1. Which of the following is an example of economic exposure but not an example of transaction exposure?
a) A decrease in the dollar’s value benefits a U.S. firm’s domestic sales because foreign competitors’ sales to U.S. customers might decrease.
b) an increase in the pound’s value increases the U.S. firm’s cost of British pound payables.
c) a decrease in the peso’s value decreases a U.S. firm’s dollar value of peso receivables.
d) a decrease in the Swiss franc’s value decreases the dollar value of interest payments on a Swiss deposit sent to a U.S. firm by a Swiss bank.
2. A firm paid a recent annual dividend of $1.60 per share and is expected to grow annually by 3% per year. The market price of the stock is $21. What is the firm's cost of equity?
10.62%
7.85%
7.62%
10.85%