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Multiple Choice Quiz
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1
Translation exposure measures
A)The extent to which the value of the firm is affected by anticipated changes in exchange rates.
B)The extent to which the value of the firm will be affected by unexpected changes in exchange rates.
C)The affect of changes in exchange rates will have on the consolidated financial reports of a MNC.
D)The affect of unanticipated changes in exchange rates on the value of contractual obligations denominated in a foreign currency.
2
Under which method of consolidating the financial reports of a MNC does the gain or loss due to translation adjustment not affect the reported cash flows?
A)Current/noncurrent method.
B)Current rate method.
C)Monetary/nonmonetary method.
D)Temporal method.
3
In many cases, it is not possible to completely eliminate both transaction exposure and translation exposure. If a conflict such as this arises, which exposure should be viewed as the most important to effectively manage?
A)Translation exposure
B)Transaction exposure
C)Economic exposure
D)None of the above
4
Under which method are monetary accounts such as cash, receivables, and payables (both current and noncurrent) translated at the current exchange rate? Other balance sheet accounts are translated at the current rate, if they are carried on the books at current value; if they are carried at historical costs they are translated at historical rates.
A)Current/noncurrent method.
B)Current rate method.
C)Monetary/nonmonetary method.
D)Temporal method.
5
Under which method are all monetary accounts such as cash, receivables, and payables (both current and noncurrent) translated at the current exchange rate? All other balance sheet accounts are translated at the historical exchange rate.
A)Current/noncurrent method.
B)Current rate method.
C)Monetary/nonmonetary method.
D)Temporal method.
6
Under which method are all balance sheet accounts (except stockholders equity) translated at the current exchange rate?
A)Current/noncurrent method.
B)Current rate method.
C)Monetary/nonmonetary method.
D)Temporal method.
7
Under which method does a cumulative translation adjustment appear?
A)Current/noncurrent method.
B)Current rate method.
C)Monetary/nonmonetary method.
D)Temporal method.
8
The two methods for dealing with (hedging) translation exposure are
A)Balance sheet hedge and derivatives hedge.
B)Current rate hedge and derivatives hedge.
C)Derivatives hedge and temporal hedge
D)Transactions hedge and balance sheet hedge
9
Using derivatives to hedge translation exposure
A)Amounts to speculating in foreign exchange rate changes.
B)Is a responsible thing to do when concerned with the effect of unanticipated changes in exchange rates.
C)Works best if your firm is worse than the market at forecasting exchange rates.
D)Both a) and c) are correct.
10
Under which method are assets and liabilities translated based upon their maturity?
A)Current/noncurrent method.
B)Current rate method.
C)Monetary/nonmonetary method.
D)Temporal method.





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