A firm with a highly elastic demand for its products: (Points : 1) will be unable to pass increased costs following unfavorable changes in the exchange rate without significantly lowering the quantity sold. will be able to raise prices following unfavorable changes in the exchange rate without significantly lowering the quantity sold. can easily pass increased costs on to consumers. will sell about the same amount of product regardless of price.

Question 2. 2. A U.S.-based MNC with exposure to the Swedish krona could best cross-hedge with: (Points : 1)

forward contracts on the euro. forward contracts on the ruble. forward contracts on the pound. forward contracts on the yen.

Question 3. 3. Translation exposure measures: (Points : 1)

the effect that an anticipated change in exchange rates will have on the consolidated financial reports of an MNC. economic exposure. the change in the value of a foreign subsidiaries assets and liabilities denominated in a foreign currency, as a result of exchange rate change fluctuations, when viewed from the perspective of the parent firm. all of the above.

Question 4. 4. The currency of the primary economic environment in which the entity operates is defined in FASB 52 as: (Points : 1)

the "reporting currency". the "functional currency". the "current" currency. none of the above

Question 5. 5. Operating exposure can be defined as: (Points : 1)

the link between the future home currency values of the firm's assets and liabilities and exchange rate fluctuations. the extent to which the firm's operating cash flows would be affected by random changes in exchange rates. the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. the potential that the firm's consolidated financial statement can be affected by changes in exchange rates.

Question 6. 6. To hedge a foreign currency receivable: (Points : 1)

buy call options on the foreign currency with a strike in the domestic currency. buy put options on the foreign currency with a strike in the domestic currency. sell call options on the foreign currency with a strike in the domestic currency. sell put options on the foreign currency with a strike in the domestic currency.

Question 7. 7. The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is: (Points : 1)

transaction exposure. translation exposure. economic exposure. none of the above.

Question 8. 8. The link between the home currency value of a firm's assets and liabilities and exchange rate fluctuations is: (Points : 1)

asset exposure. operating exposure. a) and b). none of the above.

Question 9. 9. Under which accounting method are most income statement accounts translated at the average exchange rate for the period? (Points : 1)

Current/noncurrent method Monetary/nonmonetary method Temporal method Current rate method

Question 10. 10. If you owe a foreign currency denominated debt, you can hedge with: (Points : 1)

a long position in a currency forward contract. a long position in an exchange-traded futures option. buying the foreign currency today and investing it in the foreign county. both a) and c).