International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Students have asked these similar questions
ABC Inc. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Jonathan Inc. is a U.S.-based MNC that has the same exposure as ABC Inc. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk?
A. neither firm has any exposure.
B. ABC Inc.
C. the firms have about the same level of exposure.
D. Jonathan Inc.
Suppose that Salem Co, a U.S.-based MNC that both purchases supplies from Canada and sells exports in Canada, is seeking to measure the economic exposure of its cash flows. Salem wishes to analyze how its cash flows might change under different exchange rates for the Canadian dollar (the only foreign currency in which it deals).
Salem believes that the value of the Canadian dollar will be $0.70, $0.75, or $0.80, and seeks to analyze its cash flows under each of these scenarios.
The following table shows Salem’s cash flows under each of these exchange rates.
Use the table to answer the question that follows.
Exchange Rate Scenario
Exchange Rate Scenario
Exchange Rate Scenario
C$1=$0.70
C$1=$0.75
C$1=$0.80
(Millions)
(Millions)
(Millions)
Sales
(1) U.S. Sales
$315
$315
$315
(2) Canadian Sales
$3.50
$4.00
$4.00
(3) Total Sales in U.S. $
$318.50
$318.75
$319.00
Cost of Materials and Operating Expenses
(4)…
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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