Economic exposure

What type of international risk exposure measures the change in present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates?

• transaction exposure

• accounting exposure

• strategic exposure

• translation exposure

________ cash flows arise from intracompany and intercompany receivables and payments, while ________ cash flows are payments for the use of loans and equity.

• Financing; operating

• Operating; financing

• Operating; accounting

• Accounting; financing

Which of the following is NOT an example of an operating cash flow?

• management fees and distributed overhead

• royalties and license fees

• rent and lease payments

• dividend paid to parent company

Simpson Sign Company based in Frostbite Falls, Minnesota has a 6-month C$100,000 contract to complete sign work in Winnipeg, Manitoba, Canada. The current spot rate is $1.02/C$ and the forward rate is $1.01/C$. Under conditions of equilibrium, management would use ________ today when preparing operating budgets.

• $102,000

• $101,000

• $100,000

• none of the above

The goal of operating exposure analysis is to identify strategic operating techniques the firm might adopt to enhance value in the face of unanticipated exchange rate changes.

• True

• False

Operating cash flows may occur in different currencies and at different times, but financing cash flows may occur only in a single currency.

• True

• False

Even though contracts are often fixed in the short run, as time passes, prices and costs can be changed to reflect the new competitive realities caused by a change in exchange rates.

• True

• False

Recently the Canadian dollar realized an unexpected appreciation in value. Which of the following actions being considered by Tall Timber Exports, a Canadian logging firm specializing in exporting raw forest products, would be considered a highly unlikely response to the appreciation of the Canadian dollar?

• Tall Timber Exports might lower export prices in an effort to maintain market share.

• Tall Timber Exports might raise export prices only slightly in an effort to increase market share.

• Tall Timber Exports might leave export prices as they are and wait to determine what actions to take if any in the future.

• all of the above

Brimmo Motorcycles Inc., a U.S.-based firm, manufactures and sells electric motorcycles both domestically and internationally. A sudden and unexpected appreciation of the U.S. dollar should allow sales to ________ at home and ________ abroad. (Assume other factors remain unchanged.)

• increase; increase

• decrease; decrease

• increase; decrease

• decrease; increase

Which of the following is NOT an example of diversifying operations?

• diversifying sales

• diversifying location of operations

• raising funds in more than one country

• sourcing raw materials in more than one country