Globalization

Question 1

Trade-Related Factors That Affect Exchange Rates:

Answer 1

1. Relative inflation rates.
2. Relative income levels.
3. Government intervention.

Question 2

Financial Factors That Affect Exchange Rates:

Answer 2

1. Relative interest rates.

2. Ease of capital flow.

Question 3

Transaction Exposure

Answer 3

The exposure to fluctuations in exchange rates between the date a transaction is entered into and the settlement date.

Question 4

Economic Exposure

Answer 4

The exposure to fluctuations in the exchange rates resulting from overall economic conditions.

Question 5

Translation Exposure

Answer 5

The exposure to fluctuations in exchange rates between the date a transaction is entered into and the date that financial statements denominated in another currency must be reported.