McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Master of Business Administration (MBA) .
Chapters
| 51. |
As opposed to transaction exposure, managing economic exposure involves developing a ________ solution. |
| A. | short-term |
| B. | immediate |
| C. | long-term |
| D. | none of the above |
| Answer» C. long-term | |
| 52. |
Spears Co. will receive SF1,000,000 in 30 days. Use the following information to determine the total dollar amount received (after accounting for the option premium) if the firm purchases and exercises a put option: Exercise price = $.61 Premium = $.02 Spot rate = $.60 Expected spot rate in 30 days = $.56 30 day forward rate = $.62 |
| A. | $630,000. |
| B. | $610,000. |
| C. | $600,000. |
| D. | $590,000. |
| Answer» D. $590,000. | |
| 53. |
When the dollar strengthens, the 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 |
| B. | favorably; favorably affected by a higher degree |
| C. | unfavorably; favorably affected |
| D. | favorably; unfavorably affected |
| Answer» C. unfavorably; favorably affected | |
| 54. |
Which one of the following areas is NOT a way companies often respond to exchange rate risk when they alter their product strategy? |
| A. | shifting the firm's manufacturing base to another country |
| B. | the timing of new-product introduction |
| C. | changing the size of its product line |
| D. | product innovation with advanced technology |
| Answer» C. changing the size of its product line | |
| 55. |
A perfect hedge (full coverage) on translation exposure can usually be achieved when: |
| A. | using the money market hedge. |
| B. | using the forward hedge. |
| C. | using the futures hedge. |
| D. | none of the above, since a perfect hedge is nearly impossible. |
| Answer» B. using the forward hedge. | |
| 56. |
A call option exists on British pounds with an exercise price of $1.60, a 90-day expiration date, and a premium of $.03 per unit. A put option exists on British pounds with an exercise price of $1.60, a 90-day expiration date, and a premium of $.02 per unit. You plan to purchase options to cover your future receivables of 700,000 pounds in 90 days. You will exercise the option in 90 days (if at all). You expect the spot rate of the pound to be $1.57 in 90 days. Determine the amount of dollars to be received, after deducting payment for the option premium. Choices: |
| A. | $1,169,000. |
| B. | $1,099,000. |
| C. | $1,106,000. |
| D. | $1,143,100. |
| Answer» C. $1,106,000. | |
| 57. |
If a firm based in the Netherlands wishes to avoid the risk of exchange rate movements, and is due to receive USD100,000 in 90 days, it could: |
| A. | sell US dollars 90 days from now at the spot rate. |
| B. | enter into a 90-day forward sale of US dollars for euros; |
| C. | purchase US dollars 90 days from now at the spot rate; |
| D. | enter into a 90-day forward purchase of US dollars for euros; |
| Answer» B. enter into a 90-day forward sale of US dollars for euros; | |
| 58. |
A forward currency transaction: |
| A. | Sets the future date when delivery of a currency must be made at an unknown spot exchange rate |
| B. | Calls for exchange in the future of currencies at an agreed rate of exchange |
| C. | Means that delivery and payment must be made within one business day (USA/Canada) or two business days after the transaction date |
| D. | Is always at a premium over the spot rate |
| Answer» B. Calls for exchange in the future of currencies at an agreed rate of exchange | |
| 59. |
Two important practical differences between the monetary/non-monetary method and the current rate method of translation is found in their treatment of: |
| A. | Fixed assets and owner's equity |
| B. | Issued share capital and retained earnings |
| C. | Inventories and fixed assets |
| D. | Monetary assets |
| Answer» C. Inventories and fixed assets | |
| 60. |
If the Indian subsidiary of a US firm has net exposed assets of Rp9,000,000 and the Indian rupee drops in value from Rp45.00/$ to Rp50.00/$, the US firm has a translation: |
| A. | Loss of $25,000 |
| B. | Gain of $20,000 |
| C. | Loss of $20,000 |
| D. | Gain of $25,000 |
| Answer» C. Loss of $20,000 | |
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