Name: 

Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firm's reported earnings (from the consolidated income statement) to _______. If a firm desired to protect against this possibility, it could stabilize its reported earnings by _______ euros forward in the foreign exchange market.

Whitewater ltd. is a UK company with sales to Canada amounting to C$8 million. Its cost of goods sold attributable to the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Given these exact figures above, the pound value of Whitewater's "earnings before interest and taxes" would _______ if the Canadian dollar appreciates; the pound value of Whitewater's "earnings before taxes" would _______ if the Canadian dollar appreciates.

Rockington ltd. is a UK manufacturing firm that produces goods in the UK and sells all products to retail stores in the US; the goods are denominated in dollars. It finances a small portion of its business with dollar-denominated loans from US banks. Which of the following is true? (Assume that the amount of products to be sold is guaranteed by contracts.)

With regard to hedging translation exposure, translation losses _______; and gains on forward contracts used to hedge translation exposure _______.

Assume a UK firm uses a forward contract to hedge all of its translation exposure. Also assume that the firm underestimated what its foreign earnings would be. Assume that the foreign currency depreciated over the year. The firm would generate a translation _______, which would be _______ than the gain generated by the forward contract.

Wisbeech ltd conducts business in Zambia. Years ago, Wisbeech established a subsidiary in Zambia that has consistently generated very large profits denominated in Zambian kwacha. Wisbeech wishes to restructure its operations to reduce economic exposure. Which of the following is not a feasible way of accomplishing this?

An effective way for an MNC to assess its economic exposure is to look at the firm's:

As opposed to transaction exposure, managing economic exposure involves developing a ________ solution.

Long-term forward contracts are a possible way to hedge the distant sale of fixed assets in foreign countries, but they may not be available for many emerging market currencies.

A foreign subsidiary with more susceptible expenses than revenue to exchange rate movements will be favorably affected by an appreciation of the foreign currency.

A limitation of hedging translation exposure is that translation losses are not tax deductible, whereas gains on forward contracts used to hedge translation exposure are taxed.

UK based MNCs invoicing in Asian currencies and incurring expenses in Asian currencies were probably less affected by weakness of Asian currencies than UK-based MNCs that invoice in Asian currencies but do not incur expenses in those currencies.