Harvard University - FINANCE 4002Multiple Choice Questions_Chpater 8 ( WITH ANSWER AND SOLUTIONS )

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Multiple Choice Questions 1. The potential effect of exchange rate fluctuations on foreign direct investment is expressed as _____ exposure. A. translation B. transaction C. conversion D. econom... ic E. subjective 2. Which of the following is not one of the steps for currency exposure management: A. forecast the degree of exposure B. develop a reporting system to monitor exposure and exchange rate movements C. buying additional foreign subsidiaries D. assign responsibility for hedging exposure E. select appropriate hedging tools 3. Operational techniques include: A. diversification of a company’s operations B. purchasing of currency options C. exposure nettingD. both A and C E. all of the above 4. All of the following are types of financial instruments except for: A. currency forward contracts B. currency futures contracts C. currency options D. swap agreements E. money-market hedge 5. There are important differences between translation, transaction, and economic exposure. Which of the following statements regarding these differences is true? A. translation and economic exposure look to the future impact of an exchange-rate change which has occurred or may occur B. translation and transaction exposure involve actual or potential cash-flow changes C. transaction and economic exposure are the same kind and they do not differ in degree D. economic exposure is essentially objective because it depends on outstanding obligations which existed before changes in exchange rates E. economic exposure is essentially subjective because it depends on estimated future cash flows for an arbitrary time horizon 6. A(n) _____ hedge protects the company from adverse exchange rate [Show More]

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