Question 1

Which of the following products is most likely to benefit from depreciation of the U.S.dollar?

Accepted Answer

A)  high-end signal processor from Hewlett-Packard that faces minimal competition
B)  Chevrolet automobile with a highly price elastic demand
C)  Mercedes-Benz auto facing price inelastic demand
D)  low-end Japanese machine tools

Question 2

For the strategy of product shifting to succeed,it is assumed the MNC has collected

Accepted Answer

A)  a portfolio of production facilities worldwide
B)  the funding of global banks
C)  a set of efficient production processes
D)  a collection of subsidiaries in low cost markets

Question 3

The _______ the price elasticity of demand,the _____ the incentive to hold down price and thereby expand sales.

Accepted Answer

A)  lower,greater
B)  lower,lower
C)  greater,lower
D)  greater,greater D

Question 4

Economic exposure is based on the extent to which the ______ of the firm will change when exchange rates change.

Accepted Answer

A)  value
B)  current assets
C)  long-term liabilities
D)  competitive advantages

Question 5

The greatest boost to a firm's competitiveness comes from compressing the time it takes to bring new and improved products to market also known as _________.

Accepted Answer

A)  product innovation
B)  the product cycle
C)  input mix
D)  market segmentation

Question 6

When we examine operating exposure,the key issue for a domestic firm is its

Accepted Answer

A)  prior import competition
B)  pricing flexibility
C)  asset valuation adjustment
D)  low import content

Question 7

Suppose McDonald's charges Ptas.25 for a burger in Madrid.Its costs are Ptas.18 per burger and these costs are not expected to change with the exchange rate.If the peseta devalues from $0.107 to $0.096,what price will McDonald's have to charge for its burgers to maintain its dollar profit margin?

Accepted Answer

A)  Ptas.25.80
B)  Ptas.27.86
C)  Ptas.22.43
D)  Ptas.24

Question 8

Which one of the following areas is NOT a way companies often respond to exchange rate risk when they alter their product strategy?

Accepted Answer

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

Question 9

Jet engine manufacturing entails enormous economies of scale.Pratt & Whitney,a large U.S.jet engine producer,faces substantial competition from Rolls-Royce,the British engine manufacturer.What would be the BEST way for P & W to cope with a dollar that has recently appreciated by 50%?

Accepted Answer

A)  accelerate R&D spending and cost?cutting efforts
B)  shift some of its production abroad
C)  raise the foreign currency prices of its engines sold abroad
D)  buy dollars forward A

Question 10

While the strategic marketing and production adjustments occur over the long run,financial management may finance the firm's operations such that shortfalls in cash flows during the adjustments are offset by a reduction in __________ expenses.

Accepted Answer

A)  marketing
B)  production
C)  debt-servicing
D)  hedging

Question 11

When an exposure arises due to currency fluctuations that may alter a company's future revenues and expenses is referred to as

Accepted Answer

A)  operating exposure
B)  translation exposure
C)  political exposure
D)  accounting exposure

Question 12

Volkswagen almost went bankrupt in 1973 because

Accepted Answer

A)  it failed to offset the exchange risk associated with its cost structure and revenue structure with a suitable liability structure
B)  it gambled on the value of dollar
C)  it priced its cars in dollars
D)  it priced its cars in deutschemarks A

Question 13

With respect to production management of exchange risk,________ and plant location are the principal variables that companies may change to manage the risk.

Accepted Answer

A)  product innovation
B)  product retirement
C)  market selection
D)  product sourcing

Question 14

A U.S.exporter that anticipates an appreciation of the dollar should

Accepted Answer

A)  sell foreign currencies forward
B)  borrow foreign currencies
C)  scout out possible foreign production sites
D)  consider raising dollar prices on exports

Question 15

Nissan,the Japanese car manufacturer,exports a substantial fraction of its output to the United States.What financial measures would be suitable for Nissan to take to reduce its currency risk?

Accepted Answer

A)  borrow only yen to finance its operations
B)  borrow dollars to finance part of its operations
C)  sell yen forward in the amount of its annual shipments to the U.S.
D)  buy yen forward in the amount of its annual shipments to the U.S.

Question 16

The appropriate response for a U.S.exporter to depreciation of the dollar would be to

Accepted Answer

A)  raise the foreign currency price if the dollar depreciation was expected to be temporary and the cost of losing market share was minimal
B)  move some production offshore if the depreciation were expected to persist for an extended period
C)  lower the foreign currency price constant if demand is quite inelastic
D)  set up a netting center in the home country

Question 17

A weak dollar will

Accepted Answer

A)  force American exporters to raise their foreign currency prices
B)  enable American importers to reduce their dollar costs
C)  enable American exporters to improve their profit margins
D)  cost American exporters market share abroad

Question 18

Sumitomo Bank wants to expand its lending in the United States,but to do so it needs to raise more long-term debt capital to help finance these loans.Currently,long-term interest rates are 9.5% in the U.S.and 6.3% in Japan.What would you recommend Sumitomo do?

Accepted Answer

A)  raise yen in Japan because of the lower cost of money
B)  raise yen in Japan because Japanese investors are more patient than U.S.investors
C)  raise dollars in the U.S.to hedge against currency risk
D)  raise dollars in the U.S.to avoid depressing Tokyo stocks

Question 19

The exposure that is based on the extent to which the value of the firm will change when future exchange rates change is known as

Accepted Answer

A)  translation exposure
B)  accounting exposure
C)  transaction exposure
D)  economic exposure

Question 20

Which one of the following would NOT be an appropriate response for a U.S.exporter to appreciation of the dollar?

Accepted Answer

A)  raise the foreign currency price if the dollar appreciation was expected to be temporary and the cost of regaining market share was minimal
B)  move some production offshore if the appreciation were expected to persist for an extended period
C)  keep the foreign currency price constant if demand is quite elastic
D)  lower the foreign currency price if demand is inelastic for the product

Exam 11: Measuring and Managing Economic Exposure

Which of the following products is most likely to benefit from depreciation of the U.S.dollar?

Correct AnswerverifiedShow Answer

For the strategy of product shifting to succeed,it is assumed the MNC has collected

Correct AnswerverifiedShow Answer

The _______ the price elasticity of demand,the _____ the incentive to hold down price and thereby expand sales.

Correct AnswerverifiedD

Economic exposure is based on the extent to which the ______ of the firm will change when exchange rates change.

Correct AnswerverifiedShow Answer

The greatest boost to a firm's competitiveness comes from compressing the time it takes to bring new and improved products to market also known as _________.

Correct AnswerverifiedShow Answer

When we examine operating exposure,the key issue for a domestic firm is its

Correct AnswerverifiedShow Answer

Suppose McDonald's charges Ptas.25 for a burger in Madrid.Its costs are Ptas.18 per burger and these costs are not expected to change with the exchange rate.If the peseta devalues from $0.107 to $0.096,what price will McDonald's have to charge for its burgers to maintain its dollar profit margin?

Correct AnswerverifiedShow Answer

Which one of the following areas is NOT a way companies often respond to exchange rate risk when they alter their product strategy?

Correct AnswerverifiedShow Answer

Jet engine manufacturing entails enormous economies of scale.Pratt & Whitney,a large U.S.jet engine producer,faces substantial competition from Rolls-Royce,the British engine manufacturer.What would be the BEST way for P & W to cope with a dollar that has recently appreciated by 50%?

Correct AnswerverifiedA

While the strategic marketing and production adjustments occur over the long run,financial management may finance the firm's operations such that shortfalls in cash flows during the adjustments are offset by a reduction in __________ expenses.

Correct AnswerverifiedShow Answer

When an exposure arises due to currency fluctuations that may alter a company's future revenues and expenses is referred to as

Correct AnswerverifiedShow Answer

Volkswagen almost went bankrupt in 1973 because

Correct AnswerverifiedA

With respect to production management of exchange risk,________ and plant location are the principal variables that companies may change to manage the risk.

Correct AnswerverifiedShow Answer

A U.S.exporter that anticipates an appreciation of the dollar should

Correct AnswerverifiedShow Answer

Nissan,the Japanese car manufacturer,exports a substantial fraction of its output to the United States.What financial measures would be suitable for Nissan to take to reduce its currency risk?

Correct AnswerverifiedShow Answer

The appropriate response for a U.S.exporter to depreciation of the dollar would be to

Correct AnswerverifiedShow Answer

A weak dollar will

Correct AnswerverifiedShow Answer

Sumitomo Bank wants to expand its lending in the United States,but to do so it needs to raise more long-term debt capital to help finance these loans.Currently,long-term interest rates are 9.5% in the U.S.and 6.3% in Japan.What would you recommend Sumitomo do?

Correct AnswerverifiedShow Answer

The exposure that is based on the extent to which the value of the firm will change when future exchange rates change is known as

Correct AnswerverifiedShow Answer

Which one of the following would NOT be an appropriate response for a U.S.exporter to appreciation of the dollar?

Correct AnswerverifiedShow Answer

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