a) Is a short-term tactical issue.
b) Is a long-term issue, like selecting a site for a factory.
c) Is relatively unimportant, since most MNCs have a built-in hedge. d) None of the above Answer: b)
39 Which of the following can a company use to manage operating exposure?
a) Selecting low-cost production sites, diversifying the market. b) Low cost production sites, but not financial hedging.
c) Pursuing a flexible sourcing policy, product differentiation, R& D efforts d) Both a) and c). Answer: d)
Selecting Low-Cost Production Sites
40 When the domestic currency is strong or expected to become strong
a) This could erode the competitive position of the firm’s exports
b) This could erode the competitive position of the firm’s import competition
c) The firm should consider locating production facilities in a foreign country where costs
are low d) a) and c) Answer: d)
41 A foreign country could provide low cost production sites
a) Because the factors of production are underpriced b) Because the currency is undervalued
c) Because the locals like to give away their land labor and capital to foreigners d) a) and b) Answer: d)
42 While maintaining multiple production sites does provide a firm valuable options,
a) A firm may miss out on economies of scope b) A firm may miss out on economies of scale
c) A firm may find that exchange rate changes can fully offset the advantage of multiple
manufacturing sites d) a) and b) Answer: b)
International Finance in Practice: The Strong Yen and Toyota’s Choice
43 Developing multiple production sites in a variety of countries,
a) Can create an excess capacity problem
b) Can lead to underutilization of domestic plants c) Can lead to domestic job losses d) All of the above, Answer: d)
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Flexible Sourcing Policy
44 A firm that is committed to keeping manufacturing facilities in only the home country (and
not developing multiple production sites in a variety of countries) can a) Not mitigate the effects of exchange rate changes.
b) Lessen the effect of exchange rate changes by sourcing from where input costs are low. c) Focus on selling commodity products with product differentiation
d) Pursue a strategy of increasing its products price elasticity of demand. Answer: b)
Diversification of the Market
45 A firm that is committed to keeping manufacturing facilities in only the home country (and
not developing multiple production sites in a variety of countries) can
a) Lessen the effect of exchange rate changes by pursuing a strategy of diversifying the
markets in which the firm’s products are sold. b) Not mitigate the effects of exchange rate changes.
c) Lessen the effect of exchange rate changes by pursuing a strategy of selling commodity
products without product differentiation.
d) Pursue a strategy of increasing its products price elasticity of demand. Answer: a)
R&D Efforts and Product Differentiation Financial Hedging
46 It can be argued that, while financial hedging can be used to stabilize a firm’s cash flows,
a) It is not a substitute for long-term operational hedging.
b) It is therefore a substitute for long-term operational hedging. c) It is inferior to money market hedging. d) None of the above. Answer: a)
47 Investments in R&D
a) Are usually a waste of time and money.
b) Can allow the firm to maintain and strengthen its competitive position. c) Can allow the firm to cut costs and enhance productivity. d) b) and c). Answer: d)
48 The demand for unique products tends to be
a) Highly elastic. b) Highly inelastic. c) Both a) and b) d) None of the above. Answer: b)
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49 In the figure at right, label curves A and B respectively, a) Unhedged, hedged. b) Hedged, unhedged. yc) Normal, abnormal cned) None of the above. uqBAnswer: a)
erf Rationale: figure 9-12 %
AForeign cash flow ($U.S. equivalents)
50 If the stock market of a foreign country is consistently up when the dollar value of the
currency is down,
a) There may not be a great deal of exchange rate risk for a U.S.-based investor. b) There will be a great deal of exchange rate risk for a U.S.-based investor. c) Then investors can ignore diversification. d) None of the above. Answer: a)
Eun/Resnick 4e 120
国际金融9
