International Finance
FIN370 International Financial Management
Chapter 10, 11, 12 Foreign Exposure - Practice Questions
1. Economic exposure refers to: A) the exposure of a firm’s ongoing international transactions to exchange rate fluctuations. B) the exposure of a firm’s financial statements to exchange rate fluctuations. C) the exposure of a firm’s cash flows to exchange rate fluctuations. D) the exposure of a country’s national economy to exchange rate fluctuations.
2. Which of the following statement regarding translation exposure is NOT correct?
A) Translation exposure reflects the exposure of a firm’s financial statements to exchange rate fluctuations.
B) The greater the percentage of an MNC’s business conducted by its foreign subsidiaries, the greater the percentage of a given financial statement item that is susceptible to translation exposure.
C) Translation exposure is less of a concern when earnings are not remitted by the subsidiary to the parent.
D) When the U.S. dollar strengthens, the reported consolidated earnings from foreign subsidiaries of U.S.‑based MNCs are favorably affected by the translation exposure.
3. Under FASB 52, the current rate method requires that: A) translation gains and losses are included in the reported net income. B) translation gains and losses are included in stockholder’s equity. C) translation gains and losses should be not considered. D) none of these.
4. Which of the following reflects a hedge of net receivables in British pounds by a U.S. firm? A) purchase a currency call option in British pounds. B) buy pounds forward. C) borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit. D) purchase a current put option in British pounds OR sell pounds forward
5. If Lazer Co. desired to lock in the maximum it would have to pay for its net payables in euros but wanted to be able to capitalize if the euro depreciates substantially against the dollar by the time
Chapter 10, 11, 12 Foreign Exposure - Practice Questions
1. Economic exposure refers to: A) the exposure of a firm’s ongoing international transactions to exchange rate fluctuations. B) the exposure of a firm’s financial statements to exchange rate fluctuations. C) the exposure of a firm’s cash flows to exchange rate fluctuations. D) the exposure of a country’s national economy to exchange rate fluctuations.
2. Which of the following statement regarding translation exposure is NOT correct?
A) Translation exposure reflects the exposure of a firm’s financial statements to exchange rate fluctuations.
B) The greater the percentage of an MNC’s business conducted by its foreign subsidiaries, the greater the percentage of a given financial statement item that is susceptible to translation exposure.
C) Translation exposure is less of a concern when earnings are not remitted by the subsidiary to the parent.
D) When the U.S. dollar strengthens, the reported consolidated earnings from foreign subsidiaries of U.S.‑based MNCs are favorably affected by the translation exposure.
3. Under FASB 52, the current rate method requires that: A) translation gains and losses are included in the reported net income. B) translation gains and losses are included in stockholder’s equity. C) translation gains and losses should be not considered. D) none of these.
4. Which of the following reflects a hedge of net receivables in British pounds by a U.S. firm? A) purchase a currency call option in British pounds. B) buy pounds forward. C) borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit. D) purchase a current put option in British pounds OR sell pounds forward
5. If Lazer Co. desired to lock in the maximum it would have to pay for its net payables in euros but wanted to be able to capitalize if the euro depreciates substantially against the dollar by the time