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Fundamentals of Multinational Finance, 4e(Moffett)

Chapter 11 Operating Exposure

Multiple Choice and True/False Questions

11.1 Trident Corporation: A Multinational's Operating Exposure

1) Another name for operating exposure is ________ exposure.

A) economic

B) competitive

C) strategic

D) all of the above

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) accounting exposure

C) operating exposure

D) translation exposure

3) The goal of operating exposure analysis is to identify strategic operating techniques the firm might adopt to enhance value in the face of unanticipated exchange rate changes.

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4) ________ cash flows arise from intracompany and intercompany receivables and payments while ________ cash flows are payments for the use of loans and equity.

A) Financing; operating

B) Operating; financing

C) Operating; accounting

D) Accounting; financing

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5) Operating cash flows may occur in different currencies and at different times, but financing cash flows may occur only in a single currency.

Answer: FALSE

6) Which of the following is NOT an example of a financial cash flow?

A) parent invested equity capital

B) interest on intrafirm lending

C) payment for goods and services

D) intrafirm principal payments

7) Which of the following is NOT an example of an operating cash flow?

A) management fees and distributed overhead

B) royalties and license fees

C) rent and lease payments

D) dividend paid to parent company

8) ________ exposure is far more important for the long-run health of a business than changes caused by ________ or ________ exposure.

A) Operating; translation; transaction

B) Transaction; operating; translation

C) Accounting; translation; transaction

D) Translation; operating; transaction

9) Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors.

10) Under conditions of equilibrium, management would use ________ exchange rate as an unbiased predictor of future spot rates when preparing operating budgets.

A) the current spot

B) the forward rate

C) the black market

D) none of the above

11) 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 preparing operating budgets.

A) $102,000

B) $101,000

C) $100,000

D) None of the above

12) The three main types of foreign exchange risk are

A) operating, transaction, and translation.

B) translation, accounting, and operating.

C) transaction, accounting, and translation.

D) operating, currency, and market.

13) Operating exposure referred to as MEDIUM RUN:EQUILIBRIUM has which of the following set of characteristics?

A) It lasts two to five years, has complete pass-through of exchange rate changes, and existing competitors begin partial responses.

B) It lasts for less than one year, has partial pass-through of exchange rate changes, and existing competitors begin partial responses.

C) It lasts for more than five years, has partial pass-through of exchange rate changes, and existing competitors begin partial responses.

D) It lasts two to five years, has partial pass-through of exchange rate changes, and existing competitors begin partial responses.