TCQT CHAP 11

Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate

• can have significant economic consequences for U.S. firms

• can have significant economic consequences for Japanese firms.

• can have significant economic consequences for both U.S. and Japanese firms.

• none of the above

Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate

• will tend to weaken the competitive position of import-competing U.S. car makers

• will tend to strengthen the competitive position of import-competing U.S. car makers

• will tend to strengthen the competitive position of Japanese car makers at the expense of U.S. makers

• none of the above

The link between a firm's future operating cash flows and exchange rate fluctuations is

• asset exposure.

• operating exposure.

• all of the above

• none of the above

When the Mexican peso collapsed in 1994, declining by 37 percent

• (A) U.S. firms that exported to Mexico and priced in peso were adversely affected.

• (B) U.S. firms that exported to Mexico and priced in dollars were adversely affected

• (C) U.S. firms were unaffected by the peso collapse, since Mexico is such a small market

• both a and b

When exchange rates change

• U.S. firms that produce domestically and sell only to domestic customers will be unaffected.

• U.S. firms that produce domestically and sell only to domestic customers can be affected if they compete against imports.

• U.S. firms that produce domestically and sell only to domestic customers will be affected, but only if they borrow in foreign currency to finance their domestic operations.

• None of the above

When exchange rates change

• this can alter the operating cash flow of a domestic firm

• this can alter the competitive position of a domestic firm.

• this can alter the home currency values of a multinational firm's assets and liabilities

• all of the above

Two studies found a link between exchange rates and the stock prices of U.S. firms

• (A) this suggests that exchange rate changes can systematically affect the value of the firm by influencing its operating cash flows.

• (B) this suggests that exchange rate changes can systematically affect the value of the firm by influencing the domestic currency values of its assets and liabilities.

• both a and b

• none of the above

It is conventional to classify foreign currency exposures into the following types:

• economic exposure, transaction exposure, and translation exposure.

• economic exposure, noneconomic exposure, and political exposure.

• national exposure, international exposure, and trade exposure.

• conversion exposure, and exchange exposure.

Exposure to currency risk can be measured by the sensitivities of

• (A) the future home currency values of the firm's assets and liabilities

• (B) the firm's operating cash flows to random changes in exchange rates

• both a and b

• None of the above

Operating exposure measures

• the extent to which the foreign currency value of the firm's assets is affected by unanticipated changes in exchange rates

• the extent to which the firm's operating cash flows will be affected by unexpected changes in exchange rates

• the affect of changes in exchange rates will have on the consolidated financial reports of a MNC

• the affect of unanticipated changes in exchange rates on the dollar value of contractual obligations denominated in a foreign currency.