1. Which of the following is not the factor that affects a multinational corporation’s degree of translation exposure?
The proportion of business conducted by foreign subsidiaries
The locations of foreign subsidiaries
The accounting methods used
All of the above are factors that affect a multinational corporation’s degree of translation exposure.
2. Which of the following is NOT true?
Flexible sourcing policy is a strategy for managing operating exposure that MNCs could use.
Financial hedging can be used to stabilize a firm's cash flows, and therefore it is substitute for long-term operational hedging.
In managing operating exposure, investments in R&D can allow the firm to maintain and strengthen its competitive position, as well as cut costs and enhance productivity.
The objective of managing operating exposure is to stabilize cash flows in the face of fluctuating exchange rates.
3. Which of the following is NOT true?
In evaluating the pros and cons of corporate risk management, "market imperfections" refer to management costs, corporate costs, liquidity costs, and trading costs.
In evaluating the pros and cons of corporate risk management, one argument against hedging is shareholders who are diversified have already managed their exchange rate risk.
In evaluating the pros and cons of corporate risk management, "market imperfections" refer to information asymmetry, differential transaction costs, default costs, and progressive corporate taxes.