Question 1

Economic exposure arises from current effects of forex movements on the competitiveness of the global factory.

Accepted Answer

A) True 
 B)False

Question 2

_______ contracts are a regular feature of most business trading across borders in that they are an instrument to cover the currency risk of transaction.

Accepted Answer

A)   Forward market hedge
B)   Futures hedge
C)   Currency option
D)   Currency swapE) All of the above
F) A) and D)

Question 3

Translation risk has important implications for the balance sheet of the firm.

Accepted Answer

A) True 
 B)False

Question 4

A currency option gives the buyer the right, but not the obligation to buy or sell a specific currency at a specific exchange rate on or before a psecific date.

Accepted Answer

A) True 
 B)False  True

Question 5

Transfer price manipulation enables a global factory to _______

Accepted Answer

A)   Avoid price controls
B)   Set transparent prices
C)   To reduce country risk exposure by increasing revenues and profits
D)   To reduce revenues and profits because of increasing country riskE) C) and D)
F) A) and D)

Question 6

This is one of the unique characteristics of the efficient market hypothesis: _______ Please select all that apply.

Accepted Answer

A)   The market is not efficient
B)   There are parties with superior market information
C)   Participants act in their own interests
D)   There are no information asymmetriesE) A) and B)
F) A) and C)

Question 7

Transfer pricing raises questions about internal managerial efficiency and corporate governance.

Accepted Answer

A) True 
 B)False  True

Question 8

Transaction risk is associated with imports or exports when the timing of the payment and the exchange of the goods and services are not simultaneous or in the same currency.

Accepted Answer

A) True 
 B)False

Question 9

Reinvoicing centres are centralised corporate financial management activities located in countries with more favourable regulatory environments.

Accepted Answer

A) True 
 B)False

Question 10

The depreciation in the value of the host country's currency relative to a home country does _______ Please select all that apply.

Accepted Answer

A)   Stimulate FDI outflows
B)   Stimulate FDI inflows
C)   Have no impact on FDI flows
D)   Attract different forms of governanceE) A) and B)
F) All of the above

Question 11

The principle elements of translational exposure are _______ Please select all that apply.

Accepted Answer

A)   Assets and liabilities denominated in foreign currencies
B)   Profits and losses denominated in foreign currency
C)   The principal payable on loans and debt
D)   Share equity issued in another currency to raise equityE) All of the above
F) C) and D) A, B, C, D

Question 12

_______ are primarily used for longer term revenue conversion purposes than to deal with short-term conversion exposure.

Accepted Answer

A)   Currency options
B)   Futures hedge
C)   Currency swaps
D)   Money market hedgingE) A) and B)
F) B) and C)

Question 13

Low-tax jurisdictions provide reason for accumulating funds in that jurisdiction.

Accepted Answer

A) True 
 B)False

Question 14

Key players in the wholesale and retail currency market are _______ Please select all that apply.

Accepted Answer

A)   Central banks
B)   Foreign exchange brokers
C)   Commercial banks and other foreign exchange dealers
D)   FirmsE) B) and D)
F) A) and C)

Question 15

It is often claimed that the very existence of transfer pricing is indistinguishable from _______

Accepted Answer

A)   Tax evasion or avoidance
B)   Transparent financial management
C)   Payments for intra-firm trade
D)   Payments of royaltiesE) A) and B)
F) None of the above

Question 16

_______ occurs when subsidiaries settle intra-network currency debts for the net amount owed in a currency rather than the gross amount.

Accepted Answer

A)   Netting
B)   Varying the speed of internal payments
C)   Leading
D)   LaggingE) All of the above
F) A) and D)

Question 17

A strategy to reduce transaction risk is to invoice the customer in the home-country currency.

Accepted Answer

A) True 
 B)False

Question 18

Since there is a time value to money the spot exchange rate of a currency is always lower than the forward exchange rate.

Accepted Answer

A) True 
 B)False

Question 19

Exchange rate movements can affect demand for a global factory's products at home and abroad.

Accepted Answer

A) True 
 B)False

Question 20

The cost of covering transaction exposure at arm's length through hedging include _______ Please select all that apply.

Accepted Answer

A)   Cost of financing and hedging
B)   Cost of organising and managing personnel to arrange cover for the exposure
C)   Insurance costs
D)   Opportunity cost of not hedgingE) All of the above
F) C) and D)

Exam 14: Financial Management Strategies

Economic exposure arises from current effects of forex movements on the competitiveness of the global factory.

Correct AnswerverifiedShow Answer

_______ contracts are a regular feature of most business trading across borders in that they are an instrument to cover the currency risk of transaction.

Correct AnswerverifiedShow Answer

Translation risk has important implications for the balance sheet of the firm.

Correct AnswerverifiedShow Answer

A currency option gives the buyer the right, but not the obligation to buy or sell a specific currency at a specific exchange rate on or before a psecific date.

Correct AnswerverifiedTrue

Transfer price manipulation enables a global factory to _______

Correct AnswerverifiedShow Answer

This is one of the unique characteristics of the efficient market hypothesis: _______ Please select all that apply.

Correct AnswerverifiedShow Answer

Transfer pricing raises questions about internal managerial efficiency and corporate governance.

Correct AnswerverifiedTrue

Transaction risk is associated with imports or exports when the timing of the payment and the exchange of the goods and services are not simultaneous or in the same currency.

Correct AnswerverifiedShow Answer

Reinvoicing centres are centralised corporate financial management activities located in countries with more favourable regulatory environments.

Correct AnswerverifiedShow Answer

The depreciation in the value of the host country's currency relative to a home country does _______ Please select all that apply.

Correct AnswerverifiedShow Answer

The principle elements of translational exposure are _______ Please select all that apply.

Correct AnswerverifiedA, B, C, D

_______ are primarily used for longer term revenue conversion purposes than to deal with short-term conversion exposure.

Correct AnswerverifiedShow Answer

Low-tax jurisdictions provide reason for accumulating funds in that jurisdiction.

Correct AnswerverifiedShow Answer

Key players in the wholesale and retail currency market are _______ Please select all that apply.

Correct AnswerverifiedShow Answer

It is often claimed that the very existence of transfer pricing is indistinguishable from _______

Correct AnswerverifiedShow Answer

_______ occurs when subsidiaries settle intra-network currency debts for the net amount owed in a currency rather than the gross amount.

Correct AnswerverifiedShow Answer

A strategy to reduce transaction risk is to invoice the customer in the home-country currency.

Correct AnswerverifiedShow Answer

Since there is a time value to money the spot exchange rate of a currency is always lower than the forward exchange rate.

Correct AnswerverifiedShow Answer

Exchange rate movements can affect demand for a global factory's products at home and abroad.

Correct AnswerverifiedShow Answer

The cost of covering transaction exposure at arm's length through hedging include _______ Please select all that apply.

Correct AnswerverifiedShow Answer

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True

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True

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A, B, C, D

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