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1、Multinational Business Finance, 12e (Eiteman, et al) Chapter 12 Operating Exposure 12.1 Attributes of Operating Exposure Multiple Choice 1) Another name for operating exposure is ________ exposure. A) economic B) competitive C) strategic D) all of the above Answer: D Diff: 1 To

2、pic: 12.1 Attributes of Operating Exposure Skill: Recognition 2) What type of international risk exposure measures the change in present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates? A) Transaction exposure. B) Accoun

3、ting exposure. C) Operating exposure. D) Translation exposure. Answer: C Diff: 1 Topic: 12.1 Attributes of Operating Exposure Skill: Recognition 3) ________ cash flows arise from intracompany and intercompany receivables and payments while ________ cash flows are payments for the use of

4、loans and equity. A) Financing; operating B) Operating; financing C) Operating; accounting D) Accounting; financing Answer: B Diff: 2 Topic: 12.1 Attributes of Operating Exposure Skill: Recognition 4) Which of the following is NOT an example of a financial cash flow? A) Parent investe

5、d equity capital. B) Interest on intrafirm lending. C) Payment for goods and services. D) Intrafirm principal payments. Answer: C Diff: 2 Topic: 12.1 Attributes of Operating Exposure Skill: Recognition 5) Which of the following is NOT an example of an operating cash flow? A) Management f

6、ees and distributed overhead. B) Royalties and license fees. C) Rent and lease payments. D) Dividend paid to parent company. Answer: D Diff: 2 Topic: 12.1 Attributes of Operating Exposure Skill: Recognition 6) ________ exposure is far more important for the long-run health of a business

7、 than changes caused by ________ or ________ exposure. A) Operating; translation; transaction B) Transaction; operating; translation C) Accounting; translation; transaction D) Translation; operating; transaction Answer: A Diff: 2 Topic: 12.1 Attributes of Operating Exposure Skill: Concept

8、ual 7) Simpson Sign Company based in Frostbite Falls, Minnesota has a 6-month C$100,000 contract to complete sign work in Winnipeg, Manitoba, Canada. The current spot rate is $1.02/C$ and the forward rate is $1.01/C$. Under conditions of equilibrium, management would use today ________ when prep

9、aring operating budgets. A) $102,000 B) $101,000 C) $100,000 D) none of the above Answer: B Diff: 3 Topic: 12.1 Attributes of Operating Exposure Skill: Analytical True/False 1) The goal of operating exposure analysis is to identify strategic operating techniques the firm might adopt

10、 to enhance value in the face of unanticipated exchange rate changes. Answer: TRUE Diff: 1 Topic: 12.1 Attributes of Operating Exposure Skill: Conceptual 2) Operating cash flows may occur in different currencies and at different times, but financing cash flows may occur only in a single cu

11、rrency. Answer: FALSE Diff: 1 Topic: 12.1 Attributes of Operating Exposure Skill: Recognition 3) Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors. Answer: TRUE Diff: 1 Topic: 12.1 Attributes of Operating

12、 Exposure Skill: Conceptual 12.2 Strategic Management of Operating Exposure Multiple Choice 1) Which of the following is NOT an example of diversifying operations? A) Diversifying sales. B) Diversifying location of operations. C) Raising funds in more than one country. D) Sourcing r

13、aw materials in more than one country. Answer: C Diff: 2 Topic: 12.2 Strategic Management of Operating Exposure Skill: Recognition 2) Which of the following is NOT an example of diversification in financing? A) Raising funds in more than one market. B) Raising funds in more than one coun

14、try. C) Diversifying sales. D) All of the above qualify. Answer: C Diff: 2 Topic: 12.2 Strategic Management of Operating Exposure Skill: Recognition 3) When disequilibria in international markets occur, management can take advantage by A) doing nothing if they are already diversified an

15、d able to realize beneficial portfolio effects. B) recognizing disequilibria faster than purely domestic competitors. C) shifting operational of financing activities to take advantage of the disequilibria. D) all of the above Answer: D Diff: 2 Topic: 12.2 Strategic Management of Operating Ex

16、posure Skill: Conceptual 4) Purely domestic firms will be at a disadvantage to MNEs in the event of market disequilibria because A) domestic firms lack comparative data from its own sources. B) international firms are already so large. C) all of the domestic firm's raw materials are imported

17、. D) None of the above. Domestic firms are not at a disadvantage. Answer: A Diff: 2 Topic: 12.2 Strategic Management of Operating Exposure Skill: Conceptual 5) Which of the following is probably NOT an advantage of foreign exchange risk management? A) The reduction of the variability of ca

18、sh flows due to domestic business cycles. B) Increased availability of capital. C) Reduced cost of capital. D) All of the above are potential advantages of foreign exchange risk management. Answer: D Diff: 2 Topic: 12.2 Strategic Management of Operating Exposure Skill: Recognition 6) Wh

19、ich of the following is NOT an example of a form of political risk that might be avoided or reduced by foreign exchange risk management? A) Expropriation of assets. B) Destruction of raw materials through natural disaster. C) War. D) Unfavorable legal changes. Answer: B Diff: 2 Topic: 12.2

20、Strategic Management of Operating Exposure Skill: Recognition True/False 1) Management must be able to predict disequilibria in international markets to take advantage of diversification strategies. Answer: FALSE Diff: 1 Topic: 12.2 Strategic Management of Operating Exposure Skill: Co

21、nceptual Essay 1) Diversification is possibly the best technique for reducing the problems associated with international transactions. Provide one example each of international financial diversification and international operational diversification and explain how the action reduces risk. An

22、swer: An MNE well known in the financial markets could borrow money in a country in which the firm receives foreign currency. The MNE could then use the receivables to repay the loan in the foreign currency and avoid uncertainties in exchange rates. An MNE could establish production facilities in

23、several countries. This could be beneficial in at least two ways. First, such diversification reduces the probability of unfavorable changes in exchange rates for one country from significantly reducing the firm's profitability. Second, an MNE with facilities in several countries is well positioned

24、by using internal sources to recognize when a disequilibria in the market arises. Diff: 3 Topic: 12.2 Strategic Management of Operating Exposure Skill: Conceptual 12.3 Proactive Management of Operating Exposure Mutliple Choice 1) Which of the following is NOT identified by your authors

25、 as a proactive management technique to reduce exposure to foreign exchange risk? A) Matching currency cash flows. B) Currency swaps. C) Remaining a purely domestic firm. D) Parallel loans. Answer: C Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 2) W

26、hich one of the following management techniques is likely to best offset the risk of long-run exposure to receivables denominated in a particular foreign currency? A) Borrow money in the foreign currency in question. B) Lend money in the foreign currency in question. C) Increase sales to that cou

27、ntry. D) Increase sales in this country. Answer: A Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Conceptual 3) Which one of the following management techniques is likely to best offset the risk of long-run exposure to payables denominated in a particular foreign cu

28、rrency? A) Borrow money in the foreign currency in question. B) Lend money in the foreign currency in question. C) Rely on the Federal Reserve Board to enact monetary policy favorable to your exposure risk. D) none of the above Answer: B Diff: 2 Topic: 12.3 Proactive Management of Operating

29、 Exposure Skill: Conceptual 4) The particular strategy of trying to offset stable inflows of cash from one country with outflows of cash in the same currency is known as ________. A) hedging B) diversification C) matching D) balancing Answer: C Diff: 2 Topic: 12.3 Proactive Management

30、of Operating Exposure Skill: Recognition 5) Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen? A) Import raw materials from Japan denominated in yen to substitute for domestic supplier

31、s. B) Pay suppliers from other countries in yen. C) Import raw materials from Japan denominated in dollars. D) Acquire debt denominated in yen. Answer: C Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 6) An MNE has a contract for a relatively predictab

32、le long-term inflow of Japanese yen that the firm chooses to hedge by seeking out potential suppliers in Japan. This hedging strategy is referred to as ________. A) a natural hedge. B) currency-switching. C) matching. D) diversification. Answer: A Diff: 2 Topic: 12.3 Proactive Management of

33、 Operating Exposure Skill: Recognition 7) An MNE has a contract for a relatively predictable long-term inflow of Japanese yen that the firm chooses to hedge by paying for imports from Canada in Japanese yen. This hedging strategy is known as ________. A) a natural hedge B) currency-switching

34、 C) matching D) diversification Answer: B Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 8) A U.S. timber products firm has a long-term contract to import unprocessed logs from Canada. To avoid occasional and unpredictable changes in the exchange rate be

35、tween the U.S. dollar and the Canadian dollar, the firms agree to split between the two firms the impact of any exchange rate movement. This type of agreement is referred to as ________. A) risk-sharing B) currency-switching C) matching D) a natural hedge Answer: A Diff: 2 Topic: 12.3 Proac

36、tive Management of Operating Exposure Skill: Conceptual 9) A ________ occurs when two business firms in separate countries arrange to borrow each other's currency for a specified period of time. A) natural hedge loan B) forward loan C) currency switch loan D) back-to-back loan Answer: D Di

37、ff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 10) A Canadian firm with a U.S. subsidiary and a U.S. firm with a Canadian subsidiary agree to a parallel loan agreement. In such an agreement, the Canadian firm is making a/an ________ loan to the ________ subsid

38、iary while effectively financing the ________ subsidiary. A) indirect; U.S.; Canadian B) indirect; Canadian; U.S. C) direct; U.S.; Canadian D) direct; Canadian; U.S. Answer: C Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Conceptual 11) Which of the following is

39、 NOT an important impediment to widespread use of parallel loans? A) Difficulty in finding an appropriate counterparty. B) The risk that one of the parties will fail to return the borrowed funds when agreed. C) The process does not avoid exchange rate risk. D) All of the above are significant im

40、pediments. Answer: C Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Conceptual 12) A ________ resembles a back-to-back loan except that it does not appear on a firm's balance sheet. A) forward loan B) currency hedge C) counterparty D) currency swap Answer: D D

41、iff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Conceptual 13) A ________ is the term used to describe a foreign currency agreement between two parties to exchange a given amount of one currency for another, and after a period of time, to give back the original amounts. A)

42、 matched flow B) currency swap C) back-to-back loan D) none of the above Answer: B Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 14) A British firm and a U.S. Corporation each wish to enter into a currency swap hedging agreement. The British firm is r

43、eceiving U.S. dollars from sales in the U.S. but wants pounds. The U.S. firm is receiving pounds from sales in Britain but wants dollars. Which of the following choices would best satisfy the desires of the firms? A) The British firm pays dollars to a swap dealer and receives pounds from the dealer

44、. The U.S. firm pays pounds to the swap dealer and receives dollars. B) The U.S. firm pays dollars to a swap dealer and receives pounds from the dealer. The British firm pays pounds to the swap dealer and receives dollars. C) The British firm pays pounds to a swap dealer and receives pounds from t

45、he dealer. The U.S. firm pays dollars to the swap dealer and receives dollars. D) The British firm pays dollars to a swap dealer and receives dollars from the dealer. The U.S. firm pays pounds to the swap dealer and receives pounds. Answer: A Diff: 3 Topic: 12.3 Proactive Management of Operati

46、ng Exposure Skill: Conceptual 15) Reinvoicing centers provide the following benefits: A) Aid in the management of foreign exchange exposure. B) Effectively guarantee the exchange rate for future orders. C) Help manage intra-subsidiary cash flows. D) all of the above Answer: D Diff: 2 To

47、pic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 16) Which of the following is NOT seen as a potential disadvantage to the formation of an intra-company reinvoicing center? A) Reinvoicing center personnel may develop expertise in the selection and implementation of fore

48、ign exchange hedging techniques. B) The company must create an additional corporate unit. C) Initial setup costs may be high. D) A separate set of books must be kept for this new corporate division. Answer: A Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition

49、 17) The Land's Beginning Company Inc. (LBC), imports extreme condition outdoor wear and equipment from The Hudson Bay Company (HBC) located in Canada. With the steady decline of the U.S dollar against the Canadian dollar LBC is finding a continued relationship with HBC to be an increasingly diffic

50、ult proposition. In response to LBC's request, HBC has proposed the following risk-sharing arrangement. First, set the current spot rate as the base rate. As long as spot rates stay within 5% (up or down) LBC will pay at the base rate. Any rate outside of the 5% range, HBC will share equally with LB

51、C the difference between the spot rate and the base rate. If the current spot rate is C$1.20/$, what are the upper and lower limits for trading to take place at C$1.20? A) C$1.205/$ - C$1.195/$ B) C$1.15/$ - C$1.25/$ C) C$1.14/$ - C$1.26/$ D) none of the above Answer: C Diff: 3 Topic: 12.3

52、Proactive Management of Operating Exposure Skill: Analytical 18) The Land's Beginning Company Inc. (LBC), imports extreme condition outdoor wear and equipment from The Hudson Bay Company (HBC) located in Canada. With the steady decline of the U.S dollar against the Canadian dollar LBC is findin

53、g a continued relationship with HBC to be an increasingly difficult proposition. In response to LBC's request, HBC has proposed the following risk-sharing arrangement. First, set the current spot rate as the base rate. As long as spot rates stay within 5% (up or down) LBC will pay at the base rate.

54、Any rate outside of the 5% range, HBC will share equally with LBC the difference between the spot rate and the base rate. If LBC has a payable of C$100,000 due today and the current spot rate is C$1.17/$, how much does LBC owe in U.S. dollars? A) $83,333 B) $85,470 C) $85,837 D) $117,000 Answer

55、: A Diff: 3 Topic: 12.3 Proactive Management of Operating Exposure Skill: Analytical True/False 1) Currency swaps are exclusively for periods of time under one year. Answer: FALSE Diff: 1 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 2) Most swap dea

56、lers arrange swaps so that each firm that is a party to the transaction does not know who the counterparty is. Answer: TRUE Diff: 1 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 3) Most swap dealers arrange swaps so that each firm that is a party to the transactio

57、n knows who the counterparty is. Answer: FALSE Diff: 1 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 4) Swap agreements are treated as off-balance sheet transactions via U.S. accounting methods. Answer: TRUE Diff: 1 Topic: 12.3 Proactive Management of Opera

58、ting Exposure Skill: Recognition 5) Swap agreements are treated as line items on the balance sheet via U.S. accounting methods. Answer: FALSE Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 6) After being introduced in the 1980s, currency swaps have r

59、emained a relatively insignificant financial derivative instrument. Answer: FALSE Diff: 1 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 7) After being introduced in the 1980s, currency swaps have gained increasing importance as financial derivative instruments.

60、 Answer: TRUE Diff: 1 Topic: 12.3 Proactive Management of Operating Exposure Skill: Recognition 8) Intracompany leads and lags are generally more feasible than comparable intercompany activities because the favorable impact of the lead or lag for one company is the reverse for the other fir

61、m. Answer: FALSE Diff: 2 Topic: 12.3 Proactive Management of Operating Exposure Skill: Conceptual Essay 1) A British firm has a subsidiary in the U.S., and a U.S. firm, known to the British firm, has a subsidiary in Britain. Define and then provide an example for each of the following ma

62、nagement techniques for reducing the firm's operating cash flows. The following are techniques to consider: (a) matching currency cash flows (b) risk-sharing agreements (c) back-to-back or parallel loans Answer: Matching currency cash flows requires that the British firm with dollar receivables

63、 must establish an equivalent dollar payable. They could do this by borrowing dollars and repaying the loan with the proceeds from the receivables account. Or they could move all or part of their operations to the U.S. so that both receivables and payables would be in U.S. dollars. Risk-sharing agr

64、eements are contractual clauses whereby both parties agree to an acceptable range of exchange rates at the time the international sale is made. A spot rate at time of exchange outside of the agreed upon range results in an adjustment made to the actual exchange rate that shares the difference betwee

65、n the spot rate and the acceptable range of exchange rates. Back-to-back loans provide for parent-subsidiary cross border financing without incurring direct currency exposure. For example, using our British and U.S. firms, the British firm could lend pounds to the U.S. subsidiary in Britain at the

66、same time that the U.S. firm lends an equivalent amount of dollars to the British subsidiary in the U.S. Later, the loans would be simultaneously repaid. Diff: 3 Topic: 12.3 Proactive Management of Operating Exposure Skill: Analytical 12.4 Contractual Approaches: Hedging the Unhedgeable Multiple Choice 1) Costs associated with the purchase of sizeable put options positions include each of the following EXCEPT: A) the purchase price of the options. B) the opportunity cost of bu