Ch009-Management-of-Economic-Exposure

Eun/Resnick4e108Eun&Resnick4eCHAPTER9ManagementofEconomicExposureHowtoMeasureEconomicExposureInternationalFinanceinPractice:U.S.FirmsFeelthePainofPeso’sPlungeOperatingExposure:DefinitionIllustrationofOperatingExposureDeterminantsofOperatingExposureManagingOperatingExposureSelectingLow-CostProductionSitesInternationalFinanceinPractice:TheStrongYenandToyota’sChoiceFlexibleSourcingPolicyDiversificationoftheMarketR&DEffortsandProductDifferentiationFinancialHedgingInternationalFinanceinPractice:PorschePowersProfitwithCurrencyPlaysCASEAPPLICATION:ExchangeRiskManagementatMerckSummaryMINICASE:EconomicExposureofAlbionComputersPLCHowtoMeasureEconomicExposure1SupposetheU.S.dollarsubstantiallydepreciatesagainsttheJapaneseyen.Thechangeinexchangeratea)CanhaveasignificanteconomicconsequencesforU.S.firms.b)CanhaveasignificanteconomicconsequencesforJapanesefirms.c)CanhaveasignificanteconomicconsequencesforbothU.S.andJapanesefirms.d)NoneoftheaboveAnswer:c)2SupposetheU.S.dollarsubstantiallydepreciatesagainsttheJapaneseyen.Thechangeinexchangeratea)Willtendtoweakenthecompetitivepositionofimport-competingU.S.carmakers.b)Willtendtostrengthenthecompetitivepositionofimport-competingU.S.carmakers.c)WilltendtostrengthenthecompetitivepositionofJapanesecarmakersattheexpenseofU.S.makers.d)NoneoftheaboveAnswer:b)3WhentheMexicanpesocollapsedin1994,decliningby37percent,a)U.S.firmsthatexportedtoMexicoandpricedinpesowereadverselyaffected.b)U.S.firmsthatexportedtoMexicoandpricedindollarswereadverselyaffected.c)U.S.firmswereunaffectedbythepesocollapse,sinceMexicoissuchasmallmarket.d)Botha)andb)Answer:d)Rationale:a)isobvious,thedollarvalueofrevenuefell.Answerb)islessobvious,butthosefirm’sMexicancustomerswerelessabletoaffordtheimportedgoods.Eun/Resnick4e1094Whenexchangerateschange,a)U.S.firmsthatsellonlytodomesticcustomerswillbeunaffected.b)U.S.firmsthatsellonlytodomesticcustomerscanbeaffectediftheycompeteagainstimports.c)U.S.firmsthatsellonlytodomesticcustomerswillbeaffected,butonlyiftheyborrowinforeigncurrencytofinancetheirdomesticoperations.d)Botha)andb)Answer:b)5Whenexchangerateschange,a)Thiscanaltertheoperatingcashflowofadomesticfirm.b)Thiscanalterthecompetitivepositionofadomesticfirm.c)Thiscanalterthehomecurrencyvaluesofamultinationalfirm’sassetsandliabilities.d)AlloftheaboveAnswer:d)6TworecentstudieshavefoundalinkbetweenexchangeratesandthestockpricesofU.S.firms,a)Thissuggeststhatexchangeratechangescansystematicallyaffectthevalueofthefirmbyinfluencingitsoperatingcashflows.b)Thissuggeststhatexchangeratechangescansystematicallyaffectthevalueofthefirmbyinfluencingthedomesticcurrencyvaluesofitsassetsandliabilities.c)a)andb)d)NoneoftheaboveAnswer:c)7Economicexposurerefersto(名词解释)a)thesensitivityofrealizeddomesticcurrencyvaluesofthefirm’scontractualcashflowsdenominatedinforeigncurrenciestounexpectedexchangeratechangesb)theextenttowhichthevalueofthefirmwouldbeaffectedbyunanticipatedchangesinexchangeratec)thepotentialthatthefirm’sconsolidatedfinancialstatementcanbeaffectedbychangesinexchangeratesd)expostandexantecurrencyexposuresAnswer:b)8Itisconventionaltoclassifyforeigncurrencyexposuresintothefollowingtypes:a)economicexposure,transactionexposure,andtranslationexposureb)economicexposure,noneconomicexposure,andpoliticalexposurec)nationalexposure,internationalexposure,andtradeexposured)conversionexposure,andexchangeexposureAnswer:a)9Exposuretocurrencyriskcanbemeasuredbythesensitivitiesofa)thefuturehomecurrencyvaluesofthefirm’sassetsandliabilitiesb)thefirm’soperatingcashflowstorandomchangesinexchangeratesc)a)andb)d)noneoftheaboveAnswer:c)Eun/Resnick4e11010Currencyriska)isthesameascurrencyexposureb)representsrandomchangesinexchangeratesc)measure“whatthefirmhasatrisk”d)a)andb)Answer:b)11SupposeaU.S.-basedMNCmaintainsavacationhomeforemployeesintheBritishcountrysideandthelocalpriceofthispropertyisalwaysmovingtogetherwiththepoundpriceoftheU.S.dollar.Asaresult,a)Wheneverthepounddepreciatesagainstthedollar,thelocalcurrencypriceofthispropertygoesupbythesameproportion.b)Thefirmisnotexposedtocurrencyriskevenifthepound-dollarexchangeratefluctuatesrandomly.c)a)andb)d)noneoftheaboveAnswer:c)12TheexposurecoefficientintheregressionPabSeisgivenby:a)Cov(,)Var()PSbSb)PabSec)a)andb)d)eAnswer:a)13TheexposurecoefficientCov(,)Var()PSbSintheregressionPabSeis:a)Ameasureofhowachangeintheexchangerateaffectsthedollarvalueofafirm’sassets.b)Hasavalueofzeroifthevalueofthefirm’sassetsisperfectlycorrelatedwithchangesintheexchangeratec)a)andb)d)noneoftheaboveAnswer:a)14Thelinkbetweenthehomecurrencyvalueofafirm’sassetsandliabilitiesandexchangeratefluctuationsis:a)Assetexposureb)Operatingexposurec)a)andb)d)noneoftheaboveAnswer:a)15Thelinkbetweenafirm’sfutureoperatingcashflowsandexchangeratefluctuationsis:a)Assetexposureb)Operatingexposurec)a)andb)d)noneoftheaboveAnswer:b)Eun/Resnick4e111OperatingExposure:Definition16Operatingexposurecanbedefinedas:a)thefuturehomecurrencyvaluesofthefirm’sassetsandliabilitiesb)theextenttowhichthefirm’soperatingcashflowswouldbeaffectedbyra