Test Bank For International Corporate Finance 1st Edition Ashok Robin

Test Bank For International Corporate Finance 1st Edition Ashok Robin

Chapter 06

Currency Risk Exposure Measurement

Multiple Choice Questions
1. ________________ are subject to currency risks.
A. All firms
B. Only MNCs
C. All MNCs and many domestic firms
D. Only foreign-based firms

2. Countries with floating exchange rates have currencies:
A. whose values rarely change.
B. that are subject to value changes at regular intervals.
C. that are controlled by currency boards with a great deal of power.
D. whose values may change as economic conditions and market sentiments change.

3. Changes in the value of currencies:
A. occur only in floating currency systems.
B. can occur in floating currency systems, in managed floating systems, and even in fixed systems.
C. occur only in floating and managed floating currency systems.
D. occur uniformly in all currency systems.

4. 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 for 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.

5. 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.

6. The formula for converting currency values into currency returns is:
A. (S_t + S_t-1)/2
B. (S_t/S_t-1) – 1
C. (S_t-1/S_t) – 1
D. (S_t-1/S_t) + 1

7. For purposes of determining standard deviation, the variance of a currency is:
A. the square root of the variance of the currency.
B. an average of the deviations from the currency.
C. plus or minus the average value of the currency over a specific period.
D. the average of squared deviations from the mean.

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 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.

10. One of the implicit assumptions in using standard deviation as a measure of currency risk is that:
A. currency changes occur randomly in no discernable pattern.
B. only one currency can be considered at any one point in time.
C. the currency being considered has been actively traded in the currency markets for at least ten years.
D. currency changes are normally distributed, which means that currency changes occur in a regular pattern.