Question
Which of the following is (are) an example of short-run exposure to exchange rate risk? I. A few years ago, you built a factory overseas
Which of the following is (are) an example of short-run exposure to exchange rate risk?
I. A few years ago, you built a factory overseas to take advantage of the lower raw materials cost. Today, those costs have increased such that your overseas factory no longer provides a cost advantage to your firm.
II. Your firm owns land in Canada valued at C$1 million. That value has remained constant in Canadian dollars for the past two years. However, the financial statements of your firm, which are expressed in U.S. dollars, reflect a 5 percent increase in the value of that property over the past year.
III. You order a shipment of diamonds from South Africa at a cost of 5 million South African rand. You wait until the shipment arrives to pay for the order. When you pay the invoice, your cost in U.S. dollars has increased by $1,500 since the order date.
IV. You sold some equipment to a firm in the U.K. at an invoice price of 300,000. At the time of the sale, the invoice price was worth $565,000. However, when the firm paid the invoice and you exchanged the funds into dollars, you only received $558,000
a.I and II only
b.I only
c.III only
d.II and IV only
e.III and IV only
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