Question 3

1. Assume that the British pound and Swiss franc are highly correlated. A U.S. firm anticipates the equrval million cash outflows (costs) in francs and the equivalent of S1 million cash outflows (costs) in pounds cycle, the firm is affected by its exposure a. strong dollar, favorably b. weak dollar; not c. strong dollar; not d. weak dollar, favorably 2. Spears Co. will receive SF1,000,000 in 30 days. Use the following information to determine the total dollar amount received (after accounting for the option premium) if the firm purchases and exercises a put option: Exercise price Premium Spot rate Expected spot rate in 30 days 30-day forward rate S.61 $.02 $.60 $.56 $.62 a. $630,000 b. $610,000 $600,000 d. $590,000 3. President Trump wants to lower the tax on foreign earnings of U.S. MNCs. Would lowering the tax rate bring more foreign earnings into the United States? a. Probably not. Foreign subsidiaries of U.S. MNCs already use many earnings to purchase U.S. treasuries b. Probably not. U.S. MNCs almost always reinvest their forcign earnings back into their foreign subsidiaries. c. Yes, if the tax rate is low enough. d. Yes, if the U.S. dollar is relatively weak so that the foreign earnings are worth more. 4. Which of the following firms is not exposed to translation exposure? Firm X, with a fully owned subsidiary that periodically remits earnings generated in Great Britain to the US based parent. b. Firm Y, which exports only and has no foreign subsidiary. c. Firm Z, with a fully owned subsidiary that generates substantial earings in Germany. The subsidiary never d. All of the above firms are exposed to translation exposure. remits earnings but reinvests them in Germany