IBUS 401 TEST 1 Exam Questions & Answers |
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Terms in this set (69)
Translation exposure reflects: the exposure of a firm's financial statements to
exchange rate fluctuations.
Transaction exposure reflects: the exposure of a firm's ongoing international
transactions to exchange rate fluctuations
Economic exposure refers to: the exposure of a firm's cash flows to exchange
rate fluctuations.
Economic exposure can affect Purely domestic firms and MNCs
Generally, MNCs with less foreign favorably; stronger
costs than foreign revenue will be
_______ affected by a _______ foreign
currency.
,When the dollar strengthens, the unfavorably; favorably affected
reported consolidated earnings of
U.S.-based MNCs are _______ affected
by translation exposure. When the
dollar weakens, the reported
consolidated earnings are __________
affected. A) favorably; favorably
affected but by a smaller degree
One argument for exchange rate diversified stakeholders will not be affected by
irrelevance is that exchange rate movements because of offsetting
effects.
______________ is(are) not a determinant The local (domestic) earnings of the MNC
of translation exposure
Assume the following information: $240,000.
U.S. deposit rate for 1 year = 11% U.S.
borrowing rate for 1 year = 12%
Swiss deposit rate for 1 year = 8%
Swiss borrowing rate for 1 year =
10% Swiss forward rate for 1 year =
$.40 Swiss franc spot rate = $.39
Also assume that a U.S. exporter
denominates its Swiss exports in
Swiss francs and expects to receive
SF600,000 in 1 year.
Using the information above, what
will be the approximate value of
these exports in 1 year in U.S.
dollars given that the firm executes
a forward hedge?
, U.S. deposit rate for 1 year = 11% U.S. Need to borrow NZ 600,000 / (1+10%) = NZ
borrowing rate for 1 year = 12% New 545,454.55 Convert to US: NZ 545,454.55 x $0.39
Zealand deposit rate for 1 year = 8% = $212,727.27 Invest in US at 11%: $212,727.27 x
New Zealand borrowing rate for 1 (1+11%) = $ 236,127.27
year = 10% New Zealand dollar
forward rate for 1 year = $.40 New
Zealand dollar spot rate = $.39
Also assume that a U.S. exporter
denominates its New Zealand
exports in NZ$ and expects to
receive NZ$600,000 in 1 year. You
are a consultant for this firm.
Using the information above, what
will be the approximate value of
these exports in 1 year in U.S.
dollars given that the firm executes
a money market hedge?
Use the following information to Invest: BP 200,000 / (1+5%) = BP 190,476.19 Need
calculate the dollar cost of using a to Borrow: BP190,476.19 x $2.02 = $384,761.90
money market hedge to hedge Repay $384,761.90 x (1+4%) = $400,152.38
200,000 pounds of payables due in
180 days. Assume the firm has no
excess cash. Assume the spot rate
of the pound is $2.02, the 180-day
forward rate is $2.00. The British
interest rate is 5%, and the U.S.
interest rate is 4% over the 180-day
period
100% Verified solutions |Questions with Correct
Answers 2026 latest update!!
Save
Terms in this set (69)
Translation exposure reflects: the exposure of a firm's financial statements to
exchange rate fluctuations.
Transaction exposure reflects: the exposure of a firm's ongoing international
transactions to exchange rate fluctuations
Economic exposure refers to: the exposure of a firm's cash flows to exchange
rate fluctuations.
Economic exposure can affect Purely domestic firms and MNCs
Generally, MNCs with less foreign favorably; stronger
costs than foreign revenue will be
_______ affected by a _______ foreign
currency.
,When the dollar strengthens, the unfavorably; favorably affected
reported consolidated earnings of
U.S.-based MNCs are _______ affected
by translation exposure. When the
dollar weakens, the reported
consolidated earnings are __________
affected. A) favorably; favorably
affected but by a smaller degree
One argument for exchange rate diversified stakeholders will not be affected by
irrelevance is that exchange rate movements because of offsetting
effects.
______________ is(are) not a determinant The local (domestic) earnings of the MNC
of translation exposure
Assume the following information: $240,000.
U.S. deposit rate for 1 year = 11% U.S.
borrowing rate for 1 year = 12%
Swiss deposit rate for 1 year = 8%
Swiss borrowing rate for 1 year =
10% Swiss forward rate for 1 year =
$.40 Swiss franc spot rate = $.39
Also assume that a U.S. exporter
denominates its Swiss exports in
Swiss francs and expects to receive
SF600,000 in 1 year.
Using the information above, what
will be the approximate value of
these exports in 1 year in U.S.
dollars given that the firm executes
a forward hedge?
, U.S. deposit rate for 1 year = 11% U.S. Need to borrow NZ 600,000 / (1+10%) = NZ
borrowing rate for 1 year = 12% New 545,454.55 Convert to US: NZ 545,454.55 x $0.39
Zealand deposit rate for 1 year = 8% = $212,727.27 Invest in US at 11%: $212,727.27 x
New Zealand borrowing rate for 1 (1+11%) = $ 236,127.27
year = 10% New Zealand dollar
forward rate for 1 year = $.40 New
Zealand dollar spot rate = $.39
Also assume that a U.S. exporter
denominates its New Zealand
exports in NZ$ and expects to
receive NZ$600,000 in 1 year. You
are a consultant for this firm.
Using the information above, what
will be the approximate value of
these exports in 1 year in U.S.
dollars given that the firm executes
a money market hedge?
Use the following information to Invest: BP 200,000 / (1+5%) = BP 190,476.19 Need
calculate the dollar cost of using a to Borrow: BP190,476.19 x $2.02 = $384,761.90
money market hedge to hedge Repay $384,761.90 x (1+4%) = $400,152.38
200,000 pounds of payables due in
180 days. Assume the firm has no
excess cash. Assume the spot rate
of the pound is $2.02, the 180-day
forward rate is $2.00. The British
interest rate is 5%, and the U.S.
interest rate is 4% over the 180-day
period
