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Fundamentals of Multinational Finance, 3e (Moffett)&nbsp(3)
Updated:2012-03-11 Category:Finance
Skill:

Recognition

13)

There is considerable question among investors and managers about whether hedging is a good and necessary tool.

Answer:

TRUE

Topic:

Hedging

Skill:

Recognition

14)

Which of the following is cited as a good reason for NOT hedging currency exposures?

A)

Shareholders are more capable of diversifying risk than management.

B)

Currency risk management through hedging does not increase expected cash flows.

C)

Hedging activities are often of greater benefit to management than to shareholders.

D)

All of the above are cited as reasons NOT to hedge.

Answer:

D

Topic:

Hedging

Skill:

Recognition

15)

The key arguments in opposition to currency hedging such as market efficiency, agency theory, and diversification do not have financial theory at their core.

Answer:

FALSE

Topic:

Hedging

Skill:

Conceptual

16)

________ exposure may result from a firm having a payable in a foreign currency.

A)

Transaction

B)

Accounting

C)

Operating

D)

None of the above

Answer:

A

Topic:

Hedging

Skill:

Conceptual

17)

The stages in the life of a transaction exposure can be broken into three distinct time periods. The first time period is the time between quoting a price and reaching an actual sale agreement or contract. The next time period is the time lag between taking an order and actually filling or delivering it. Finally, the time it takes to get paid after delivering the product. In order, these stages of transaction exposure may be identified as,

A)

backlog, quotation, and billing exposure.

B)

billing, backlog, and quotation exposure.

C)

quotation, backlog, and billing exposure.

D)

quotation, billing, and backlog exposure.

Answer:

C

Topic:

Transaction Exposure

Skill:

Recognition

18)

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 above.

Answer:

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