23) A U.S. firm sells merchandise today to a British company for £100,000. The current exchange rate is $2.03/£ , the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. If the exchange rate changes to $2.05/£ the U.S. firm will realize a ________ of ________. 23) ______ A) loss; £2000 B) loss; $2000 C) gain; $2000 D) gain; £2000 

24) A ________ hedge refers to an offsetting operating cash flow such as a payable arising from the conduct of business. 24) ______ A) natural B) financial C) contractual D) futures   

25) ________ are transactions for which there are, at present, no contracts or agreements between parties. 25) ______ A) Anticipated exposure B) Quotation exposure C) Backlog exposure D) none of the above 

26) According to a survey by Bank of America, the type of foreign exchange risk most often hedged by firms is ________. 26) ______ A) contingent exposure B) transaction exposure C) translation exposure D) economic exposure 

27) According to a survey by Bank of America, when firms do hedge, the most common type of hedging instruments are ________. 27) ______ A) money markets B) options C) call and puts D) forwards 

34) Which of the following is NOT an example of a form of political risk that might be avoided or reduced by foreign exchange risk management? 34) ______ A) Unfavorable legal changes. B) War. C) Expropriation of assets. D) Destruction of raw materials through natural disaster. 

35) Which of the following is NOT identified by your authors as a proactive management technique to reduce exposure to foreign exchange risk? 35) ______ A) Matching currency cash flows. B) Remaining a purely domestic firm. C) Parallel loans. D) Currency swaps. 

36) Which one of the following management techniques is likely to best offset the risk of long-run exposure to receivables denominated in a particular foreign currency? 36) ______ A) Increase sales in this country. B) Increase sales to that country. C) Lend money in the foreign currency in question. D) Borrow money in the foreign currency in question 

44) Which of the following is NOT seen as a potential disadvantage to the formation of an intra-company reinvoicing center? 44) ______ A) The company must create an additional corporate unit. B) Reinvoicing center personnel may develop expertise in the selection and implementation of foreign exchange hedging techniques. C) A separate set of books must be kept for this new corporate division. D) Initial setup costs may be high. 

45) The Land's Beginning Company Inc. (LBC), imports extreme condition outdoor wear and equipment from The Hudson Bay Company (HBC) located in Canada. With the steady decline of the U.S dollar against the Canadian dollar LBC is finding a continued relationship with HBC to be an increasingly difficult proposition. In response to LBC's request, HBC has proposed the following risk-sharing arrangement. First, set the current spot rate as the base rate. As long as spot rates stay within 5% (up or down) LBC will pay at the base rate. Any rate outside of the 5% range, HBC will share equally with LBC the difference between the spot rate and the base rate. If the current spot rate is C$1.20/$, what are the upper and lower limits for trading to take place at C$1.20?