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Exam 11: Measuring and Managing Economic Exposure

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Question 1

Multiple Choice

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The _______ the price elasticity of demand, the _____ the incentive to hold down price and thereby expand sales.

A) lower, greater
B) lower, lower
C) greater, lower
D) greater, greater

Correct Answer

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D

Question 2

Multiple Choice

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Suppose McDonald's charges Ptas. 25 for a burger in Madrid. Its costs are Ptas. 18 per burger and these costs are not expected to change with the exchange rate. If the peseta devalues from $0.107 to $0.096, what price will McDonald's have to charge for its burgers to maintain its dollar profit margin?

A) Ptas. 25.80
B) Ptas. 27.86
C) Ptas. 22.43
D) Ptas. 24

Correct Answer

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A

Question 3

Multiple Choice

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A company producing a differentiated product and competing with internationally diversified competitors will face a relatively _______ price elasticity of demand for its products and possess a relatively _______ degree of pricing flexibility.

Which of the following products is most likely to benefit from depreciation of the U.S. dollar?

Sumitomo Bank wants to expand its lending in the United States, but to do so it needs to raise more long?term debt capital to help finance these loans. Currently, long?term interest rates are in the U.S. and in Japan. What would you recommend Sumitomo do?

_______ exposure arises because currency fluctuations can alter a company's future revenues and expenses.

Jet engine manufacturing entails enormous economies of scale. Pratt & Whitney, a large U.S. jet engine producer, faces substantial competition from Rolls?Royce, the British engine manufacturer. What would be the BEST way for P & W to cope with a dollar that has recently appreciated by 50%?

Which of the following strategies assumes that the MNC has already collected a portfolio of different facilities world wide?

In the face of an appreciating yen, Toyota should consider

Following a devaluation of the Greek drachma, which of the following products sold in Greece is most likely to bear a drachma price increase?

While the strategic marketing and production adjustments occur over the long run, financial management may finance the firm's operations such that shortfalls in cash flows during the adjustments are offset by a reduction in __________ expenses.

With respect to home currency (HC) appreciation, the key issue for a domestic firm is its degree of ______.

Volkswagen almost went bankrupt in 1973 because

A weak dollar will

Which one of the following areas is NOT a way companies often respond to exchange rate risk when they alter their product strategy?

During periods of exchange rate volatility, firms dealing in _______ products face more exchange rate risk that the firms selling _________ products.

Which one of the following would NOT be an appropriate response for a U.S. exporter to appreciation of the dollar?

A U.S. exporter that anticipates an appreciation of the dollar should

Economic exposure is based on the extent to which the ______ of the firm will change when exchange rates change.

With respect to production management of exchange risk, ________ and plant location are the principal variables that companies may change to manage the risk.