I Transaction exposure and operating exposure exist because of unexpected ehanges in fur difference between the two is that exposure deals with future cash flows that might change because of changes inexchage exposure deals with cash ows atready comracted for,whie flows. The transaction; operating. b) operating: transaction. e) operating; accounting. d) none of the above. 2 Assuming no transaction costs (i.e, hedging is free",hedging currency exposures should variability of expected cash flows to a firm and, at the same time, the expected value of the cash lows thve should a) b) decrease; not change c) d) increase; not change. not change; increase. not change; not change. 3 A U.S. firm sells merchandise today to a British company for 150,000. The current exchange rate is $1.SS/5, th 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 $1.38/E, the U.S. firm will realize a a) loss; $4,500. of b) gain; $4,500 c) loss; 4,500. d) gain; 4,500. Gains or losses caused by translation adjustments when using the current rate method are reported separately on the: 4 a) b) c) consolidated statement of cash flow. consolidated income statement. consolidated balance sheet. d) none of the above Use the following information to answer Questions 5 to 9. Central Valley Transit Inc. (CVT) has just signed a contract to purchase light rail cars from a manufacturer in Germany for E3,000,000. The purchase was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, CVT is considering several hedging alternatives to reduace the exchange rate risk arising from the sale. To help the firm make a hedgimg decision, you have gathered the following information