Quiz 3 Flashcards
exposure deals with cash flows that result from existing contractual obligations.
Transaction
exposure measures the change in the present value of the firm resulting from unexpected changes in exchange rates.
Operating
What are good reasons for hedging currency exposures?
- Reduced risk of future cash flows reduces the probability that the firm may not meet required cash flows.
- Reduced risk of future cash flows is a good planning tool.
- Management is in a better position to assess firm currency risk than individual investors.
What are good reasons to not hedge currency exposures
- Hedging activities are often of greater benefit to management than to shareholders.
- Shareholders are more capable of diversifying risk than management.
- Currency risk management through hedging does not increase expected cash flows.
Another name for operating exposure is ________ exposure.
- Economic
- Competitive
- Strategic
________ cash flows arise from intracompany and intercompany receivables and payments, while ________ cash flows are payments for the use of loans and equity.
Operating; financing
Recently the Canadian dollar realized an unexpected appreciation in value. Which of the following actions being considered by Tall Timber Exports, a Canadian logging firm specializing in exporting raw forest products, would be considered a highly unlikely response to the appreciation of the Canadian dollar?
Tall Timber Exports might raise export prices only slightly in an effort to increase market share.
The particular strategy of trying to offset stable inflows of cash from one country with outflows of cash in the same currency is known as:
Matching
A U.S. timber products firm has a long−term contract to import unprocessed logs from Canada. To avoid occasional and unpredictable changes in the exchange rate between the U.S. dollar and the Canadian dollar, the firms agree to split between the two firms the impact of any exchange rate movement. This type of agreement is referred to as:
risk−sharing.
