International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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An exporter is trying to reduce transaction exposure in the face of a depreciating foreign currency, which of the following strategies would be best?
A) Paying or collecting early
B) Paying or collecting late
C) Paying bate, collecting early.
D) Paying early, collecting late
Explain how you will manage each of these situations.
The major export markets of your company have suffered a substantial depreciation in
their currency rates compared to the AUD.
An important problem with the gold standard was that
a. one country could easily manipulate the system to its advantage and the disadvantage of other countries.
b. a country did not have control of its domestic monetary policy.
c. exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans.
d. it was too complicated and restricted business activity.
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- If a country devalues its currency, that will immediately improve its trade deficit.arrow_forwardExplain why the following statement is true or false: “Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.”arrow_forwardThe main reason that U.S. currency cannot be turned in to the government in exchange for a tangible asset such as gold is that: This gives the government more freedom to manage the nation's money supply U.S. currency is the debt of the Federal Reserve Banks Government officials enjoy acquiring assets and don't want to lose anything tangible People prefer tangible items, so the government would not be able to satisfy demand for the tangible item at any fixed rate of exchange give answer with explanationarrow_forward
- A shift to expecting depreciation in the domestic currency will lead to: a. an inflow of capital to domestic economy b. an increase in the demand for domestic country currency- denominated financial assets c. uncovered interest parity d. a decrease in the demand for domestic country currency denominated financial assetsarrow_forwardIf you are the manager, you should understand which of the operations do not create benefit from depreciation of the firm's local currency. I. Borrowing in a foreign country and converting the funds to the local currency prior to the depreciation. II. Purchasing foreign supplies. III. Investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency. A. I, IV B. II, IV C. I, II D. II, IIIarrow_forwardIf a country’s par exchange rate is overvalued, what kind of intervention would that country’s central bank be forced to undertake, and what kind of effect would it have on its international reserves? What must happen if this country’s central bank decides not to intervene anymore?arrow_forward
- If a U.S.-based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time. Group of answer choices True Falsearrow_forwardFollowing an unanticipated dollar appreciation, would you recommend that a domestic manufacturing company such as Cummins Engine sell foreign assets? Yes or Noarrow_forwardShortly after the invasion of Ukraine, sanctions impeded the ability of the Russian central bank to use its international reserves to stabilize the ruble. The Russian central bank would have liked to do this by: A. selling rubles to buy yuan B. selling rubles to buy dollars C. selling other currencies to buy rubles D. all of thesearrow_forward
- Because capital flows were an important element in the currency crises, it has been advocated that emerging markets countries avoid the financial instability by restricting capital mobility. Assess the extent to which you agree with this statement.arrow_forwardThere has been concerns among businesses that the recent reductions in the NIPR has not led to significant decreases in bank lending rates. What do you think could be accounting for this? What additional measures can policy-makers undertake to reduce the Cost of borrowing in the country?arrow_forward
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