1. Current effects on cash flows: How should appreciation of a firm's home currency generally affect its cash inflows? How should depreciation of a firm's home currency generally affect its cash outflows?
2. Transaction exposure: Fisher, Inc. export products from Florida to Europe. It obtains supplies and borrows funds locally. How would appreciation of the euro likely affect its net cash flows? Why?
3. Exposure of domestic firms: Why are the cash flows of a purely domestic firm exposed to exchange rate fluctuations?
4. Factors that affect a firm's translation exposure: What factors affect a firm's degree of translation exposure? Explain how each factor influences translation exposure.
5. Translation exposure: Consider a period in which the U.S. dollar weakens against the euro. How will this affect the reported earnings of a U.S. based MNC with European subsidiaries? Consider a period in which the U.S. dollar strengthens against most foreign currencies. How will this affect the reported earnings of a U.S. based MNC with subsidiaries all over the world?