Chapter 9

Fundamentals of Multinational Finance, 5e (Moffett et al.)
Chapter 9 Transaction Exposure

Multiple Choice and True/False Questions

9.1 Types of Foreign Exchange Exposure

1) ________ exposure deals with cash flows that result from existing contractual obligations.
A) Operating
B) Transaction
C) Translation
D) Economic
Answer: B
Diff: 1
Topic: 9.1 Types of Foreign Exchange Exposure
Skill: Recognition

5) ________ exposure is the potential for accounting-derived changes in owner 's equity to occur because of the need to translate foreign currency financial statements into a single reporting currency.
A) Transaction
B) Operating
C) Economic
D) Accounting
Answer: D
Diff: 1
Topic: 9.1 Types of Foreign Exchange Exposure
Skill: Recognition

8) MNE cash flows may be sensitive to changes in which of the following?
A) exchange rates
B) interest rates
C) commodity prices
D) all of the above
Answer: D
Diff: 1
Topic: 9.1 Types of Foreign Exchange Exposure
Skill: Recognition
9) Company X from USA has localized production near its suppliers in EU and exports its products worldwide. The company
A) does not have transactional exposure because majority of its suppliers are invoicing in Euros.
B) does not have translational exposure because it consolidates its reports in US dollars.
C) is not exposed to changes in foreign exchange rates.
D) has transactional, translational and operating type of exposure.
Answer: D
Diff: 1
Topic: 9.1 Types of Foreign Exchange Exposure
Skill: Recognition

9.2 Why Hedge?

1) A U.S. firm sells merchandise today to a British company for £100,000. The current exchange rate is $2.03/£, the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. The U.S. firm is at risk today of a loss if
A) the exchange rate changes to $2.00/£.
B) the exchange rate changes to $2.05/£.
C) the exchange rate doesn 't change.
D) all of the