International Finance Final Exam (Answered)
100% Correct
Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main
competitor is located in Japan. Vada is subject to:
a. economic exposure.
b. transaction exposure.
c. translation exposure.
d. economic and transaction exposure.
a.
Jenco Co. imports raw materials from Japan, invoiced in U.S. dollars. The price it
pays is not expected to change for the next several years. If the Japanese yen
appreciates, its imports from Japan will probably ____ and if the Japanese yen
depreciates, its imports from Japan will probably ____.
a. increase; decrease
b. decrease; increase
c. increase; stay the same
d. stay the same; stay the same
d.
Yomance Co. is a U.S. company that has exposure to Japanese yen and British
pounds. It has net inflows of 5,000,000 yen and net outflows of 60,000 pounds.
The present exchange rate of the Japanese yen is $.012 while the present
exchange rate of the British pound is $1.50. Yomance Co. has not hedged its
positions. The yen and pound movements against the dollar are highly and
positively correlated. If the dollar strengthens, then Yomance Co. will:
a. benefit, because the dollar value of its pound position exceeds the dollar value
of its yen position.
b. benefit, because the dollar value of its yen position exceeds the dollar value of
its pound position.
c. be adversely affected, because the dollar value of its pound position exceeds
the dollar value of its yen position.
d. be adversely affected, because the dollar value of its yen position exceeds the
dollar value of its pound position.
a.
Generally, MNCs with less foreign revenues than foreign costs will be ____
affected by a ____ foreign currency.
a. favorably; stronger
b. favorably; weaker
c. not; stronger
d. not; weaker
b.
,If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in
Switzerland, the appreciation of the Swiss franc has a ____ impact on the firm's
____.
a. positive; interest expenses
b. positive; gross profit
c. negative; gross profit
d. negative; interest expenses
c.
If a U.S. firm's sales in Australia are much greater than its cost of goods sold in
Australia, the appreciation of the Australian dollar has a ____ impact on the firm's
____.
a. positive; interest expenses
b. positive; gross profit
c. negative; interest expenses
d. negative; gross profit
b.
U.S. based Majestic Co. sells products to U.S. consumers and purchases all of
materials from U.S. suppliers. Its main competitor is located in Belgium. Majestic
Co. is subject to:
a. economic exposure.
b. translation exposure.
c. transaction exposure.
d. no exposure to exchange rate fluctuations.
a.
Vermont Co. has one foreign subsidiary. Its translation exposure is directly
affected by each of the following, except:
a. the interest rate in the country of the subsidiary.
b. proportion of business conducted by the subsidiary.
c. its accounting method.
d. the exchange rate movements of the subsidiary's currency.
a.
Treck Co. expects to pay €200,000 in one month for its imports from Greece. It
also expects to receive €250,000 for its exports to Italy in one month. Treck Co.
estimates the standard deviation of monthly percentage changes of the euro to
be 3 percent over the last 40 months. Assume that these percentage changes are
normally distributed. Using the value-at-risk (VAR) method based on a 95%
confidence level, what is the maximum one-month loss in dollars if the expected
percentage change of the euro during next month is 2%? Assume that the current
spot rate of the euro (before considering the maximum one-month loss) is $1.23.
a. -$38,468
b. -$21,371
c. -$17,097
d. -$4,274
d.
Jensen Co. expects to pay €50,000 in one month for its imports from France. It
also expects to receive €200,000 for its exports to Belgium in one month. Jensen
, estimates the standard deviation of monthly percentage changes of the euro to
be 2.5 percent over the last 50 months. Assume that these percentage changes
are normally distributed. Using the value-at-risk (VAR) method based on a 97.5%
confidence level, what is the maximum one month loss in dollars if the expected
percentage change of the euro during next month is 2%? Assume that current
spot rate of the euro (before considering the maximum one-month loss) is $1.35.
a. -$4,303
b. -$7,830
c. -$5,873
d. -$1,958
c.
Lazer Co. is a U.S. firm that exports computers to Belgium invoiced in euros and
to Italy invoiced in dollars. Additionally, Lazer Co. has a subsidiary in Korea that
produces computers in South Korea and sells them there. Lazer also has
competitors in different countries. Lazer Co. is subject to:
a. transaction exposure.
b. economic exposure.
c. translation exposure.
d. all of the above.
d.
Lampon Co. is a U.S. firm that has a subsidiary in Hong Kong that produces light
fixtures and sells them to Japan, denominated in Japanese yen. Its subsidiary
pays all of its expenses, including the cost of goods sold, in U.S. dollars. The
Hong Kong dollar is pegged to the U.S. dollar. If the Japanese yen appreciates
against the U.S. dollar, the Hong Kong subsidiary's revenue will ____, and its
expenses will ____.
a. increase; decrease
b. decrease; remain unchanged
c. decrease; increase
d. increase; remain unchanged
d.
Assume that the Japanese yen is expected to depreciate substantially over the
next year. The U.S.-based MNC has a subsidiary in Japan, where its costs exceed
revenues. The overall value of MNC will ____ because of the yen's depreciation.
a. decrease
b. increase
c. remain unchanged
d. A and C are possible
b.
Which of the following is not a form of exposure to exchange rate fluctuations?
a. Transaction exposure
b. Credit exposure
c. Economic exposure
d. Translation exposure
b.
100% Correct
Vada, Inc. exports computers to Australia invoiced in U.S. dollars. Its main
competitor is located in Japan. Vada is subject to:
a. economic exposure.
b. transaction exposure.
c. translation exposure.
d. economic and transaction exposure.
a.
Jenco Co. imports raw materials from Japan, invoiced in U.S. dollars. The price it
pays is not expected to change for the next several years. If the Japanese yen
appreciates, its imports from Japan will probably ____ and if the Japanese yen
depreciates, its imports from Japan will probably ____.
a. increase; decrease
b. decrease; increase
c. increase; stay the same
d. stay the same; stay the same
d.
Yomance Co. is a U.S. company that has exposure to Japanese yen and British
pounds. It has net inflows of 5,000,000 yen and net outflows of 60,000 pounds.
The present exchange rate of the Japanese yen is $.012 while the present
exchange rate of the British pound is $1.50. Yomance Co. has not hedged its
positions. The yen and pound movements against the dollar are highly and
positively correlated. If the dollar strengthens, then Yomance Co. will:
a. benefit, because the dollar value of its pound position exceeds the dollar value
of its yen position.
b. benefit, because the dollar value of its yen position exceeds the dollar value of
its pound position.
c. be adversely affected, because the dollar value of its pound position exceeds
the dollar value of its yen position.
d. be adversely affected, because the dollar value of its yen position exceeds the
dollar value of its pound position.
a.
Generally, MNCs with less foreign revenues than foreign costs will be ____
affected by a ____ foreign currency.
a. favorably; stronger
b. favorably; weaker
c. not; stronger
d. not; weaker
b.
,If a U.S. firm's cost of goods sold in Switzerland is much greater than its sales in
Switzerland, the appreciation of the Swiss franc has a ____ impact on the firm's
____.
a. positive; interest expenses
b. positive; gross profit
c. negative; gross profit
d. negative; interest expenses
c.
If a U.S. firm's sales in Australia are much greater than its cost of goods sold in
Australia, the appreciation of the Australian dollar has a ____ impact on the firm's
____.
a. positive; interest expenses
b. positive; gross profit
c. negative; interest expenses
d. negative; gross profit
b.
U.S. based Majestic Co. sells products to U.S. consumers and purchases all of
materials from U.S. suppliers. Its main competitor is located in Belgium. Majestic
Co. is subject to:
a. economic exposure.
b. translation exposure.
c. transaction exposure.
d. no exposure to exchange rate fluctuations.
a.
Vermont Co. has one foreign subsidiary. Its translation exposure is directly
affected by each of the following, except:
a. the interest rate in the country of the subsidiary.
b. proportion of business conducted by the subsidiary.
c. its accounting method.
d. the exchange rate movements of the subsidiary's currency.
a.
Treck Co. expects to pay €200,000 in one month for its imports from Greece. It
also expects to receive €250,000 for its exports to Italy in one month. Treck Co.
estimates the standard deviation of monthly percentage changes of the euro to
be 3 percent over the last 40 months. Assume that these percentage changes are
normally distributed. Using the value-at-risk (VAR) method based on a 95%
confidence level, what is the maximum one-month loss in dollars if the expected
percentage change of the euro during next month is 2%? Assume that the current
spot rate of the euro (before considering the maximum one-month loss) is $1.23.
a. -$38,468
b. -$21,371
c. -$17,097
d. -$4,274
d.
Jensen Co. expects to pay €50,000 in one month for its imports from France. It
also expects to receive €200,000 for its exports to Belgium in one month. Jensen
, estimates the standard deviation of monthly percentage changes of the euro to
be 2.5 percent over the last 50 months. Assume that these percentage changes
are normally distributed. Using the value-at-risk (VAR) method based on a 97.5%
confidence level, what is the maximum one month loss in dollars if the expected
percentage change of the euro during next month is 2%? Assume that current
spot rate of the euro (before considering the maximum one-month loss) is $1.35.
a. -$4,303
b. -$7,830
c. -$5,873
d. -$1,958
c.
Lazer Co. is a U.S. firm that exports computers to Belgium invoiced in euros and
to Italy invoiced in dollars. Additionally, Lazer Co. has a subsidiary in Korea that
produces computers in South Korea and sells them there. Lazer also has
competitors in different countries. Lazer Co. is subject to:
a. transaction exposure.
b. economic exposure.
c. translation exposure.
d. all of the above.
d.
Lampon Co. is a U.S. firm that has a subsidiary in Hong Kong that produces light
fixtures and sells them to Japan, denominated in Japanese yen. Its subsidiary
pays all of its expenses, including the cost of goods sold, in U.S. dollars. The
Hong Kong dollar is pegged to the U.S. dollar. If the Japanese yen appreciates
against the U.S. dollar, the Hong Kong subsidiary's revenue will ____, and its
expenses will ____.
a. increase; decrease
b. decrease; remain unchanged
c. decrease; increase
d. increase; remain unchanged
d.
Assume that the Japanese yen is expected to depreciate substantially over the
next year. The U.S.-based MNC has a subsidiary in Japan, where its costs exceed
revenues. The overall value of MNC will ____ because of the yen's depreciation.
a. decrease
b. increase
c. remain unchanged
d. A and C are possible
b.
Which of the following is not a form of exposure to exchange rate fluctuations?
a. Transaction exposure
b. Credit exposure
c. Economic exposure
d. Translation exposure
b.
