International Finance Management - Quiz 4
Settings
-
+
Quiz #4 of International Finance Management course in International Business Management at Confederation College, Thunder Bay, ON, Canada.
- 1.The extent to which the value of the firm is affected by unanticipated changes in exchange rates, that can have a profound effect on the firm's competivie position and thus on its cash flows and market value.
- A.
Economic exposure
- B.
Transaction exposure
- C.
Translation exposure
- D.
Coefficient exposure
- 2.The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes.
- A.
Transaction exposure
- B.
Economic exposure
- C.
Translation exposure
- D.
Operating exposure
- 3.Refers to the potential that the firm's consolidated financial statements can be affected by changes in exchange rates. Consolidation involves translation of subsidiaries' financial statements from local currencies to the home currency.
- A.
Translation exposure
- B.
Economic exposure
- C.
Transaction exposure
- D.
Operating exposure
- 4.Consider a Canadian multinational firm that has subsidiaries in the United Kingdom and Japan. Each subsidiary produces financial statements in local currency. When the company consolidate a report in the home currency, it shows financial losses. What type of exposure this scenario exemplifies?
- A.
Translation exposure
- B.
Transaction exposure
- C.
Economic exposure
- D.
Asset exposure
- 5.A Canadian company, which sold its products in Italy, realized financial losses when send money back to Canada, because Canadian Dollar has appreciated against Euro. What type of exposure this scenario exemplifies?
- A.
Transaction exposure
- B.
Translation exposure
- C.
Economic exposure
- D.
Asset exposure
- 6.A Canadian firm sells its products only in domestic market, which means there is no transaction risk involved in its business. However, the company revenues went down in the domestic market since the Canadian Dollar appreciated against US Dollar.What type of exposure this scenario exemplifies?
- A.
Operating exposure
- B.
Translation exposure
- C.
Asset exposure
- D.
Transaction exposure
- 7.The extent to which the firm's operating cash flows would be affected by changes in exchange rates, is the definition of...
- A.
Operating exposure
- B.
Transaction exposure
- C.
Translation exposure
- D.
Asset exposure
- 8.Suppose that a Canadian computer company, NTK operates a wholly owned French subsidiary, Calais Computers, that assembles and sells NTK computers throughout Europe. Calais Computers imports microprocessors from Intel, at a cost of $512 per unit at the current exchange rate of $1.60 per euro. The projected operating cash flow is €7,250.000 per year, which is equivalent to $11,600,000. A Euro depreciation would result in what kind of effect?
- A.
Competitive effect & conversion effect
- B.
Competitive effect only
- C.
Conversion effect only
- D.
There is no effect
- 9.What type of exposure the two following factors are related?1) the structure of the markets in which the firm sources its inputs (labour, materials, sells its products).2) the firm's ability to mitigate the effect of exchange rate changes by adjusting its markets, product mix and sourcing
- A.
Operating exposure
- B.
Transaction exposure
- C.
Translation exposure
- D.
Asset exposure
- 10.Ford Mexicana, a subsidiary of Ford, which imports cars from its US parent and distributes them in Mexico. It the US Dollar appreciates against Mexican Peso, Ford Mexicana's costs go up in Peso terms. Whether this creates operating exposure for Ford critically depends on the structure of the car market in Mexico. If Ford Mexicana faces competition from domestic car makers, is Ford parent firm to a high degree of operating exposure?
- A.
True
- B.
False
- 11.Ford Mexicana, a subsidiary of Ford, which imports cars from its US parent and distributes them in Mexico. It the US Dollar appreciates against Mexican Peso, Ford Mexicana's costs go up in Peso terms. Whether this creates operating exposure for Ford critically depends on the structure of the car market in Mexico. Consider the case in which Ford Mexicana faces import competition only from other car makers like General Motors and Chrysler, is Ford parent firm to a high degree of operating exposure?
- A.
True
- B.
False
- 12.What are the three major types of foreign currency exposures?
- A.
Economic, transaction, and translation exposures
- B.
Economic, transaction, and asset exposures
- C.
Operating, asset, and transaction exposures
- D.
Economic, operating, and translation exposures
- 13.All the following are foreign currency exposures, except:
- A.
Politic exposure
- B.
Economic exposure
- C.
Transaction exposure
- D.
Translation exposure
- 14.Complete pass-through, no pass-through, and partial pass-through are strategies related to which of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Transaction exposure
- D.
Asset exposure
- 15.All of the following are strategies for managing operating exposure, except:
- A.
Selecting low-cost production sites
- B.
Flexible sourcing policy
- C.
Diversification of the market
- D.
Product standardization and R&D efforts
- 16.All of the following are strategies for managing operating exposure, except:
- A.
Assess strategic plan impact
- B.
Financial hedging
- C.
Diversification of the market
- D.
Flexible sourcing policy
- 17.All of the following are strategies for managing operating exposure, except:
- A.
Selecting high-cost production sites
- B.
Financial hedging
- C.
Diversification of the market
- D.
Flexible sourcing policy
- 18.When the domestic currency is strong or expected to become strong, eroding the competitive position of the firm, it can choose to locate production facilities in a foreign country where costs are low due to either the undervalued currency or underpriced factors of production. This is a strategy related to what type of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Transaction exposure
- D.
Asset exposure
- 19.When the domestic currency is strong or expected to become strong, eroding the competitive position of the firm, it can choose to locate production facilities in a foreign country where costs are low due to either the undervalued currency or underpriced factors of production. What type of strategy to mitigate operating exposure is this scenario related to?
- A.
Selecting low-cost production sites
- B.
Flexible sourcing policy
- C.
Diversification of the market
- D.
Product diferentiation and R&D efforts
- 20.Even if the firm has manufacturing facilities only in the domestic country, it can substantially lessen the effect of exchange rate changes by sourcing from where input costs are low. This is a strategy related to what type of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Translation exposure
- D.
Asset exposure
- 21.Even if the firm has manufacturing facilities only in the domestic country, it can substantially lessen the effect of exchange rate changes by sourcing from where input costs are low. What type of strategy to mitigate operating exposure is this scenario related to?
- A.
Flexible sourcing policy
- B.
Selecting low-cost production sites
- C.
Diversification of the market
- D.
Product diferentiation and R&D efforts
- 22.Firms can hire low-cost guest workers from foreign countries instead of high-cost domestic workers in order to be competitive. This is a strategy related to what type of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Transaction exposure
- D.
Asset exposure
- 23.Firms can hire low-cost guest workers from foreign countries instead of high-cost domestic workers in order to be competitive. What type of strategy to mitigate operating exposure is this scenario related to?
- A.
Flexible sourcing policy
- B.
Selecting low-cost production sites
- C.
Diversification of the market
- D.
Product diferentiation and R&D efforts
- 24.A way of dealing with foreign exchange exposure is geographically diversification of the firm's sales pattern. This is a strategy related to what type of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Transaction exposure
- D.
Asset exposure
- 25.A way of dealing with foreign exchange exposure is geographically diversification of the firm's sales pattern. What type of strategy to mitigate operating exposure is this scenario related to?
- A.
Diversification of the market
- B.
Selecting low-cost production sites
- C.
Flexible sourcing policy
- D.
Product diferentiation and R&D efforts
- 26.A firm can reduce currency exposure by diversifying across different business lines. The idea is that although each individual business may be exposed to exchange risk to some degree, the firm as a whole may not face a significant exposure. This is a strategy related to what type of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Transaction exposure
- D.
Asset exposure
- 27.A firm can reduce currency exposure by diversifying across different business lines. The idea is that although each individual business may be exposed to exchange risk to some degree, the firm as a whole may not face a significant exposure. What type of strategy to mitigate operating exposure is this scenario related to?
- A.
Diversification of the market
- B.
Selecting low-cost production sites
- C.
Flexible sourcing policy
- D.
Product diferentiation and R&D efforts
- 28.Investment in certain activities can allow the firm to maintain and strengthen its competitive position in the face of adverse exchange rate movements. Successfully efforts allow the firm to cut costs and enhance productivity. In addition those efforts can lead to the introduction of new and unique products, which tends to be highly inelastic (i.e. price insensitive), the firm would be less exposed to exchange risk. This is a strategy related to what type of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Transaction exposure
- D.
Asset exposure
- 29.Investment in certain activities can allow the firm to maintain and strengthen its competitive position in the face of adverse exchange rate movements. Successfully efforts allow the firm to cut costs and enhance productivity. In addition those efforts can lead to the introduction of new and unique products, which tends to be highly inelastic (i.e. price insensitive), the firm would be less exposed to exchange risk. What type of strategy to mitigate operating exposure is this scenario related to?
- A.
Product differentiation and R&D efforts
- B.
Financial hedging
- C.
Flexible sourcing policy
- D.
Diversification of the market
- 30.Investment in certain activities can lead to the introduction of new and unique products. The firm can strive to create a perception among consumers that its product is, indeed, different from those offered by competitors. Once the firm's product acquires a unique identity, its demand is less likely to be price sensitive. This is a strategy related to what type of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Transaction exposure
- D.
Asset exposure
- 31.Investment in certain activities can lead to the introduction of new and unique products. The firm can strive to create a perception among consumers that its product is, indeed, different from those offered by competitors. Once the firm's product acquires a unique identity, its demand is less likely to be price sensitive. What type of strategy to mitigate operating exposure is this scenario related to?
- A.
Product differentiation and R&D efforts
- B.
Selecting low-cost production sites
- C.
Financial hedging
- D.
Diversification of the market
- 32.This strategy can be used to stabilize the firm's cash flows. The firm can lend or borrow foreign currencies on a long-term basis. Or, the firm can use currency forward or options contracts and roll them over, if necessary. This is a strategy related to what type of foreign currency exposure?
- A.
Operating exposure
- B.
Translation exposure
- C.
Asset exposure
- D.
Diversification of the market exposure
- 33.This strategy can be used to stabilize the firm's cash flows. The firm can lend or borrow foreign currencies on a long-term basis. Or, the firm can use currency forward or options contracts and roll them over, if necessary. What type of strategy to mitigate operating exposure is this scenario related to?
- A.
Financial hedging
- B.
Selecting low-cost production sites
- C.
Flexible sourcing policy
- D.
Diversification of the market
- 34.Refers to corporate investment when the corporation that makes the investment is foreign-owned. Usually it is done by multinational enterprise.
- A.
Foreign direct investment
- B.
Portfolio investment
- C.
Foreign indirect investment
- D.
International trade
- 35.All of the following are reasons to invest overseas, except:
- A.
Product benefits
- B.
Imperfect labour market
- C.
Intangible assets
- D.
Trade barriers
- 36.All of the following are reasons to invest overseas, except:
- A.
Labor market perfection
- B.
Shareholder diversification services
- C.
Product life cycle
- D.
Intangible assets
- 37.All of the following are reasons to invest overseas, except:
- A.
Shareholder standardization services
- B.
Trade barriers
- C.
Vertical integration
- D.
Imperfect labour market
- 38.Tarifs, which are essentially taxes on imports imposed by the destination nation, is related too what reason to invest overseas?
- A.
Trade Barriers
- B.
Intangible assets
- C.
Vertical integration
- D.
Product life cycle
- 39.Samsung wanted to build production facilities for its consumer electronics products to serve North American markets. Samsung chose to locate its production facilities in Mexico, rather than in Canada or United States mainly because it wanted to take advantage of the lower costs of labour in Mexico. This is an example of:
- A.
Imperfect labour market
- B.
Trade barriers
- C.
Intangible assets
- D.
Vertical integration
- 40.Coca-cola has invested in bottling plants all over the world rather than licensing local firms to produce Coke. Coca-Cola chose FDI as a mode of entry into foreign markets for an obvious reason - it wanted to protect the formula for its famed soft drink. This is an example of:
- A.
Intangible asset
- B.
Tangible asset
- C.
Trade barrier
- D.
Product life-cycle
- 41.Multinational corporations (MNC) may undertake overseas investment projects in a foreign country despite the fact that local firms may enjoy inherent advantages. This implies that MNCs have significant advantages over local firms. The basis of the advantages that MNCs hold are generally referred to as their...
- A.
Intangible assets
- B.
Tangible assets
- C.
Product life cycle
- D.
Vertical integration
- 42.Examples of intangible assets include all of the following, except:
- A.
Greenfield investments
- B.
Technology
- C.
Marketing know-how
- D.
Superior R&D
- 43.Examples of intangible assets include all of the following, except:
- A.
Reduced labour costs
- B.
Managerial know-how
- C.
Brand power
- D.
Superior R&D capabilities
- 44.Suppose Royal Shell purchases a significant portion of crude oil for its refinery facilities from Saudi oil company that owns the oil fields. If the Saudi company has stronger bargaining power, Royal Shell may be forced to pay a higher price than i would like to. The conflict between the upstream and downstream firms can be resolved through...
- A.
Vertical integration
- B.
Intangible asset
- C.
Horizontal integration
- D.
Trade barriers
- 45.Multinational corporations (MNCs) undertake FDI in countries where inputs are available in order to secure their supply at a stable price. MNCs have significant control over the input market, this creates a barrier to entry to the industry. This strategic movement is called:
- A.
Vertical integration
- B.
Horizontal integration
- C.
Internalization theory
- D.
Product life-cycle theory
- 46.All of the following are foreign direct investment, except:
- A.
Bond
- B.
Greenfield investment
- C.
Merge
- D.
Aquisition
- 47.It is a kind of foreign direct investment and involve building a new production facility in a foreign country.
- A.
Greenfield investment
- B.
Merge
- C.
Acquisition
- D.
IPO
- 48.The following is obtained when the value of the combined firm is greater than the stand-alone valuations of the individual firms, in a cross-border acquisition.
- A.
Synergistic gains
- B.
Synergistic profit
- C.
Synergistic revenue
- D.
Synergistic loss
- 49.Depending on the manner in which firms are affected, political risk can be classified into three types. Which of the following is not a type of political risk?
- A.
Management risk
- B.
Transfer risk
- C.
Operational risk
- D.
Control risk
- 50.Depending on the incidence, political risk can be classified in two types:
- A.
Macro-risk & Micro-risk
- B.
Macro-risk & Medium-risk
- C.
Transfer risk & Operational risk
- D.
Control risk & Management risk
- 51.It is a type of political risk where all foreign operations are affected by adverse political developments in the host country.
- A.
Marco-risk
- B.
Micro-risk
- C.
Operational risk
- D.
Control risk
- 52.It is a type of political risk where only selected areas of foreign business operations or particular foreign firms are affected.
- A.
Micro-risk
- B.
Macro-risk
- C.
Operational risk
- D.
Control risk
- 53.It is a type of political risk in which arises from uncertainty about cross-border flows of capital, payments, know-how, and the like.
- A.
Transfer risk
- B.
Macro-risk
- C.
Micro-risk
- D.
Control risk
- 54.It is a type of political risk which is associated with uncertainty about the host country's policies affecting the local operations of MNCs.
- A.
Operational risk
- B.
Transfer risk
- C.
Control risk
- D.
Macro-risk
- 55.It is a type of political risk which arises from uncertainty about the host country's policy regarding ownership and control of local operations.
- A.
Control risk
- B.
Transfer risk
- C.
Operational risk
- D.
Micro-risk
Back to top