University of Houston-Victoria FINC 6367 International Finance Review Quiz for Chapter 6

1. Calculation of the standard deviation of a currency addresses the potential differences in results for high-value and low-value currencies by: A. averaging the exchange rates of the currency over a specific period of time. B. discounting the standard deviation of high-value currency. C. converting currency values into currency returns, which are percentage changes in currency values. D. adjusting the standard deviation of both currencies when comparing high- and low-value currencies. 2. If risk valuation is based on a time series of value changes in the asset being considered, the approach is called a _______________ approach. A. delta-normal. B. value neutral. C. historical simulation. D. normal distribution. 3. If the currency in which costs of an MNC are denominated rises in value, the operating cash flow of the MNC may be adversely affected because: A. its cost rise and its competitive position improves but not enough to offset the increase in costs. B. its cost increase and its competitive position deteriorates. C. its costs decrease and its competitive position deteriorates more than it saves for the decrease in costs. D. its costs decrease and its competitive position deteriorates. 4. Revenues and expenses are translated using ________________, and assets and liabilities are translated using _______________________. A. exchange rates at the reporting date; average exchange rates for the period B. whichever exchange rate is most advantageous for the firm; average exchange rates for the period C. average exchange rates for the period; exchange rates at the reporting date D. exchange rates at the reporting date; whichever exchange rate is most advantageous for the firm

FINC 6367 International Finance

Dr. Xavier Garza Gomez

5. ____________ exposure is an analysis of the effects of currency changes on a firm's operating cash flow. A. Operating B. Cash flow C. Translation D. Profit 6. ________________ are subject to currency risks. A. All firms B. Only MNCs C. All MNCs and many domestic firms D. Only foreign-based firms 7. The highest standard deviations are found in: A. emerging countries where the currency is pegged to the currency of an industrialized nation. B. emerging countries where currencies are allowed to float freely. C. industrialized countries where there is great economic activity. D. industrialized countries where the currency is pegged. 8. The standard deviation of a currency is: A. plus or minus the average value of the currency over a specific period. B. square root of the variance of the currency. C. the average of squared deviations from the mean. D. an average of the deviations from the currency. 9. The calculation of the standard deviation of a currency is based on: A. a time series of the values of that currency. B. the changes in the exchange rate of that currency annually of a specified number of years. C. the average exchange rates of the currency over a specified period. D. the exchange rate of the currency at a specific point in time. 10. Economic exposure as an aspect of currency risks involves: A. the impact of worldwide economic changes on a firm's profitability. B. the impact of currency changes on a firm's overall cash flow. C. how a firm reacts to negative external economic shocks. D. the effect of currency changes on a firm's profit and loss statement.

FINC 6367 International Finance

Dr. Xavier Garza Gomez

Chapter 6 Review Quiz Answer Section 1 2 3 4 5 6 7 8 9 10 C C B C A C B B A B

FINC 6367 International Finance

Dr. Xavier Garza Gomez