mix, and sourcing
    • A. 

      Operating exposure

    • B. 

      Transaction exposure

    • C. 

      Translation exposure

    • D. 

      Asset exposure

  • 10. 
    Ford Mexicana, a subsidiary of Ford, which imports cars from its US parent and distributes them in Mexico. It the US Dollar appreciates against Mexican Peso, Ford Mexicana's costs go up in Peso terms. Whether this creates operating exposure for Ford critically depends on the structure of the car market in Mexico. If Ford Mexicana faces competition from domestic carmakers, is Ford parent firm to a high degree of operating exposure?
    • A. 

      True

    • B. 

      False

  • 11. 
    Ford Mexicana, a subsidiary of Ford, which imports cars from its US parent and distributes them in Mexico. It the US Dollar appreciates against Mexican Peso, Ford Mexicana's costs go up in Peso terms. Whether this creates operating exposure for Ford critically depends on the structure of the car market in Mexico. Consider the case in which Ford Mexicana faces import competition only from other carmakers like General Motors and Chrysler, is Ford parent firm to a high degree of operating exposure?
    • A. 

      True

    • B. 

      False

  • 12. 
    What are the three major types of foreign currency exposures?
    • A. 

      Economic, transaction, and translation exposures

    • B. 

      Economic, transaction, and asset exposures

    • C. 

      Operating, asset, and transaction exposures

    • D. 

      Economic, operating, and translation exposures

  • 13. 
    All the following are foreign currency exposures, except:
    • A. 

      Politic exposure

    • B. 

      Economic exposure

    • C. 

      Transaction exposure

    • D. 

      Translation exposure

  • 14. 
    Complete pass-through, no pass-through, and partial pass-through are strategies related to which of foreign currency exposure?
    • A. 

      Operating exposure

    • B. 

      Translation exposure

    • C. 

      Transaction exposure

    • D. 

      Asset exposure

  • 15. 
    All of the following are strategies for managing operating exposure, except:
    • A. 

      Selecting low-cost production sites

    • B. 

      Flexible sourcing policy

    • C. 

      Diversification of the market

    • D. 

      Product standardization and R&D efforts

  • 16. 
    All of the following are strategies for managing operating exposure, except:
    • A. 

      Assess strategic plan impact

    • B. 

      Financial hedging

    • C. 

      Diversification of the market

    • D. 

      Flexible sourcing policy

  • 17. 
    All of the following are strategies for managing operating exposure, except:
    • A. 

      Selecting high-cost production sites

    • B. 

      Financial hedging

    • C. 

      Diversification of the market

    • D. 

      Flexible sourcing policy

  • 18. 
    When the domestic currency is strong or expected to become strong, eroding the competitive position of the firm, it can choose to locate production facilities in a foreign country where costs are low due to either the undervalued currency or underpriced factors of production. This is a strategy related to what type of foreign currency exposure?
    • A. 

      Operating exposure

    • B. 

      Translation exposure

    • C. 

      Transaction exposure

    • D. 

      Asset exposure

  • 19. 
    When the domestic currency is strong or expected to become strong, eroding the competitive position of the firm, it can choose to locate production facilities in a foreign country where costs are low due to either the undervalued currency or underpriced factors of production. What type of strategy to mitigate operating exposure is this scenario related to?
    • A. 

      Selecting low-cost production sites

    • B. 

      Flexible sourcing policy

    • C. 

      Diversification of the market

    • D. 

      Product diferentiation and R&D efforts

  • 20. 
    Even if the firm has manufacturing facilities only in the domestic country, it can substantially lessen the effect of exchange rate changes by sourcing from where input costs are low. This is a strategy related to what type of foreign currency exposure?
    • A. 

      Operating exposure

    • B. 

      Translation exposure

    • C. 

      Translation exposure

    • D. 

      Asset exposure

  • 21. 
    Even if the firm has manufacturing facilities only in the domestic country, it can substantially lessen the effect of exchange rate changes by sourcing from where input costs are low. What type of strategy to mitigate operating exposure is this scenario related to?
    • A. 

      Flexible sourcing policy

    • B. 

      Selecting low-cost production sites

    • C. 

      Diversification of the market

    • D. 

      Product diferentiation and R&D efforts

  • 22. 
    Firms can hire low-cost guest workers from foreign countries instead of high-cost domestic workers in order to be competitive. This is a strategy related to what type of foreign currency exposure?
    • A. 

      Operating exposure

    • B. 

      Translation exposure

    • C. 

      Transaction exposure

    • D. 

      Asset exposure

  • 23. 
    Firms can hire low-cost guest workers from foreign countries instead of high-cost domestic workers in order to be competitive. What type of strategy to mitigate operating exposure is this scenario related to?
    • A. 

      Flexible sourcing policy

    • B. 

      Selecting low-cost production sites

    • C. 

      Diversification of the market

    • D. 

      Product diferentiation and R&D efforts

  • 24. 
    A way of dealing with foreign exchange exposure is geographically diversification of the firm's sales pattern. This is a strategy related to what type of foreign currency exposure?
    • A. 

      Operating exposure

    • B. 

      Translation exposure

    • C. 

      Transaction exposure

    • D. 

      Asset exposure

  • 25. 
    A way of dealing with foreign exchange exposure is geographically diversification of the firm's sales pattern. What type of strategy to mitigate operating exposure is this scenario related to?
    • A. 

      Diversification of the market

    • B. 

      Selecting low-cost production sites

    • C. 

      Flexible sourcing policy

    • D. 

      Product diferentiation and R&D efforts

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