Deck 9: Measuring and Managing Real Exchange Risk

Question 1

Which one of the following is NOT a type of subsidiary?

A) The Net Importer
B) The Net Exporter
C) The Neutral Firm
D) The Monopolist

Answer 1

D

Question 2

The only way a firm does not have real exchange risk is in the case of the firm that is ________.

A) completely diversified internationally
B) a net exporter
C) a net importer
D) completely domestic

Answer 2

D

Question 3

When a currency depreciates,if the firm increases it foreign currency price to maintain its profits,it will ________.

A) gain sales from foreign rivals
B) maintain its market share
C) lose sales to foreign rivals
D) be forced to exit the market

Answer 3

C

Question 4

What production process allows a multinational firm to shift or increase production to a plant in a country where the currency has depreciated in real terms in order to minimize costs?

A) input sourcing
B) production scheduling
C) plant location decisions
D) pricing policies

Question 5

The phenomenon where the profitability of the firm is at risk due to real exchange rate change is known as ________ exposure.

A) translation
B) sovereign risk
C) operating
D) accounting

Question 6

An exchange rate pass-through describes the way managers of the firm choose to respond with their relative prices to changes in the ________.

A) nominal exchange rate
B) real exchange rate
C) tariff rates
D) real appreciation of the nominal exchange rates

Question 7

The development of what marketing strategy helps in situations of real exchange risk because consumers will not switch to competitors' products that enjoy a temporary pricing benefit from a favorable fluctuation in the exchange rate?

A) market entry decisions
B) the frequency of price adjustments
C) brand loyalty
D) pricing policy

Question 8

Research indicates that the optimal plan for exporter firms to follow when the currency of a country depreciates is to

A) only increase the price of the good or service being exported in the foreign country relatively to the percentage of the depreciation.
B) only increase the price of the good or service being exported in the foreign country by the full percentage of the depreciation.
C) maintain a given foreign currency price in order to maintain its market share while losing some profit.
D) increase a given foreign currency price in order to maintain its profit while losing sales to foreign rivals.

Question 9

When managers respond to changes in the real exchange rate with their relative price,it is known as ________.

A) real exchange risk
B) economic exposure
C) exchange rate pass-through
D) a real depreciation

Question 10

In general,a real depreciation of the domestic currency ________ importers and ________ exporters.

A) hurts, helps
B) helps, hurts
C) bypasses, helps
D) hurts, bypasses

Question 11

In the face of a currency depreciation,if the firm maintains its foreign currency price,it will ________.

A) lose its market share but gain profits
B) lose its market share and lose profits
C) maintain its market share and gain profits
D) maintain its market share but lose profits

Question 12

Another name for operating exposure is ________ exposure.

A) translation
B) sovereign risk
C) accounting
D) economic

Question 13

________ profitability refers to the purchasing power of a firm's nominal profits.

A) Real
B) Relative
C) Global
D) Inflation-adjusted

Question 14

A real depreciation of the domestic currency hurts domestic ________ firms who must then compete against less expensive imports.

A) exporting
B) import-competing
C) importing
D) export-competing

Question 15

When a currency depreciates,exporters to that country face the trade-off to ________.

A) maintain production or outsource in other markets
B) maintain profits or market share
C) exit the market or choose to stay
D) introduce new products or retire old ones

Question 16

During a change in the real exchange rates,a major factor determining the response of the firm is the ________.

A) supply elasticity of the firm
B) price elasticity of competing product's demand curve
C) price elasticity of the product's demand curve
D) supply elasticity of the industry

Question 17

What production process is sensitive to the real exchange rate because its fluctuations affect the demand for the firm's products?

A) input sourcing
B) production scheduling
C) plant location decisions
D) pricing policies

Question 18

When the firm's nominal profits are divided by the price level,the result is known as ________.

A) nominal profitability
B) real profitability
C) inflation-adjusted profitability
D) relative profitability

Question 19

When a producer charges different prices for the same good in different markets,the practice is known as ________.

A) pricing-to-market
B) exchange rate pass-through
C) marking-to-market
D) market integration

Question 20

In what production process are materials and intermediate parts sensitive to the real exchange due to the fluctuations currency values?

A) input sourcing
B) production scheduling
C) plant location decisions
D) pricing policies

Question 21

When a real appreciation occurs in the domestic currency,who tends to be more profitable?

A) government subsidized companies
B) exporters
C) export competitors
D) import competitors

Question 22

Suppose a monopolist has a choice to charge a higher price in one market than another,what would be the guideline to determine which market is charged more?

A) The market with the less elastic demand curve is charged more.
B) The market with the less elastic demand curve is charged less.
C) The market with the less elastic supply curve is charged more.
D) The market with the less elastic supply curve is charged more.

Question 23

Lands' End is a U.S.mail-order company that sells clothing primarily from catalogs.Initially,all its catalog prices were quoted in U.S.dollars,but recently,the company has expanded and begun printing catalogs with prices denominated in British pounds.Given that the company wants to stand behind its prices for several months,what should the company do if the dollar-pound exchange rate changes?

Question 24

Assume foreign currencies are strong in real terms,why would this be the best time to enter the market of a foreign country as an exporter to that market?

Question 25

Why does the strategy of pricing-to-market depend on the assumption of market segmentation?

Question 26

What determines how much a foreign producer allows the dollar price of a product sold in the United States to be affected by a change in the real exchange rate?

Question 27

When would be the best time for a firm to enter a foreign market as an exporter?

A) given a change in real exchange rates, when foreign currencies are weak
B) given a change in real exchange rates, when foreign currencies are strong
C) given no change in real exchange rates, when foreign currencies are weak
D) given no change in real exchange rates, when foreign currencies are strong

Question 28

You have been asked to evaluate possible sites for an South American production facility that will manufacture your firm's products and sell them to the South American market.What real exchange rate considerations should you entertain in your evaluation?

Question 29

Why is the pass-through from changes in exchange rates to changes in the prices of products not one-for-one?

Question 30

When a real depreciation occurs in the domestic currency,who tends to be more profitable?

A) government subsidized companies
B) importers
C) export competitors
D) import competitors

Question 31

How would an exporter who always shifts exchange rate risk to the importer by invoicing in the home currency actually threaten future sales?

Question 32

For pricing-to-market to be effective,producers must assume that markets are

A) segmented.
B) integrated.
C) uninformed of price changes in other market.
D) dominated by traders who trade for reasons other than responses to fundamental economic change.