Transaction exposure gives rise to foreign exchange gains and losses that are ultimately realized in cash True False Hedging does not protect companies from exchange rate fluctuations True False Assets and liabilities translated at the historical exchange rate are not exposed to a translation adjustment True False Spot rate is the today's (current) price for purchasing or selling a foreign currency True False Foreign currency option a right to buy or sell foreign currency True False

Transaction exposure gives rise to foreign exchange gains and losses that are ultimately realized in cash True False Hedging does not protect companies from exchange rate fluctuations True False Assets and liabilities translated at the historical exchange rate are not exposed to a translation adjustment True False Spot rate is the today's (current) price for purchasing or selling a foreign currency True False Foreign currency option a right to buy or sell foreign currency True False

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Corporates have lost huge monies in currency operating exposures because of O a. Hedged exposures O b. Unhedged exposures O c. Foreign exposure O d. Translation exposure
Question 12 True or False? The foreign currency hedge accounting guidance allows for the use of nonderivative instruments as the hedging instrument for hedges of net investments and foreign currency cash flows hedges, but not for foreign currency fair value hedges of firm commitments True False
Why might a company prefer a foreign currency option rather than a forward contract in hedging a foreign currency firm commitment? Why might a company prefer a forward contract over an option in hedging a foreign currency asset or liability?
If a company decides to use FDI as its primary strategy to enter new foreign markets, a likely factor in their decisions is the comparatively low risk associated with FDI in comparison to other entry strategies. True false
One of the issues that companies need to address when dealing with foreign currencies is how fluctuations in that currency are handled. What is the dual transaction approach, accrual perspective? How might a company account for exchange rate fluctuations using this approach?
Why do governments intervene in the foreign exchange market? Check all that apply: To maintain exchange rate boundaries To reduce fear in financial markets To smooth out the business cycle To smooth out exchange rate movements To earn a profit for the government
Which of the following is/are TRUE with respect to spot market liquidity? I. The market liquidity improves if more buyers and sellers willing to participate in the currency trading. II. The spot markets for heavily traded currencies such as the Euro and Pound are very liquid. III. A currency's liquidity affects the ease with which an MNC can obtain or sell that currency. IV. If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate. A. I, II, III B. I, III, IV C. II, III, IV D. I, II
A key issue facing financial executives of multinational firms is exposure to exchange rate changes.a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play?b. Describe at least three circumstances under which economic exposure is likely to exist? c. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b? d. What is exchange risk, as distinct from exposure
Authoritative literature provides guidance for hedges of the following sources of foreign exchange risk. 1. Recognized foreign currency-denominated assets and liabilities II. Unrecognized foreign currency firm commitments III. Forecasted foreign currency-denominated transactions Multiple Choice I only I and II ll only
If a U.S.-based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time. Group of answer choices True False
Commodity-backed money is money that can exchange for a commodity at a fixed rate, and it solves transportation problem of using commodity money. Select one: True False
True or False? Unsettled foreign currency transactions, including financial instruments, shall be considered to contain embedded foreign currency derivatives under ASC 815 if the transactions meet all of the following criteria: They are monetary items. They have their principal payments, interest payments, or both denominated in a foreign currency. They are subject to the requirement …to recognize any foreign currency transaction gain or loss in earnings. True False

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