CHAPTER 9 Management of Economic ExposureWord格式.docx
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CHAPTER 9 Management of Economic ExposureWord格式.docx
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ExchangeRiskManagementatMerck
Summary
MINICASE:
EconomicExposureofAlbionComputersPLC
1SupposetheU.S.dollarsubstantiallydepreciatesagainsttheJapaneseyen.Thechangeinexchangerate
a)CanhaveasignificanteconomicconsequencesforU.S.firms.
b)CanhaveasignificanteconomicconsequencesforJapanesefirms.
c)CanhaveasignificanteconomicconsequencesforbothU.S.andJapanesefirms.
d)Noneoftheabove
Answer:
c)
2SupposetheU.S.dollarsubstantiallydepreciatesagainsttheJapaneseyen.Thechangeinexchangerate
a)Willtendtoweakenthecompetitivepositionofimport-competingU.S.carmakers.
b)Willtendtostrengthenthecompetitivepositionofimport-competingU.S.carmakers.
c)WilltendtostrengthenthecompetitivepositionofJapanesecarmakersattheexpenseofU.S.makers.
b)
3WhentheMexicanpesocollapsedin1994,decliningby37percent,
a)U.S.firmsthatexportedtoMexicoandpricedinpesowereadverselyaffected.
b)U.S.firmsthatexportedtoMexicoandpricedindollarswereadverselyaffected.
c)U.S.firmswereunaffectedbythepesocollapse,sinceMexicoissuchasmallmarket.
d)Botha)andb)
d)
Rationale:
a)isobvious,thedollarvalueofrevenuefell.Answerb)islessobvious,butthosefirm’sMexicancustomerswerelessabletoaffordtheimportedgoods.
4Whenexchangerateschange,
a)U.S.firmsthatsellonlytodomesticcustomerswillbeunaffected.
b)U.S.firmsthatsellonlytodomesticcustomerscanbeaffectediftheycompeteagainstimports.
c)U.S.firmsthatsellonlytodomesticcustomerswillbeaffected,butonlyiftheyborrowinforeigncurrencytofinancetheirdomesticoperations.
5Whenexchangerateschange,
a)Thiscanaltertheoperatingcashflowofadomesticfirm.
b)Thiscanalterthecompetitivepositionofadomesticfirm.
c)Thiscanalterthehomecurrencyvaluesofamultinationalfirm’sassetsandliabilities.
d)Alloftheabove
6TworecentstudieshavefoundalinkbetweenexchangeratesandthestockpricesofU.S.firms,
a)Thissuggeststhatexchangeratechangescansystematicallyaffectthevalueofthefirmbyinfluencingitsoperatingcashflows.
b)Thissuggeststhatexchangeratechangescansystematicallyaffectthevalueofthefirmbyinfluencingthedomesticcurrencyvaluesofitsassetsandliabilities.
c)a)andb)
d)Noneoftheabove
7Economicexposurerefersto:
a)thesensitivityofrealizeddomesticcurrencyvaluesofthefirm’scontractualcashflowsdenominatedinforeigncurrenciestounexpectedexchangeratechanges
b)theextenttowhichthevalueofthefirmwouldbeaffectedbyunanticipatedchangesinexchangerate
c)thepotentialthatthefirm’sconsolidatedfinancialstatementcanbeaffectedbychangesinexchangerates
d)expostandexantecurrencyexposures
b)
8Itisconventionaltoclassifyforeigncurrencyexposuresintothefollowingtypes:
a)economicexposure,transactionexposure,andtranslationexposure
b)economicexposure,noneconomicexposure,andpoliticalexposure
c)nationalexposure,internationalexposure,andtradeexposure
d)conversionexposure,andexchangeexposure
a)
9Exposuretocurrencyriskcanbemeasuredbythesensitivitiesof
a)thefuturehomecurrencyvaluesofthefirm’sassetsandliabilities
b)thefirm’soperatingcashflowstorandomchangesinexchangerates
d)noneoftheabove
10
Currencyrisk
a)isthesameascurrencyexposure
b)representsrandomchangesinexchangerates
c)measure“whatthefirmhasatrisk”
d)a)andb)
11SupposeaU.S.-basedMNCmaintainsavacationhomeforemployeesintheBritishcountrysideandthelocalpriceofthispropertyisalwaysmovingtogetherwiththepoundpriceoftheU.S.dollar.Asaresult,
a)Wheneverthepounddepreciatesagainstthedollar,thelocalcurrencypriceofthispropertygoesupbythesameproportion.
b)Thefirmisnotexposedtocurrencyriskevenifthepound-dollarexchangeratefluctuatesrandomly.
12Theexposurecoefficientintheregression
isgivenby:
a)
b)
d)e
a)
13Theexposurecoefficient
intheregression
is:
a)Ameasureofhowachangeintheexchangerateaffectsthedollarvalueofafirm’sassets.
b)Hasavalueofzeroifthevalueofthefirm’sassetsisperfectlycorrelatedwithchangesintheexchangerate
14Thelinkbetweenthehomecurrencyvalueofafirm’sassetsandliabilitiesandexchangeratefluctuationsis:
a)Assetexposure
b)Operatingexposure
15Thelinkbetweenafirm’sfutureoperatingcashflowsandexchangeratefluctuationsis:
16Operatingexposurecanbedefinedas:
b)theextenttowhichthefirm’soperatingcashflowswouldbeaffectedbyrandomchangesinexchangerates
c)thesensitivityofrealizeddomesticcurrencyvaluesofthefirm’scontractualcashflowsdenominatedinforeigncurrenciestounexpectedexchangeratechanges
d)thepotentialthatthefirm’sconsolidatedfinancialstatementcanbeaffectedbychangesinexchangerates
17Thevariabilityofthedollarvalueofanasset(investedoverseas)dependson:
a)thevariabilityofthedollarvalueoftheassetthatisrelatedtorandomchangesintheexchangerate
b)thedollarvaluevariabilitythatisindependentofexchangeratemovements
c)aandb
18ConsideraU.S.MNCwhoownsaforeignasset.Iftheforeigncurrencyvalueoftheassetisinverselyrelatedtochangesinthedollar-foreigncurrencyexchangerate:
a)thecompanyhasabuilt-inhedge
USETHEFOLLOWINGINFORMATIONTOANSWERTHENEXTFOURQUESTIONS
AU.S.firmholdsanassetinGreatBritainandfacesthefollowingscenario:
State1
State2
State3
Probability
25%
50%
Spotrate
$2.20/£
$2.00/£
$1.80/£
P*
£
2,000
2,500
3,000
P
$4,400
$5,000
$5,400
where,
P*=PoundsterlingpriceoftheassetheldbytheU.S.firm
P=dollarpriceofthesameasset
19TheexpectedvalueoftheinvestmentinU.S.dollarsis:
a)$4,950
b)$3,700
c)$2,112.50
E(P)=0.25×
$4,400+0.50×
$5,000+0.25×
$5,400=$4,950
20Thevarianceoftheexchangerateis:
a)0.00200
b)0.10
c)0.01
E(S)=0.25×
$2.20+0.50×
$2.00+0.25×
$1.80=$.55+$1+$.45=$2.00
VAR(S)=0.25($2.20–$2.00)2+0.50($2.00–$2.00)2+0.25($1.80–$2.00)2=0.001+0+0.001
=0.002
21The“exposure”(i.e.theregressioncoefficientbeta)is:
Hint:
Calculatetheexpression
a)–25,000
b)25,000
c)–25
Cov(P,S)
=0.25×
($4,400–$4,950)×
($2.20–$2.00)
+0.50×
($5,000–$4,950)×
($2.00–$2.00)+0.25($5,400–$4,950)($1.80–$2.00)
=–27.50+0–22.50
=–50
b=–50/0.002
=–25,000
22Whichofthefollowingconclusionsarecorrect?
a)mostofthevolatilityofthedollarvalueoftheBritishassetcanberemovedbyhedgingexchangeriskbecauseb2[Var(S)]andVar(e)are236,717($)2and493,751($)2respectively
b)mostofthevolatilityofthedollarvalueoftheBritishassetcannotberemovedbyhedgingexchangeriskbecauseb2[Var(S)]andVar(e)are236,717($)2and493,751($)2respectively
c)mostofthevolatilityofthedollarvalueoftheBritishassetcanNOTberemovedbyhedgingexchangeriskbecauseb2[Var(S)]andVar(e)are1,250,000($)2and–1,122,500($)2respectively
d)mostofthevolatilityofthedollarvalueoftheBritishassetcanberemovedbyhedgingexchangeriskbecauseb2[Var(S)]andVar(e)are1,250,000($)2and–1,122,500($)2respectively
$5,400
=$4,950
Var(P)=0.25($4,400–$4,950)2+0.50($5000–$4,950)2+0.25($5,400–$4,950)2
=75,625+1,250+50,625
=127,500($)2
Fromtheresultstoearlierquestionswehavethevalues:
V(S)=0.002
b=–25,000
Therefore,usingtheEquation9.2,weobtain
V(P)=b2Var(S)+Var(e)
127,500=(–25,000)2×
0.002+Var(e)
Var(e)=127,500–1,250,000
=–1,122,500($)2
Theexpression“b2Var(S)”representsthevolatilityofthedollarvalueoftheassetthatisrelatedtorandomchangesintheexchangerate.Theexpression“Var(e)”isthevolatilityinthedollarvalueoftheassetthatisindependentofexchangeratemovements.Noticethatthere’sabuiltinhedgeinthisexample,whentheexchangerateisdown,the£
-denominatedvalueoftheassetisupandvice-versa.
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