BAFI3200 W10 Foreign Exchange Risk Exposure and Management P2

________ 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; accounting

• Operating; financing

• Accounting; financing

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

• management fees and distributed overhead

• rent and lease payments

• royalties and license fees

• 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

• $110,000

• $100,000

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.

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

• increase; decrease

• decrease; increase

• decrease; decrease

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

• diversifying sales

• raising funds in more than one country

• diversifying location of operations

• sourcing raw materials in more than one country

What is NOT a strategy for managing operating exposure:

• Ignoring currency fluctuations
• Selecting low-cost production sites

• Diversifying investments
• Using forward contracts

What is the primary reason a company would choose to hedge against foreign exchange risk?

• To increase profit margins

• To stabilize cash flows

• To reduce operational costs

• To enhance market share

In the context of international trade, which of the following would be considered a direct effect of currency depreciation on a domestic firm?

• Increased export competitiveness

• Lower production costs

• Higher import costs

• Decreased domestic sales

Which of the following best describes the term 'transaction exposure' in international finance?

• Risk arising from changes in the market value of investments

• Risk associated with the translation of financial statements

• Risk related to operational cash flows

• Risk of loss from currency fluctuations during the settlement of a transaction