MCTest 2-Past Paper - 1 Jacko Co is a U.S-based MNC with...

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1) Jacko Co. is a U.S.-based MNC with net cash inflows of Singapore dollars and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Kriner Co. is a U.S.-based MNC that has the same exposure as Jacko Co. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk? A) Jacko Co. B) Kriner Co. C) the firms have about the same level of exposure. D) neither firm has any exposure. 2) Which of the following operations benefits from depreciation of the firm’s local currency? A) borrowing in a foreign country and converting the funds to the local currency prior to the depreciation. B) purchasing foreign supplies. C) investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency. D) A and B 3) Magent Co. is a U.S. company that has exposure to the Swiss francs (SF) and Danish kroner (DK). It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about US$0.40 while the present exchange rate of the DK is US$0.10. Magent Co. has not hedged these positions. The SF and DK are highly correlated in their movements against the dollar. If the dollar weakens, then Magent Co. will: A) benefit, because the U.S. dollar value of its SF position exceeds the U.S. dollar value of its DK position. B) benefit, because the U.S. dollar value of its DK position exceeds the U.S. dollar value of its SF position. C) be adversely affected, because the U.S. dollar value of its SF position exceeds the U.S. dollar value of its DK position. D) be adversely affected, because the U.S. dollar value of its DK position exceeds the U.S. dollar value of its SF position. 4) If a U.S. firm’s cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a _______ overall impact of the Swiss franc’s depreciation against the dollar on _______. A) positive; interest expenses
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B) positive; gross profit C) negative; gross profit D) negative; interest expenses 5) If an MNC has a net inflow in one currency and a net outflow of about the same amount in another currency, then the MNCs’ transaction exposure is _______ if the two currencies are ________ correlated. A) high; positively B) low; negatively C) high; negatively D) none of the above 6) In general, a firm that concentrates on local sales, has very little foreign competition, and obtains foreign supplies (denominated in foreign currencies) will likely ___________ a(n) __________ local currency. A) be hurt by; appreciated B) benefit from; depreciated C) be hurt by; depreciated D) none of the above 7) Assume the following Information: U.S. deposit rate for 1 year = 11% U.S. borrowing rate for 1 year = 12% New Zealand deposit rate for 1 year = 8% New Zealand borrowing rate for 1 year = 10% New Zealand dollar forward rate for 1 year = US$0.40 New Zealand dollar spot rate = US$0.39
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This note was uploaded on 12/06/2011 for the course FINANCE EF4320 taught by Professor Wuxueping during the Spring '09 term at City University of Hong Kong.

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MCTest 2-Past Paper - 1 Jacko Co is a U.S-based MNC with...

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