Full International Financial Management 8Th Edition Eun Test Bank Online PDF All Chapter

International Financial Management 8th
Edition Eun Test Bank

Visit to download the full and correct content document: https://testbankdeal.com/dow
nload/international-financial-management-8th-edition-eun-test-bank/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
International Financial Management 7th Edition Eun Test

Bank
https://testbankdeal.com/product/international-financial-
management-7th-edition-eun-test-bank/
International Financial Management 7th Edition Eun

Solutions Manual
management-7th-edition-eun-solutions-manual/
International Financial Management Canadian

Perspectives 2nd Edition Eun Test Bank
management-canadian-perspectives-2nd-edition-eun-test-bank/
International Financial Management 8th Edition Madura

Test Bank
management-8th-edition-madura-test-bank/
International Finance Global 6th Edition Eun Test Bank
https://testbankdeal.com/product/international-finance-
global-6th-edition-eun-test-bank/

Solutions Manual
management-8th-edition-madura-solutions-manual/

Test Bank

Test Bank
International Financial Management 2nd Edition Bekaert

Test Bank
management-2nd-edition-bekaert-test-bank/
International Financial Management, 8e (Eun)
Chapter 9 Management of Economic Exposure
1) Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in
exchange rate
A) can have significant economic consequences for U.S. firms.
B) can have significant economic consequences for Japanese firms.
C) can have significant economic consequences for both U.S. and Japanese firms.
D) none of the options
Answer: C
Topic: How to Measure Economic Exposure
Accessibility: Keyboard Navigation
2) Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in
exchange rate
A) will tend to weaken the competitive position of import-competing U.S. car makers.
B) will tend to strengthen the competitive position of import-competing U.S. car makers.
C) will tend to strengthen the competitive position of Japanese car makers at the expense of U.S.
makers.
Answer: B
3) The link between a firm's future operating cash flows and exchange rate fluctuations is
A) asset exposure.
B) operating exposure.
C) asset exposure and operating exposure.
Answer: B
4) When the Mexican peso collapsed in 1994, declining by 37 percent,

A) U.S. firms that exported to Mexico and priced in peso were adversely affected.
B) U.S. firms that exported to Mexico and priced in dollars were adversely affected.
C) U.S. firms were unaffected by the peso collapse, since Mexico is such a small market.
D) U.S. firms that exported to Mexico and priced in peso were adversely affected, and U.S. firms
that exported to Mexico and priced in dollars were adversely affected.
Answer: D
1
Copyright © 2018 McGraw-Hill
5) When exchange rates change,
A) U.S. firms that produce domestically and sell only to domestic customers will be unaffected.
B) U.S. firms that produce domestically and sell only to domestic customers can be affected if they
compete against imports.
C) U.S. firms that produce domestically and sell only to domestic customers will be affected, but
only if they borrow in foreign currency to finance their domestic operations.
D) U.S. firms that produce domestically and sell only to domestic customers will be unaffected,
and U.S. firms that produce domestically and sell only to domestic customers can be affected if
they compete against imports.
Answer: B
6) When exchange rates change,

A) this can alter the operating cash flow of a domestic firm.
B) this can alter the competitive position of a domestic firm.
C) this can alter the home currency values of a multinational firm's assets and liabilities.
D) all of the options
Answer: D
7) Two studies found a link between exchange rates and the stock prices of U.S. firms;
A) this suggests that exchange rate changes can systematically affect the value of the firm by
influencing its operating cash flows.
B) this suggests that exchange rate changes can systematically affect the value of the firm by
influencing the domestic currency values of its assets and liabilities.
C) this suggests that exchange rate changes can systematically affect the value of the firm by
influencing its operating cash flows, as well influencing the domestic currency values of its assets
and liabilities.
Answer: C
8) It is conventional to classify foreign currency exposures into the following types:

A) economic exposure, transaction exposure, and translation exposure.
B) economic exposure, noneconomic exposure, and political exposure.
C) national exposure, international exposure, and trade exposure.
D) conversion exposure, and exchange exposure.
Answer: A
2
9) Exposure to currency risk can be measured by the sensitivities of
A) the future home currency values of the firm's assets and liabilities.
B) the firm's operating cash flows to random changes in exchange rates.
C) the future home currency values of the firm's assets and liabilities, as well as the firm's
operating cash flows to random changes in exchange rates.
Answer: C
10) Operating exposure measures

A) the extent to which the foreign currency value of the firm's assets is affected by unanticipated
changes in exchange rates.
B) the extent to which the firm's operating cash flows will be affected by unexpected changes in
exchange rates.
C) the effect of changes in exchange rates will have on the consolidated financial reports of a
MNC.
D) the effect of unanticipated changes in exchange rates on the dollar value of contractual
obligations denominated in a foreign currency.
Answer: B
11) Economic exposure refers to

A) the sensitivity of realized domestic currency values of the firm's contractual cash flows
denominated in foreign currencies to unexpected exchange rate changes.
B) the extent to which the value of the firm would be affected by unanticipated changes in
exchange rate.
C) the potential that the firm's consolidated financial statement can be affected by changes in
exchange rates.
D) ex post and ex ante currency exposures.
Answer: B
3
12) Currency risk
A) is the same as currency exposure.
B) represents random changes in exchange rates.
C) measure "what the firm has at risk."
D) is the same as currency exposure and represents random changes in exchange rates.
Answer: B
13) Suppose a U.S.-based MNC maintains a vacation home for employees in the British
countryside and the local price of this property is always moving together with the pound price of
the U.S. dollar. As a result,
A) whenever the pound depreciates against the dollar, the local currency price of this property goes
up by the same proportion.
B) the firm is not exposed to currency risk even if the pound–dollar exchange rate fluctuates
randomly.
C) whenever the pound depreciates against the dollar, the local currency price of this property goes
up by the same proportion. Additionally, the firm is not exposed to currency risk even if the
pound–dollar exchange rate fluctuates randomly.
Answer: C
14) The exposure coefficient in the regression P = a + b × S + e is given by

A) b =
B) P = a + b × S + e
C) b =
Answer: A
4
15) The exposure coefficient b = in the regression P = a + b × S + e is
A) a measure of how a change in the exchange rate affects the dollar value of a firm's assets.
B) a value of zero if the value of the firm's assets is perfectly correlated with changes in the
exchange rate.
C) a measure of how a change in the exchange rate affects the dollar value of a firm's assets, and
has a value of zero if the value of the firm's assets is perfectly correlated with changes in the
exchange rate.
Answer: A
16) The exposure coefficient b = in the regression P = a + b × S + e informs
A) how much of a foreign currency to sell forward.

B) the part of the variability of the dollar value of the asset that is related to random changes in the
exchange rate.
C) captures the residual part of the dollar value variability that is independent of exchange rate
movements.
D) how many call options to write.
Answer: A
17) Before you can use the hedging strategies such as a forward market hedge, options market
hedge, and so on, you should consider running a regression of the form P = a + b × S + e . When
reviewing the output, you should initially focus on
A) the intercept a.
B) the slope coefficient b.
C) mean square error, MSE.
D) R2.
Answer: B
5
18) The link between the home currency value of a firm's assets and liabilities and exchange rate
fluctuations is
A) asset exposure.
C) asset exposure and operating exposure.
Answer: A
19) A purely domestic firm that sources and sells only domestically,
A) faces exchange rate risk to the extent that it has international competitors in the domestic
market.
B) faces no exchange rate risk.
C) should never hedge since this could actually increase its currency exposure.
D) faces no exchange rate risk and should never hedge since this could actually increase its
currency exposure.
Answer: A
20) In recent years, the U.S. dollar has depreciated substantially against most major currencies of
the world, especially against the euro.
A) The stronger euro has made many European products more expensive in dollar terms, hurting
sales of these products in the United States.
B) The stronger euro has made many American products less expensive in euro terms, boosting
sales of U.S. products in Europe.
C) The stronger euro has made many European products more expensive in dollar terms, hurting
sales of these products in the United States. Additionally, the stronger euro has made many
American products less expensive in euro terms, boosting sales of U.S. products in Europe.
Answer: C
6
21) In recent years,
A) the U.S. dollar has appreciated substantially against most major currencies of the world,
especially against the euro.
B) the U.S. dollar has depreciated substantially against most major currencies of the world,
especially against the euro.
C) the U.S. dollar has maintained its value against most major currencies of the world, especially
against the euro.
Answer: B
22) From the perspective of the U.S. firm that owns an asset in Britain, the exposure that can be
measured by the coefficient b in regressing the dollar value P of the British asset on the dollar–
pound exchange rate S using regression equation P = a + b × S + e is
A) asset exposure.
C) accounting exposure.
Answer: A
23) On the basis of regression equation P = a + b × S + e, we can decompose the variability of the
dollar value of the asset, VAR(P), into two separate components:
A) Cov(P,S) = b2 × VAR(P) + VAR(S)
B) VAR(P) = b2 × VAR(S) + VAR(e)
C) Cov(P,S) = b2 × Cov(S,P) + Cov(S,e)
D) VAR(P) = b2 × VAR(S)
Answer: B
7
dollar value of the asset, VAR(P), into two separate components: VAR(P) = b2 × VAR(S) +
VAR(e). The first term in the right-hand side of the equation, b2 × VAR(S) represents
A) the part of the variability of the dollar value of the asset that is related to random changes in the
exchange rate.
B) the residual part of the dollar value variability that is independent of exchange rate movements.
C) the part of the variability of the dollar value of the asset that is related to random changes in the
exchange rate, as well as the residual part of the dollar value variability that is independent of
exchange rate movements.
Answer: A
dollar value of the asset, VAR(P), into two separate components: VAR(P) = b2 × VAR(S) +
VAR(e). The second term in the right-hand side of the equation, VAR(e) represents
A) the part of the variability of the dollar value of the asset that is related to random changes in the
exchange rate.
B) the residual part of the dollar value variability that is independent of exchange rate movements.
C) the part of the variability of the dollar value of the asset that is related to random changes in the
exchange rate, as well as the residual part of the dollar value variability that is independent of
Answer: B
26) What does it mean to have redenominated an asset in terms of the dollar?
A) You have undertaken a hedging strategy that gives the asset a constant dollar value.
B) Multiply the foreign currency value of the asset by the spot exchange rate.
C) You have undertaken accounting changes to eliminate translation exposure.
Answer: A
8
27) A firm with a highly elastic demand for its products
A) will be unable to pass increased costs following unfavorable changes in the exchange rate
without significantly lowering the quantity sold.
B) will be able to raise prices following unfavorable changes in the exchange rate without
significantly lowering the quantity sold.
C) can easily pass increased costs on to consumers.
D) will sell about the same amount of product regardless of price.
Answer: A
28) Operating exposure can be defined as

A) the link between the future home currency values of the firm's assets and liabilities and
exchange rate fluctuations.
B) the extent to which the firm's operating cash flows would be affected by random changes in
exchange rates.
C) the sensitivity of realized domestic currency values of the firm's contractual cash flows
denominated in foreign currencies to unexpected exchange rate changes.
D) the potential that the firm's consolidated financial statement can be affected by changes in
exchange rates.
Answer: B
Topic: Operating Exposure: Definition
29) The extent to which the firm's operating cash flows would be affected by random changes in
exchange rates is called
A) asset exposure.
C) asset exposure or operating exposure.
Answer: B
9
30) The variability of the dollar value of an asset (invested overseas) depends on
A) the variability of the dollar value of the asset that is related to random changes in the exchange
rate.
B) the dollar value variability that is independent of exchange rate movements.
C) the variability of the dollar value of the asset that is related to random changes in the exchange
rate, as well as the dollar value variability that is independent of exchange rate movements.
Answer: C
31) Consider a U.S. MNC who owns a foreign asset. If the foreign currency value of the asset is
inversely related to changes in the dollar–foreign currency exchange rate,
A) the company has a built-in hedge.
B) the dollar value variability that is independent of exchange rate movements.
C) the company has a built-in hedge and the dollar value variability that is independent of
Answer: C
32) With regard to operational hedging versus financial hedging,

A) operational hedging provides a more stable long-term approach than does financial hedging.
B) financial hedging, when instituted on a rollover basis, is a superior long-term approach to
operational hedging.
C) since they both have the same goal, stabilizing the firm's cash flows in domestic currency, they
are fungible in use.
Answer: A
10
33) Which of the following are identified by your text as a strategy for managing operating
exposure?
(i) Selecting low-cost production sites

(ii) Flexible sourcing policy
(iii) Diversification of the market
(iv) Product differentiation and R&D efforts
(v) Financial Hedging
A) (i), (iii), and (v) only
B) (ii) and (iv) only
C) (i), (iv), and (v) only
Answer: D
34) A U.S. firm holds an asset in Great Britain and faces the following scenario:
State 1 State 2 State 3

Probability 25% 50% 25%
Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 2,000 £ 2,500 £ 3,000
P $ 4,400 $ 5,000 $ 5,400
where,
P* = Pound sterling price of the asset held by the U.S. firm
P = Dollar price of the same asset
The expected value of the investment in U.S. dollars is

A) $4,950.
B) $3,700.
C) $2,112.50.
Answer: A
Explanation: $4,400 (0.25) + $5,000 (0.5) + $5,400 (0.25) = $4,950
11

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 2,000 £ 2,500 £ 3,000
P $ 4,400 $ 5,000 $ 5,400
where,
The variance of the exchange rate is:

A) 0.0200
B) 0.10
C) 0.002
Answer: A
Explanation: The mean is 2 = ($2.2 + $2 + $1.8) / 3; [0.25 (2.2 − 2)2] + [0.5 (2 - 2)2] + [0.25 (1.8
− 2)2] = 0.01 + 0 + 0.01 = 0.02
12

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 2,000 £ 2,500 £ 3,000
P $ 4,400 $ 5,000 $ 5,400

The "exposure" (i.e. the regression coefficient beta) is
Hint: Calculate the expression .
A) −25,000
B) 2,500
C) −2,500
Answer: C
Explanation: First, find the variance. The mean is 2 = ($2.2 + $2 + $1.8) / 3; [0.25 (2.2 − 2)2] +
[0.5 (2 − 2)2] + [0.25 (1.8 − 2)2] = 0.01 + 0 + 0.01 = 0.02 Next, find the covariance, where the
mean = $4,933.33 = ($4,400 + $5,000 + $5,400) / 3. Solve, 0.25 [($4,400 −$4,933.33) × (2.2 − 2)]
+ 0.5 [($5,000 − $4,933.33) × (2 − 2)] + 0.25 [($5,000 − $4,933.33) × (1.8 − 2)] = −26.6665 + 0 −
23.3335 = −50. Exposure = −50 / 0.02 = − $2,500.
13

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 2,000 £ 2,500 £ 3,000
P $ 4,400 $ 5,000 $ 5,400
where,
Which of the following conclusions are correct?

A) Most of the volatility of the dollar value of the British asset can be removed by hedging
exchange risk because b2[Var(S)] and VAR(e) are 236,717 ($)2 and 493,751 ($)2 respectively.
B) Most of the volatility of the dollar value of the British asset cannot be removed by hedging
C) Most of the volatility of the dollar value of the British asset cannot be removed by hedging
exchange risk because b2[Var(S)] and VAR(e) are 125,000 ($)2 and −127,500 ($)2 respectively.
D) Most of the volatility of the dollar value of the British asset can be removed by hedging
Answer: D
14

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 2,000 £ 2,500 £ 3,000
P $ 4,400 $ 5,000 $ 5,400
where,
Which of the following would be an effective hedge?

A) Sell £2,500 forward at the 1-year forward rate, F1($/£), that prevails at time zero.
B) Buy £2,500 forward at the 1-year forward rate, F1($/£), that prevails at time zero.
C) Sell £25,000 forward at the 1-year forward rate, F1($/£), that prevails at time zero.
Answer: B

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 3,000 £ 2,500 £ 2,000
P $ 6,600 $ 5,000 $ 3,600
where,
The expected value of the investment in U.S. dollars is

A) $5,050
B) $3,700
C) $2,112.50
Answer: A
Explanation: $6,600 (0.25) + $5,000 (0.5) + $3,600 (0.25) = $5,050
15

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 3,000 £ 2,500 £ 2,000
P $ 6,600 $ 5,000 $ 3,600
where,
The variance of the exchange rate is

A) 0.0200
B) 0.10
C) 0.002
Answer: A
Explanation: The mean is 2 = ($2.2 + $2 + $1.8) / 3; [0.25 (2.2 − 2)2] + [0.5 (2 − 2)2] + [0.25 (1.8
− 2)2] = 0.01 + 0 + 0.01 = 0.02
16

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 3,000 £ 2,500 £ 2,000
P $ 6,600 $ 5,000 $ 3,600
where,
A) 7,500
B) 2,500
C) −2,500
Answer: A
Explanation: First, find the variance. The mean is 2 = ($2.2 + $2 + $1.8) / 3; [0.25 (2.2 − 2)2] +
[0.5 (2 − 2)2] + [0.25 (1.8 − 2)2] = 0.01 + 0 + 0.01 = 0.02 Next, find the covariance, where the
mean = $5,066.67 = ($6,600 + $5,000 + $3,600) / 3. Solve, 0.25 [($6,600 − $5,066.67) × (2.2 − 2)]
+ 0.5 [($5,000 − $5,066.67) × (2 − 2)] + 0.25 [($3,600 − $5,066.67) × (1.8 − 2)] = 76.6665 + 0 +
73.3335 = 150. Exposure = 150 / 0.02 = $7,500.
17

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 3,000 £ 2,500 £ 2,000
P $ 6,600 $ 5,000 $ 3,600
where,

exchange risk because b2[Var(S)] and VAR(e) are 1,125,000 ($)2 and 2,500 ($)2 respectively.
B) Most of the volatility of the dollar value of the British asset cannot be removed by hedging
Answer: A
18

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 3,000 £ 2,500 £ 2,000
P $ 6,600 $ 5,000 $ 3,600
where,

Answer: A

Spot rate $ 2.50/£ $ 2.00/£ $ 1.60/£
P* £ 1,800 £ 2,250 £ 2,812.50
P $ 4,500 $ 4,500 $ 4,500
where,
The expected value of the investment in U.S. dollars is:

A) $5,050
B) $4,500
C) $2,112.50
Answer: B
Explanation: $4,500 (0.25) + $4,500 (0.5) + $4,500 (0.25) = $4,500
19

Spot rate $ 2.50/£ $ 2.00/£ $ 1.60/£
P* £ 1,800 £ 2,250 £ 2,812.50
P $ 4,500 $ 4,500 $ 4,500
where,
The variance of the exchange rate is

A) 0.0200
B) 0.1019
C) 0.0020
Answer: B
Explanation: The mean is 2.03 = ($2.5 + $2 + $1.6) / 3; [0.25 (2.5 − 2.03)2] + [0.5 (2 − 2.03)2] +
[0.25 (1.6 − 2.03)2] = 0.055225 + 0.00045 + 0.046225 = 0.1019
20

Spot rate $ 2.50/£ $ 2.00/£ $ 1.60/£
P* £ 1,800 £ 2,250 £ 2,812.50
P $ 4,500 $ 4,500 $ 4,500
where,
A) 7,500
B) 2,500
C) −2,500
Answer: D
Explanation: First, find the variance. The mean is 2.03 = ($2.5 + $2 + $1.6) / 3; [0.25 (2.5 −
2.03)2] + [0.5 (2 − 2.03)2] + [0.25 (1.6 − 2.03)2] = 0.055225 + 0.00045 + 0.046225 = 0.1019.
Next, find the covariance, where the mean = $4,500 = ($4,500 + $4,500 + $4,500) / 3. Solve, 0.25
[($4,500 − $4,500) × (2.5 − 2.03)] + 0.5 [($4,500 − $4,500) × (2 − 2.03)] + 0.25 [($4,500 − $4,500)
× (1.6 − 2.03)] = 0. Exposure = 0 / 0.1019 = $0.
21

Spot rate $ 2.50/£ $ 2.00/£ $ 1.60/£
P* £ 1,800 £ 2,250 £ 2,812.50
P $ 4,500 $ 4,500 $ 4,500
where,

exchange risk because b2[VAR(S)] and VAR(e) are 0 ($)2 and 0 ($)2 respectively.
B) None of the volatility of the dollar value of the British asset can be removed by hedging
exchange risk because b2[VAR(S)] and VAR(e) are 0 ($)2 and 0 ($)2 respectively.
exchange risk because b2[VAR(S)] and VAR(e) are 125,000 ($)2 and −127,500 ($)2 respectively.
exchange risk because b2[VAR(S)] and VAR(e) are 125,000 ($)2 and −127,500 ($)2 respectively.
Answer: B
22

Spot rate $ 2.50/£ $ 2.00/£ $ 1.60/£
P* £ 1,800 £ 2,250 £ 2,812.50
P $ 4,500 $ 4,500 $ 4,500
where,

A) Sell £2,278.13 forward at the 1-year forward rate, F1($/£), that prevails at time zero.
Answer: D
49) A U.S. firm holds an asset in Israel and faces the following scenario:

Spot rate $ 0.30/IS $ 0.20/IS $ 0.15/IS
P* IS 2,000 IS 5,000 IS 3,000
P $ 600 $ 1,000 $ 4,50
where,
P* = Israeli shekel (IS) price of the asset held by the U.S. firm

A) $2,083.33
B) $762.50
C) $6,250.00
D) $6,562.50
Answer: B
Explanation: $600 (0.25) + $1,000 (0.5) + $450 (0.25) = $762.50
23

Spot rate $ 0.30/IS $ 0.20/IS $ 0.15/IS
P* IS 2,000 IS 5,000 IS 3,000
P $ 600 $ 1,000 $ 4,50
where,

A) 0.001901
B) 0.002969
C) 0.0039
D) 0.0049
Answer: B
Explanation: $0.2125 = 0.25 ($0.30) + 0.50 ($020) + 0.25 ($0.15); [0.25 (0.30 − 0.2125)2] + [0.5
(0.20 − 0.2125)2] + [0.25 (0.15 − 0.2125)2] = 0.001914 + 0.000078 + 0.000976 = 0.002969
24

Spot rate $ 0.30/IS $ 0.20/IS $ 0.15/IS
P* IS 2,000 IS 5,000 IS 3,000
P $ 600 $ 1,000 $ 4,50
where,
The "exposure" (i.e., the regression coefficient beta) is
A) −52.6316
B) 1,289.80
C) 12,898.00
Answer: A
25

Spot rate $ 0.30/IS $ 0.20/IS $ 0.15/IS
P* IS 2,000 IS 5,000 IS 3,000
P $ 600 $ 1,000 $ 4,50
where,

A) Most of the volatility of the dollar value of the Israeli asset can be removed by hedging
B) Most of the volatility of the dollar value of the Israeli asset cannot be removed by hedging
C) Most of the volatility of the dollar value of the Israeli asset cannot be removed by hedging
exchange risk because b2[Var(S)] and VAR(e) are 8.22 ($)2 and 59,211 ($)2, respectively.
D) Most of the volatility of the dollar value of the Israeli asset can be removed by hedging
exchange risk because b2[Var(S)] and VAR(e) are 8.22 ($)2 and 59,211 ($)2 respectively.
Answer: C
26

Spot rate $ 0.30/IS $ 0.20/IS $ 0.15/IS
P* IS 2,000 IS 5,000 IS 3,000
P $ 600 $ 1,000 $ 4,50
where,

A) Sell 53 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time zero.
B) Buy 53 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time zero.
C) Sell 12,898 Israeli shekels forward at the 1-year forward rate, F1($/IS), that prevails at time
zero.
Answer: B
27
54) Find an effective hedge financial hedge if a U.S. firm holds an asset in Great Britain and faces
the following scenario:

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 3,000 £ 2,500 £ 2,000
P $ 6,600 $ 5,000 $ 3,600

The CFO runs a regression of the form P = a + b × S + e
The regression coefficient beta is calculated as b =
Where
Cov(P,S) = 0.25 × ($6,600 - $5,050) × ($2.20 - $2.00)
+ 0.50 × ($5,000 - $5,050) × ($2.00 - $2.00)
+ 0.25 × ($3,600 - $5,050) × ($1.80 - $2.00)
Cov(P,S) = 77.50 + 0 + 72.50
Cov(P,S) = 150
b= = 7,500
The variance of the exchange rate is calculated as

E(S) = 0.25 × $2.20 + 0.50 × $2.00 + 0.25 × $1.80
= $.55 + $1 + $.45
= $2.00
VAR(S) = 0.25 + 0.50 + 0.25

= 0.01 + 0 + 0.01
= 0.02

E[P] = 0.25 × $6,600 + 0.50 × $5,000 + 0.25 × $3,600 = $5,050
Which of the following is the most effective hedge financial hedge?

D) 0.25 × £3,000 + 0.50 × £2,500 + 0.25 × £2,000 = £2,500
Answer: A
28
55) Find an effective hedge financial hedge if a U.S. firm holds an asset in Great Britain and faces
the following scenario:

Spot rate $ 2.20/£ $ 2.00/£ $ 1.80/£
P* £ 3,000 £ 2,500 £ 2,000
P $ 6,600 $ 5,000 $ 3,600

The CFO runs a regression of the form P = a + b × S + e
The regression coefficient beta is calculated as b =
Where
Cov(P,S) = 0.25 × ($6,600 - $5,050) × ($2.20 - $2.00)
+ 0.50 × ($5,000 - $5,050) × ($2.00 - $2.00)
+ 0.25 × ($3,600 - $5,050) × ($1.80 - $2.00)
Cov(P,S) = 77.50 + 0 + 72.50
Cov(P,S) = 150
b= = 7,500
The variance of the exchange rate is calculated as

E(S) = 0.25 × $2.20 + 0.50 × $2.00 + 0.25 × $1.80
= $.55 + $1 + $.45
= $2.00
VAR(S) = 0.25 + 0.50 + 0.25

= 0.01 + 0 + 0.01
= 0.02

E[P] = 0.25 × $6,600 + 0.50 × $5,000 + 0.25 × $3,600 = $5,050
Suppose that you implement your hedge at F1($/£) = $2/£. Your cash flows in state 1, 2, and 3
respectively will be
A) $5,100, $5,000, $5,100.
B) $5,100, $5,100, $5,100.
C) $5,000, $5,000, $5,000.
Answer: A
29

Spot rate $ 2.50/£ $ 2.00/£ $ 1.60/£
P* £ 1,800 £ 2,250 £ 2,812.50
Where
The CFO decides to hedge his exposure by selling forward the expected value of the pound
denominated cash flow at F1($/£) = $2/£. As a result,
A) the firm's exposure to the exchange rate is made worse.
B) he has a nearly perfect hedge.
C) he has a perfect hedge.
Answer: A
57) A U.S. firm holds an asset in Italy and faces the following scenario:

Spot rate $ 2.50 $ 1.50 $ 0.90
P* € 1,350.00 € 2,250.00 € 3,750.00
Where
P* = Euro price of the asset held by the U.S. firm
The CFO decides to hedge his exposure by selling forward the expected value of the euro
denominated cash flow at F1($/£) = $1.50/€. As a result,
A) the firm's exposure to the exchange rate is made worse.
B) he has a nearly perfect hedge.
C) he has a perfect hedge.
Answer: A
30
58) Suppose a U.S. firm has an asset in Britain whose local currency price is random. For
simplicity, suppose there are only three states of the world and each state is equally likely to occur.
The future local currency price of this British asset (P*) as well as the future exchange rate (S) will
be determined, depending on the realized state of the world.
State Probability P* S S × P*
1 1/3 £ 980 $ 1.40/£ $ 1,372
2 1/3 £ 1,000 $ 1.50/£ $ 1,500
3 1/3 £ 1,070 $ 1.60/£ $ 1,712
Which of the following statements is most correct?

A) The firm faces no exchange rate risk since the local currency price of the asset and the exchange
rate are negatively correlated.
B) The firm faces substantial exchange rate risk since the local currency price of the asset and the
exchange rate are positively correlated.
C) The firm's exchange rate exposure can be completely hedged with derivatives written on the
British pound.
D) Since randomness is involved, no hedging is possible.
Answer: B
1 1/3 £ 1,000 $ 1.40/£ $ 1,400
2 1/3 £ 1,000 $ 1.50/£ $ 1,500
3 1/3 £ 1,000 $ 1.60/£ $ 1,600

British pound.
Answer: C
31
1 1/3 £ 1,000 $ 1.40/£ $ 1,400
2 1/3 £ 933 $ 1.50/£ $ 1,400
3 1/3 £ 875 $ 1.60/£ $ 1,400

British pound.
Answer: A
61) Suppose a U.S. firm has an asset in Italy whose local currency price is random. For simplicity,
suppose there are only three states of the world and each state is equally likely to occur. The future
local currency price of this asset (P*) as well as the future exchange rate (S) will be determined,
depending on the realized state of the world.
1 1/3 € 1,000 $ 1.40/£ $ 1,400
2 1/3 € 933 $ 1.50/£ $ 1,400
3 1/3 € 875 $ 1.60/£ $ 1,400
Assume that you choose to "hedge" this asset by selling forward the expected value of the euro
denominated cash flow at F1($/£) = $1.50/€. Calculate your cash flows in each of the possible
states.
A) $1,400, $1,400, $1,400
B) $1,496.6, $1,400, $1,306.40
C) $1,404, $1,404. $1,404
Answer: A
32
62) Consider a U.S.-based MNC with a wholly-owned Italian subsidiary. Following a depreciation
of the dollar against the euro, which of the following conclusions are correct?
A) The cash flow in euro could be altered due an alteration in the firm's competitive position in the
marketplace.
B) A given operating cash flow in euro will be converted to a higher U.S. dollar cash flow.
C) The cash flow in euro could be altered due an alteration in the firm's competitive position in the
marketplace, and a given operating cash flow in euro will be converted to a higher U.S. dollar cash
flow.
Answer: C
Topic: Illustration of Operating Exposure
63) Consider a U.S.-based MNC with a wholly-owned Italian subsidiary. Following a depreciation
of the dollar against the euro, which of the following describes the competitive effect of the
depreciation?
A) The cash flow in euro could be altered due an alteration in the firm's competitive position in the
marketplace.
B) A given operating cash flow in euro will be translated to a higher U.S. dollar cash flow.
C) The cash flow in euro could be altered due an alteration in the firm's competitive position in the
marketplace, and a given operating cash flow in euro will be translated to a higher U.S. dollar cash
flow.
Answer: A
64) Consider a U.S. MNC with operations in Great Britain. Which of the following are potential
risks following a strengthening of the dollar?
A) A pound sterling depreciation may affect operating cash flow in pounds by altering the firm's
competitive position in the marketplace.
B) A given operating cash flow in pounds will be converted into a lower dollar amount after the
pound depreciation.
C) A pound sterling depreciation may affect operating cash flow in pounds by altering the firm's
competitive position in the marketplace, and a given operating cash flow in pounds will be
converted into a lower dollar amount after the pound depreciation.
Answer: C
33
65) Which of the following is false?
A) The competitive effect is that a depreciation may affect operating cash flow in the foreign
currency by altering the firm's competitive position in the marketplace.
B) The conversion effect is defined as a given operating cash flow in a foreign currency will be
converted into a lower dollar amount after a currency depreciation.
C) The competitive effect is defined as a given operating cash flow in a foreign currency will be
Answer: C
66) Consider a U.S.-based MNC with a wholly-owned German subsidiary. Following a

depreciation of the dollar against the euro, which of the following describes the conversion effect
of the depreciation?
A) The cash flow in euro could be altered due a change in the firm's competitive position in the
marketplace.
B) A given operating cash flow in euro will be translated to a higher U.S. dollar cash flow.
C) The cash flow in euro could be altered due a change in the firm's competitive position in the
market place, and a given operating cash flow in euro will be translated to a higher U.S. dollar cash
flow.
Answer: B
67) Consider a U.S.-based MNC with a wholly-owned French subsidiary. Following a

depreciation of the dollar against the euro, which of the following best describes the mechanism of
any effect of the depreciation?
A) The change in the cash flow in euro due an alteration in the firm's competitive position in the
marketplace is in part a function of the elasticity of demand for the firm's product.
B) A given operating cash flow in euro will be translated to a higher U.S. dollar cash flow
regardless of the firm's hedging program.
C) The change in the cash flow in euro due an alteration in the firm's competitive position in the
marketplace is in part a function of the elasticity of demand for the firm's product, and a given
operating cash flow in euro will be translated to a higher U.S. dollar cash flow regardless of the
firm's hedging program.
Answer: A
34
68) Which of the following is true?
A) The competitive effect is that a currency depreciation may affect operating cash flow in the
foreign currency by altering the firm's competitive position in the marketplace.
B) The conversion effect is defined as a given accounting cash value in a foreign currency will be
converted into a lower dollar amount after currency depreciation.
C) The competitive effect is defined as a given operating cash flow in a foreign currency will be
Answer: A
69) Consider a U.S.-based MNC with a wholly-owned European subsidiary selling a product
sourced in euro and priced in euro with inelastic demand. Following a depreciation of the dollar
against the euro, which of the following is the truest?
A) Since they have inelastic demand, the U.S. firm can just pass through the impact of the
exchange rate change.
B) Since they have elastic demand, the U.S. firm cannot just pass through the impact of the
exchange rate change.
C) Since the exchange rate movement was favorable to the U.S. firm, there is no impact on the
firm's position.
D) none of the options.
Answer: D
Topic: Determinants of Operating Exposure
70) A firm's operating exposure is

A) defined as the extent to which the firm's operating cash flows would be affected by the random
changes in exchange rates.
B) determined by the structure of the markets in which the firm sources its inputs, such as labor
and materials, and sells its products.
C) determined by the firm's ability to mitigate the effect of exchange rate changes by adjusting its
markets, product mix, and sourcing.
Answer: D
35
71) Generally speaking, a firm is subject to high degrees of operating exposure
A) when its costs are sensitive to exchange rate changes.
B) when its prices are sensitive to exchange rate changes.
C) when either its cost or its price is sensitive to exchange rate changes.
Answer: C
72) Generally speaking, when both a firm's costs and its price are sensitive to exchange rate
changes,
A) the firm is not subject to high degrees of operating exposure.
B) the firm is subject to high degrees of operating exposure.
C) the firm should hedge.
Answer: A
73) The firm may not be subject to high degrees of operating exposure
A) when changes in real exchange rates are exactly offset by the inflation differential.
B) when changes in nominal exchange rates are exactly matched by the inflation differential.
C) when changes in nominal exchange rates are exactly offset by the inflation differential.
Answer: C
74) The firm may not be able to pass through changes in the exchange rate
A) in markets with low product differentiation.
B) in markets with high price elasticities.
C) in markets with low product differentiation or in markets with high price elasticities.
Answer: C
36
75) The firm may not be able to pass through changes in the exchange rate
A) in markets with mainly domestic (foreign to the firm) competitors.
B) in markets with low price elasticities.
C) in markets with mainly domestic (foreign to the firm) competitors or in markets with low price
elasticities.
Answer: A
76) Generally speaking, a firm is subject to high degrees of operating exposure when
A) either its cost or its price is sensitive to exchange rate changes.
B) both the cost and the price are sensitive to exchange rate changes.
C) both the cost and the price are insensitive to exchange rate changes.
Answer: A
Topic: Managing Operating Exposure
77) What is the objective of managing operating exposure?

A) Stabilize cash flows in the face of fluctuating exchange rates.
B) Selecting low cost production sites.
C) Increase the variability of cash flows in the face of fluctuating exchange rates.
D) Stabilize cash flows in the face of fluctuating exchange rates, and increase the variability of
cash flows in the face of fluctuating exchange rates.
Answer: A
78) What is the objective of managing operating exposure?

A) Stabilize accounting results in the face of fluctuating exchange rates.
B) Selecting low cost production sites.
C) Increase the variability of cash flows in the face of fluctuating exchange rates.
Answer: D
37
79) Managing operating exposure
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.
Answer: B
80) 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) Selecting low-cost production sites, diversifying the market, as well as pursuing a flexible
sourcing policy, product differentiation, R&D efforts.
Answer: D
81) 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) this could erode the competitive position of the firm's exports and the firm should consider
locating production facilities in a foreign country where costs are low.
Answer: D
Topic: Selecting Low-Cost Production Sites
82) 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) because the factors of production are underpriced and because the currency is undervalued.
Answer: D
38
83) 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 firm may miss out on economies of scope and economies of scale.
Answer: B
84) Goldman Sachs estimates that as much as ________ percent of the pretax profits that Porsche
reported for a recent fiscal year came from skillfully executing currency options.
A) 5
B) 10
C) 15
D) 75
Answer: D
85) 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.
Answer: D
86) A flexible sourcing policy

A) is primarily concerned with low-cost (and often low-quality) vendors.
B) need not be confined just to materials and parts.
C) only works for manufacturing firms, not service firms.
D) puts the focus on the exchange rate at the expense of shipping rates.
Answer: B
Topic: Flexible Sourcing Policy
39
87) 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
88) If the domestic currency is strong or expected to become strong,

A) a firm can choose to locate production facilities in a foreign country where costs are low due to
either the undervalued currency or underpriced factors of production.
B) a firm should curtail R&D efforts until the exchange rate situation improves.
C) a firm should abandon international sales and focus on domestic market share.
D) the firm should focus on profiting in the currency futures market based on its forecasts.
Answer: A
89) Which of the following is a true statement?

A) As long as exchange rates do not always move in the same direction, the firm can stabilize its
operating cash flows by diversifying its export market.
B) The firm should not get into new lines of business solely to diversify exchange risk because
conglomerate expansion can bring about inefficiency and losses.
C) all of the options above
Answer: C
Topic: Diversification of the Market
90) 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
Topic: Diversification of the Market
40
91) 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 options.
Answer: A
Topic: R&d Efforts and Product Differentiation; Financial Hedging
92) 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) can allow the firm to maintain and strengthen its competitive position, as well as cut costs and
enhance productivity.
Answer: D
93) The price elasticity of demand for unique products tends to be

A) highly elastic.
B) highly inelastic.
C) highly elastic and highly inelastic.
Answer: B
94) The price elasticity of demand for commodity products tends to be

A) highly elastic.
B) highly inelastic.
C) highly elastic and highly inelastic.
Answer: A
41
95) In the figure below, label curves A and B are, respectively,
A) unhedged and hedged.

B) hedged and unhedged.
C) normal and abnormal.
Answer: A
96) Investment in R&D activities can allow the firm to maintain and strengthen its competitive
position in the face of adverse exchange rate movements. The mechanism for this includes
A) successful R&D efforts allowing the firm to cut costs and enhance productivity.
B) R&D efforts leading to the introduction of new and unique products for which competitors offer
no close substitutes—since the demand for unique products tends to be highly inelastic the firm
would be less exposed to exchange risk.
C) successful R&D efforts creating a perception among consumers that its product is indeed
different from those offered by competitors. Once the firm's product acquires a unique identity, its
demand is less likely to be price-sensitive.
Answer: D
42
97) 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.
Answer: A
98) Suppose that you hold a piece of land in the city of London that you may want to sell in one
year. As a U.S. resident, you are concerned with the dollar value of the land. Assume that if the
British economy booms in the future, the land will be worth £2,000, and one British pound will be
worth $1.80. If the British economy slows down, on the other hand, the land will be worth less,
say, £1,500, but the pound will be stronger, say, $2.20/£. You feel that the British economy will
experience a boom with a 60 percent probability and a slowdown with a 40 percent probability.
Estimate your exposure (b) to the exchange risk.
Answer: b = .
E[P] = 0.60 × £2,000 × $1.80 + 0.40 × £1,500 × $2.20/£ = $3,300

E(S) = 0.60 × $1.40 + 0.40 × $ 1.50 = $1.96

VAR(S) = 0.60($1.80 − $1.96)2 + 0.40($2.20 − $1.96)2 = 0.0534150
Cov(P,S) = 0.60 × ($3,600− $3,300) × ($2.50 − $1.96) + 0.40 × ($3,300 − $3,300) × ($2.00 −
$1.96)
= 11.52 + 17.28 = 28.80
b = .
43
Compute the variance of the dollar value of your property that is attributable to exchange rate
uncertainty.
Answer: The expression "b2VAR(S)" represents the volatility of the dollar value of the asset that
is related to random changes in the exchange rate. 15,528 = b2VAR(S)
From the results to earlier questions we have the values:

V AR(S) = 0.0534150
b = 539.17
Therefore, using the Equation 9.2, we obtain

V(P) = VAR(S) + VAR(e)
498,960 = 15,528 + VAR(e)
VAR(e) = 498,960 − 15,528
= 483,432
The expression "VAR(e)" is the volatility in the dollar value of the asset that is independent of
Discuss how you can hedge your exchange risk exposure and also examine the consequences of
hedging.
Answer: You could sell b = £539.17 forward. However, exchange rate movements only account
for a small amount of the volatility in the dollar value of the asset (3%). What we really have is a
play on the state of the British economy, not on the exchange rate.
44
Another random document with
no related content on Scribd:
THE PYRAMIDS OF GIZEH
We get out of the carriage on the north side of the Pyramid of

Cheops. In the sharply-defined triangular shadows women are
squatted, offering oranges and various eatables for sale; donkey-
boys are waiting with their grey animals; and travellers are resting
after having accomplished the ascent. This work now lies before us,
and if we were willing to shirk it, there would be many attacks on our
indolence, for from the moment we stepped from our carriage, we
have been closely followed by a ragged, brown, and sinewy crowd,
vehemently offering their services. They call themselves Bedouin
with great pride, but they have nothing in common with the true sons
of the desert except their faults. Nevertheless, it is not only prudent
but necessary to accept their assistance, although the way up can
scarcely be mistaken.
We begin the ascent at a place where the outside stone casing
of the Pyramid has fallen away, leaving the terrace-like blocks of the
interior exposed; but the steps are unequal and sometimes of
considerable height; some of them are half as high as a man. Two or
three lads accompany me; one jumps up first with his bare feet,
holds my hands, and drags me after him; another follows the climber,
props his back, and thrusts and pushes him forwards; while a third
grabs his side beneath his arm, and lifts him. Thus, one half-
scrambles up himself and is half-dragged up, while the nimble lads
give the climber no rest, if he wants to stop for breath or to wipe the
drops of moisture from his brow. These importunate beggars never
cease shouting and clamouring for baksheesh, and are so
persistently annoying that they seem to want us to forget the
gratitude we owe them for their aid.
At length we reach our destination. The point of the Pyramid has
long since crumbled away, and we stand on a tolerably spacious
platform. When our gasping breath and throbbing pulses have
partially recovered and we have paid and got rid of the Bedouin, who
torment us to exchange our money for sham antiquities, we look
down upon the vast landscape, and the longer we gaze and absorb
this distant view, the more significant and the more incomparable it
appears. Fertility and sterility, life and death, lie nowhere in such
close mingling as here. There in the east flows the broad Nile
covered with lateen sails, and like emerald tapestry are the fields
and meadows, gardens and groves of palm-trees, spread along its
shores. The villages, hidden under the trees, look like birds’ nests
among green boughs, and at the foot of the Mokattam mountain,
which is now shining with golden light and which at sunset will reflect
the rosy and violet afterglow, rise the thousand mosques of the city
of the Caliphs, overtopped by the citadel and by those slenderest of
all minarets which grace the Mausoleum of Mohammed Ali, an
unmistakable feature of Cairo, visible from the farthest distance.
Gardens and trees encircle the city like a garland around some
lovely head. Nowhere is there to be found a more beautiful picture of
prosperity, fertility, and life. The silver threads of the canals crossing
the entire luxuriant valley appear to be some shining fluid.
Unclouded is the sky, and yet light shadows fall across the fields.
These are flocks of birds which find plenty of food and drink here.
How vast is the bounty of God! How beautiful and rich is the earth!
The Bedouin have left us. We stand alone on the summit. All is
still. Not a sound reaches us from far or near. Turning now to the
west, the eye can see nothing but pyramids and tombs, rocks and
sand in countless number. Not a blade, not a bush can find nutriment
in this sterile ground. Yellow, grey, and dull brown cover everything,
far and wide, in unbroken monotony.
Only here and there a white object is shining amidst the dust. It
is the dried skeleton of some dead animal. Silent and void, the
enemy to everything that has life—the desert—stretches before us.
Where is its end? In days, weeks, months the traveller would never
reach it, even if he escaped alive from the choking sand. Here, if
anywhere, Death is king; here, where the Egyptians saw the sun
vanish every day behind the wall of the Libyan mountains, begins a
world which bears the same comparison to the fruitful lands of the
East as a corpse does to a living man happy in the battle and joy of
life. A more silent burial-place than this desert exists nowhere on this
earth; and so tomb after tomb was erected here, and, as if to
preserve the secret of the dead, the desert has enveloped tombs
and bodies with its veil of sand. Here the terrors of infinity are
displayed. Here at the gate of the future life, where eternity begins,
man’s work seems to have eluded the common destiny of earthly
things and to have partaken of immortality.
“Time mocks all things, but the Pyramids mock Time” is an
Arabian proverb which has been repeated thousands of times.
Cicerone durch das alte und neue Ægypten (Stuttgart und

Leipzig, 1886).
SAINT PETER’S.
CHARLES DICKENS.
WHEN we were fairly off again, we began, in a perfect fever, to strain

our eyes for Rome; and when, after another mile or two, the Eternal
City appeared, at length, in the distance, it looked like—I am half
afraid to write the word—like LONDON!!! There it lay, under a thick
cloud, with innumerable towers, and steeples, and roofs of houses,
rising up into the sky, and, high above them all, one Dome. I swear,
that keenly as I felt the seeming absurdity of the comparison, it was
so like London, at that distance, that if you could have shown it me in
a glass, I should have taken it for nothing else.
We entered the Eternal City at about four o’clock in the
afternoon, on the thirtieth of January, by the Porta del Popolo, and
came immediately—it was a dark, muddy day, and there had been
heavy rain—on the skirts of the Carnival. We did not, then, know that
we were only looking at the fag-end of the masks, who were driving
slowly round and round the Piazza, until they could find a promising
opportunity for falling into the stream of carriages, and getting, in
good time, into the thick of the festivity; and coming among them so
abruptly, all travel-stained and weary, was not coming very well
prepared to enjoy the scene....
Immediately on going out next day we hurried off to St. Peter’s. It
looked immense in the distance but distinctly and decidedly small, by
comparison, on a near approach. The beauty of the Piazza in which
it stands, with its clusters of exquisite columns and its gushing
fountains—so fresh, so broad, and free and beautiful—nothing can
exaggerate. The first burst of the interior, in all its expansive majesty
and glory: and most of all, the looking up into the Dome: is a
sensation never to be forgotten. But, there were preparations for a
Festa; the pillars of stately marble were swathed in some impertinent
frippery of red and yellow; the altar, and entrance to the
subterranean chapel: which is before it, in the centre of the church:
were like a goldsmith’s shop, or one of the opening scenes in a very
lavish pantomime. And though I had as high a sense of the beauty of
the building (I hope) as it is possible to entertain, I felt no very strong
emotion. I have been infinitely more affected in many English
cathedrals when the organ has been playing, and in many English
country churches when the congregation have been singing. I had a
much greater sense of mystery and wonder in the Cathedral of San
Mark, at Venice....
On Sunday the Pope assisted in the performance of High Mass
at St. Peter’s. The effect of the Cathedral on my mind, on that
second visit, was exactly what it was at first, and what it remains
after many visits. It is not religiously impressive or affecting. It is an
immense edifice, with no one point for the mind to rest upon; and it
tires itself with wandering round and round. The very purpose of the
place is not expressed in anything you see there, unless you
examine its details—and all examination of details is incompatible
with the place itself. It might be a Pantheon, or a Senate House, or a
great architectural trophy, having no other object than an
architectural triumph. There is a black statue of St. Peter, to be sure,
under a red canopy; which is larger than life, and which is constantly
having its great toe kissed by good Catholics. You cannot help
seeing that: it is so very prominent and popular. But it does not
heighten the effect of the temple as a work of art; and it is not
expressive—to me, at least—of its high purpose.
ST. PETER’S.
A large space behind the altar was fitted up with boxes, shaped
like those at the Italian Opera in England, but in their decoration
much more gaudy. In the centre of the kind of theatre thus railed off
was a canopied dais with the Pope’s chair upon it. The pavement
was covered with a carpet of the brightest green; and what with this
green, and the intolerable reds and crimsons, and gold borders of
the hangings, the whole concern looked like a stupendous Bonbon.
On either side of the altar was a large box for lady strangers. These
were filled with ladies in black dresses and black veils. The
gentlemen of the Pope’s guard, in red coats, leather breeches, and
jack-boots, guarded all this reserved space, with drawn swords that
were very flashy in every sense; and, from the altar all down the
nave, a broad lane was kept clear by the Pope’s Swiss Guard, who
wear a quaint striped surcoat, and striped tight legs, and carry
halberds like those which are usually shouldered by those theatrical
supernumeraries, who never can get off the stage fast enough, and
who may be generally observed to linger in the enemy’s camp after
the open country, held by the opposite forces, has been split up the
middle by a convulsion of Nature.
I got upon the border of the green carpet, in company with a
great many other gentlemen attired in black (no other passport is
necessary), and stood there, at my ease, during the performance of
mass. The singers were in a crib of wire-work (like a large meat-safe
or bird-cage) in one corner; and sung most atrociously. All about the
green carpet there was a slowly-moving crowd of people: talking to
each other: staring at the Pope through eye-glasses: defrauding one
another, in moments of partial curiosity, out of precarious seats on
the bases of pillars: and grinning hideously at the ladies. Dotted here
and there were little knots of friars (Francescani, or Cappuccini, in
their coarse brown dresses and peaked hoods), making a strange
contrast to the gaudy ecclesiastics of higher degree, and having their
humility gratified to the utmost, by being shouldered about, and
elbowed right and left, on all sides. Some of these had muddy
sandals and umbrellas, and stained garments: having trudged in
from the country. The faces of the greater part were as coarse and
heavy as their dress; their dogged, stupid, monotonous stare at all
the glory and splendour having something in it half miserable, and
half ridiculous.
Upon the green carpet itself, and gathered round the altar, was a
perfect army of cardinals and priests, in red, gold, purple, violet,
white, and fine linen. Stragglers from these went to and fro among
the crowd, conversing two and two, or giving and receiving
introductions, and exchanging salutations; other functionaries in
black gowns, and other functionaries in court dresses, were similarly
engaged. In the midst of all these, and stealthy Jesuits creeping in
and out, and the extreme restlessness of the Youth of England, who
were perpetually wandering about, some few steady persons in
black cassocks, who had knelt down with their faces to the wall, and
were poring over their missals, became, unintentionally, a sort of
human man-traps, and with their own devout legs tripped up other
people’s by the dozen.
There was a great pile of candles lying down on the floor near
me, which a very old man in a rusty black gown with an open-work
tippet, like a summer ornament for a fire-place in tissue paper, made
himself very busy in dispensing to all the ecclesiastics: one apiece.
They loitered about with these for some time, under their arms like
walking-sticks, or in their hands like truncheons. At a certain period
of the ceremony, however, each carried his candle up to the Pope,
laid it across his two knees to be blessed, took it back again, and
filed off. This was done in a very attenuated procession, as you may
suppose, and occupied a long time. Not because it takes long to
bless a candle through and through, but because there were so
many candles to be blessed. At last they were all blessed, and then
they were all lighted; and then the Pope was taken up, chair and all,
and carried round the church....
On Easter Sunday, as well as on the preceding Thursday, the
Pope bestows his benediction on the people from the balcony in
front of St. Peter’s. This Easter Sunday was a day so bright and
blue: so cloudless, balmy, wonderfully bright: that all the previous
bad weather vanished from the recollection in a moment. I had seen
the Thursday’s benediction dropping damply on some hundreds of
umbrellas, but there was not a sparkle then in all the hundred
fountains of Rome—such fountains as they are!—and, on this
Sunday morning, they were running diamonds. The miles of
miserable streets through which we drove (compelled to a certain
course by the Pope’s dragoons: the Roman police on such
occasions) were so full of colour, that nothing in them was capable of
wearing a faded aspect. The common people came out in their
gayest dresses; the richer people in their smartest vehicles;
Cardinals rattled to the church of the Poor Fisherman in their state
carriages; shabby magnificence flaunted its threadbare liveries and
tarnished cocked-hats in the sun; and every coach in Rome was put
in requisition for the Great Piazza of St. Peter’s.
One hundred and fifty thousand people were there at least! Yet
there was ample room. How many carriages were there I don’t know;
yet there was room for them too, and to spare. The great steps of the
church were densely crowded. There were many of the Contadini,
from Albano (who delight in red), in that part of the square, and the
mingling of bright colours in the crowd was beautiful. Below the steps
the troops were ranged. In the magnificent proportions of the place,
they looked like a bed of flowers. Sulky Romans, lively peasants
from the neighbouring country, groups of pilgrims from distant parts
of Italy, sight-seeing foreigners of all nations, made a murmur in the
clear air, like so many insects; and high above them all, plashing and
bubbling, and making rainbow colours in the light, the two delicious
fountains welled and tumbled bountifully.
A kind of bright carpet was hung over the front of the balcony;
and the sides of the great window were bedecked with crimson
drapery. An awning was stretched, too, over the top, to screen the
old man from the hot rays of the sun. As noon approached, all eyes
were turned up to this window. In due time the chair was seen
approaching to the front, with the gigantic fans of peacock’s feathers
close behind. The doll within it (for the balcony is very high) then
rose up, and stretched out its tiny arms, while all the male spectators
in the square uncovered, and some, but not by any means the
greater part, kneeled down. The guns upon the ramparts of the
Castle of St. Angelo proclaimed, next moment, that the benediction
was given; drums beat; trumpets sounded; arms clashed; and the
great mass below, suddenly breaking into smaller heaps, and
scattering here and there in rills, was stirred like party-coloured
sand....
But, when the night came on, without a cloud to dim the full
moon, what a sight it was to see the Great Square full once more,
and the whole church, from the cross to the ground, lighted with
innumerable lanterns, tracing out the architecture, and winking and
shining all round the colonnade of the Piazza. And what a sense of
exultation, joy, delight, it was, when the great bell struck half past
seven—on the instant—to behold one bright red mass of fire soar
gallantly from the top of the cupola to the extremest summit of the
cross, and, the moment it leaped into its place, become the signal of
a bursting out of countless lights, as great, and red, and blazing as
itself, from every part of the gigantic church; so that every cornice,
capital, and smallest ornament of stone expressed itself in fire: and
the black, solid groundwork of the enormous dome seemed to grow
transparent as an egg-shell!
A train of gunpowder, an electric chain—nothing could be fired
more suddenly and swiftly than this second illumination: and when
we had got away, and gone upon a distant height, and looked toward
it two hours afterward, there it still stood, shining and glittering in the
calm night like a jewel! Not a line of its proportions wanting; not an
angle blunted; not an atom of its radiance lost.
Pictures from Italy (London, 1845).

THE CATHEDRAL OF STRASBURG.
VICTOR HUGO.
I ARRIVED in Nancy Sunday evening at seven o’clock; at eight the

diligence started again. Was I more fatigued? Was the road better?
The fact is I propped myself on the braces of the conveyance and
slept. Thus I arrived in Phalsbourg.
I woke up about four o’clock in the morning. A cool breeze blew
upon my face and the carriage was going down the incline at a
gallop, for we were descending the famous Saverne.
It was one of the most beautiful impressions of my life. The rain
had ceased, the mists had been blown to the four winds, and the
crescent moon slipped rapidly through the clouds and sailed freely
through the azure space like a barque on a little lake. A breeze
which came from the Rhine made the trees, which bordered the
road, tremble. From time to time they waved aside and permitted me
to see an indistinct and frightful abyss: in the foreground, a forest
beneath which the mountain disappeared; below, immense plains,
meandering streams glittering like streaks of lightning; and in the
background a dark, indistinct, and heavy line—the Black Forest—a
magical panorama beheld by moonlight. Such incomplete visions
have, perhaps, more distinction than any others. They are dreams
which one can look upon and feel. I knew that my eyes rested upon
France, Germany, and Switzerland, Strasburg with its spire, the
Black Forest with its mountains, and the Rhine with its windings; I
searched for everything and I saw nothing. I have never experienced
a more extraordinary sensation. Add to that the hour, the journey, the
horses dashing down the precipice, the violent noise of the wheels,
the rattling of the windows, the frequent passage through dark
woods, the breath of the morning upon the mountains, a gentle
murmur heard through the valleys, and the beauty of the sky, and
you will understand what I felt. Day is amazing in this valley; night is
fascinating.
The descent took a quarter of an hour. Half an hour later came
the twilight of morning; at my left the dawn quickened the lower sky,
a group of white houses with black roofs became visible on the
summit of a hill, the blue of day began to overflow the horizon,
several peasants passed by going to their vines, a clear, cold, and
violet light struggled with the ashy glimmer of the moon, the
constellations paled, two of the Pleiades were lost to sight, the three
horses in our chariot descended rapidly towards their stable with its
blue doors, it was cold and I was frozen, for it had become
necessary to open the windows. A moment afterwards the sun rose,
and the first thing it showed to me was the village notary shaving at a
broken mirror under a red calico curtain.
A league further on the peasants became more picturesque and
the waggons magnificent; I counted in one thirteen mules harnessed
far apart by long chains. You felt you were approaching Strasburg,
the old German city.
Galloping furiously, we traversed Wasselonne, a long narrow
trench of houses strangled in the last gorge of the Vosges by the
side of Strasburg. There I caught a glimpse of one façade of the
Cathedral, surmounted by three round and pointed towers in
juxtaposition, which the movement of the diligence brought before
my vision brusquely and then took it away, jolting it about as if it were
a scene in the theatre.
Suddenly, at a turn in the road the mist lifted and I saw the
Münster. It was six o’clock in the morning. The enormous Cathedral,
which is the highest building that the hand of man has made since
the great Pyramid, was clearly defined against a background of dark
mountains whose forms were magnificent and whose valleys were
flooded with sunshine. The work of God made for man and the work
of man made for God, the mountain and the Cathedral contesting for
grandeur. I have never seen anything more imposing.
Yesterday I visited the Cathedral. The Münster is truly a marvel.
The doors of the church are beautiful, particularly the Roman porch,
the façade contains some superb figures on horseback, the rose-
window is beautifully cut, and the entire face of the Cathedral is a
poem, wisely composed. But the real triumph of the Cathedral is the
spire. It is a true tiara of stone with its crown and its cross. It is a
prodigy of grandeur and delicacy. I have seen Chartres, and I have
seen Antwerp, but Strasburg pleases me best.
THE CATHEDRAL OF STRASBURG.
The church has never been finished. The apse, miserably

mutilated, has been restored according to that imbecile, the Cardinal
de Rohan, of the necklace fame. It is hideous. The window they have
selected is like a modern carpet. It is ignoble. The other windows,
with the exception of some added panes, are beautiful, notably the
great rose-window. All the church is shamefully whitewashed; some
of the sculptures have been restored with some little taste. This
Cathedral has been affected by all styles. The pulpit is a little
construction of the Fifteenth Century, of florid Gothic of a design and
style that are ravishing. Unfortunately they have gilded it in the most
stupid manner. The baptismal font is of the same period and is
restored in a superior manner. It is a vase surrounded by foliage in
sculpture, the most marvellous in the world. In a dark chapel at the
side there are two tombs. One, of a bishop of the time of Louis V., is
of that formidable character which Gothic architecture always
expresses. The sepulchre is in two floors. The bishop, in pontifical
robes and with his mitre on his head, is lying in his bed under a
canopy; he is sleeping. Above and on the foot of the bed in the
shadow, you perceive an enormous stone in which two enormous
iron rings are imbedded; that is the lid of the tomb. You see nothing
more. The architects of the Sixteenth Century showed you the
corpse (you remember the tombs of Brou?); those of the Fourteenth
concealed it: that is even more terrifying. Nothing could be more
sinister than these two rings....
The tomb of which I have spoken is in the left arm of the cross.
In the right arm there is a chapel, which scaffolding prevented me
from seeing. At the side of this chapel runs a balustrade of the
Fifteenth Century, leaning against a wall. A sculptured and painted
figure leans against this balustrade and seems to be admiring a pillar
surrounded by statues placed one over the other, which is directly
opposite and which has a marvellous effect. Tradition says that this
figure represents the first architect of the Münster—Erwyn von
Steinbach....
I did not see the famous astronomical clock, which is in the nave
and which is a charming little building of the Sixteenth Century. They
were restoring it and it was covered with a scaffolding of boards.
After having seen the church, I made the ascent of the steeple.
You know my taste for perpendicular trips. I was very careful not to
miss the highest spire in the world. The Münster of Strasburg is
nearly five hundred feet high. It belongs to the family of spires which
are open-worked stairways.
It is delightful to wind about in that monstrous mass of stone,
filled with air and light hollowed out like a joujou de Dieppe, a lantern
as well as a pyramid, which vibrates and palpitates with every breath
of the wind. I mounted as far as the vertical stairs. As I went up I met
a visitor who was descending, pale and trembling, and half-carried
by the guide. There is, however, no danger. The danger begins
where I stopped, where the spire, properly so-called, begins. Four
open-worked spiral stairways, corresponding to the four vertical
towers, unroll in an entanglement of delicate, slender, and
beautifully-worked stone, supported by the spire, every angle of
which it follows, winding until it reaches the crown at about thirty feet
from the lantern surmounted by a cross which forms the summit of
the bell-tower. The steps of these stairways are very steep and very
narrow, and become narrower and narrower as you ascend, until
there is barely ledge enough on which to place your foot.
In this way you have to climb a hundred feet which brings you
four hundred feet above the street. There are no hand-rails, or such
slight ones that they are not worth speaking about. The entrance to
this stairway is closed by an iron grille. They will not open this grille
without a special permission from the Mayor of Strasburg, and
nobody is allowed to ascend it unless accompanied by two workmen
of the roof, who tie a rope around your body, the end of which they
fasten, in proportion as you ascend, to the various iron bars which
bind the mullions. Only a week ago three German women, a mother
and her two daughters, made this ascent. Nobody but the workmen
of the roof, who repair the bell-tower, are allowed to go beyond the
lantern. Here there is not even a stairway, but only a simple iron
ladder.
From where I stopped the view was wonderful. Strasburg lies at
your feet,—the old town with its dentellated gables, and its large
roofs encumbered with chimneys, and its towers and churches—as
picturesque as any town of Flanders. The Ill and the Rhine, two
lovely rivers, enliven this dark mass with their plashing waters, so
clear and green. Beyond the walls, as far as the eye can reach,
stretches an immense country richly wooded and dotted with
villages. The Rhine, which flows within a league of the town, winds
through the landscape. In walking around this bell-tower you see
three chains of mountains—the ridges of the Black Forest on the
north, the Vosges on the west, and the Alps in the centre....
The sun willingly makes a festival for those who are upon great
heights. At the moment I reached the top of the Münster, it suddenly
scattered the clouds, with which the sky had been covered all day,
and turned the smoke of the city and all the mists of the valley to
rosy flames, while it showered a golden rain on Saverne, whose
magnificent slope I saw twelve leagues towards the horizon, through
the most resplendent haze. Behind me a large cloud dropped rain
upon the Rhine; the gentle hum of the town was brought to me by
some puffs of wind; the bells echoed from a hundred villages; some
little red and white fleas, which were really a herd of cattle, grazed in
the meadow to the right; other little blue and red fleas, which were
really gunners, performed field-exercise in the polygon to the left; a
black beetle, which was the diligence, crawled along the road to
Metz; and to the north on the brow of the hill the castle of the Grand
Duke of Baden sparkled in a flash of light like a precious stone. I
went from one tower to another, looking by turns upon France,
Switzerland, and Germany, all illuminated by the same ray of
sunlight.
Each tower looks upon a different country.
Descending, I stopped for a few moments at one of the high
doors of the tower-stairway. On either side of this door are the stone
effigies of the two architects of the Münster. These two great poets
are represented as kneeling and looking behind them upward as if
they were lost in astonishment at the height of their work. I put
myself in the same posture and remained thus for several minutes.
At the platform they made me write my name in a book; after which I
went away.
Le Rhin (Paris, 1842).

THE SHWAY DAGOHN.
GWENDOLIN TRENCH GASCOIGNE.
THE “Shway Dagohn” at Rangoon, or Golden Pagoda, is one of the

most ancient and venerated shrines which exists, and it certainly
should hold a high place among the beautiful and artistic monuments
of the world, for it is exquisite in design and form. Its proportions and
height are simply magnificent; wide at the base, it shoots up 370
feet, tapering gradually away until crowned by its airy golden Htee,
or umbrella-shaped roof. This delicate little structure is studded
profusely with precious stones and hung round with scores of tiny
gold and jewelled bells, which, when swung lightly by the soft
breeze, give out the tenderest and most mystic of melodies. The
Htee was the gift of King Mindohn-Min, and it is said to have cost the
enormous sum of fifty thousand pounds.
The great pagoda is believed by the faithful to have been
erected in 588 B. C.; but for many centuries previous to that date the
spot where the pagoda now stands was held sacred, as the relics of
three preceding Buddhas were discovered there when the two
Talaing brothers (the founders of the Great Pagoda) brought the
eight holy hairs of Buddha to the Thehngoothara Hill, the spot where
the pagoda now stands. Shway Yoe (Mr. Scott) says that it also
possesses in the Tapanahteik, or relic chamber, of the pagoda the
drinking cup of Kaukkathan, the “thengan,” or robe, of Gawnagohng,
and the “toungway,” or staff, of Kathapah. It is therefore so holy that
pilgrims visit this shrine from far countries, such as Siam, and even
the Corea. The height of the pagoda was originally only twenty-
seven feet, but it has attained its present proportions by being
constantly encased in bricks. It is a marvellously striking structure,
raising up its delicate, glittering head from among a wondrous
company of profusely carved shrines and small temples, whose
colour and cunning workmanship make fit attendants to this
stupendous monument.
It is always a delight to one’s eyes to gaze upon its glittering
spire, always a fairy study of artistic enchantment; but perhaps if it
has a moment when it seems clothed with peculiar and almost
ethereal, mystic attraction, it is in the early morning light, when the
air has been bathed by dewdrops and is of crystal clearness, and
when that scorching Eastern sun has only just begun to send forth
his burning rays. I would say go and gaze on the pagoda at the
awakening hour, standing there on the last spur of the Pegu Hills,
and framed by a luxuriant tropical bower of foliage. The light
scintillates and glistens like a myriad of diamonds upon its golden
surface, and the dreamy beauty of its glorious personality seems to
strike one dumb with deep, unspoken reverence and admiration.
Nestling on one side of it are a number of Pohn-gyee Kyoung
(monasteries) and rest-houses for pilgrims. All these are quaint,
carved, and gilded edifices from which you see endless yellow-robed
monks issuing. The monasteries situated at the foot of the great
pagoda seem peculiarly harmonious, as if they would seek
protection and shekel beneath the wing of their great mother church.
The pagoda itself is approached on four sides by long flights of
steps, but the southern is the principal entrance and that most
frequented. At the base of this stand two gigantic lions made of brick
and plastered over, and also decorated with coloured paint; their
office is to guard the sacred place from nats (evil spirits) and
demons, the fear of which seems ever to haunt the Burman’s mind
and be a perpetual and endless torment to him. From this entrance
the steps of the pagoda rise up and are enclosed by a series of
beautifully carved teak roofs, supported by wood and masonry
pillars. There are several quaint frescoes of Buddha and saints
depicted upon the ceiling of these roofs, but the steps which they
cover are very rugged and irregular. It is, indeed, a pilgrimage to
ascend them, although the foreigner is allowed to retain his shoes.
The faithful, of course, leave theirs at the foot of the steps.
The entrance to the pagoda inspires one with a maze of
conflicting emotions as one stands before it; joy, sorrow, pity, wonder,
admiration follow so quickly upon each other that they mingle into an
indescribable sense of bewilderment. The first sight of the entrance
is gorgeous, full of Eastern colour and charm; and then sorrow and
horror fill one’s heart, as one’s eyes fall suddenly upon the rows of
lepers who line the way to the holy place. Each is a terrible,
gruesome sight, a mass of ghastly corruption and disease, and each
holds out with maimed, distorted hands a little tin vessel for your
alms.
THE SHWAY DAGOHN.
Why should Providence allow so awful an affliction as leprosy to

fall upon His creatures? Could any crime, however heinous, be foul
enough for such a punishment? These are the thoughts that flit
through your brain; and then, as you pass on, wonder takes their

Full International Financial Management 8Th Edition Eun Test Bank Online PDF All Chapter

Uploaded by

Copyright:

Available Formats

You might also like

Full International Financial Management 8Th Edition Eun Test Bank Online PDF All Chapter

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Full International Financial Management 8Th Edition Eun Test Bank Online PDF All Chapter

Uploaded by

Copyright:

Available Formats

International Financial Management 8th

Edition Eun Test Bank

International Financial Management 7th Edition Eun Test

International Financial Management 7th Edition Eun

International Financial Management Canadian

International Financial Management 8th Edition Madura

International Financial Management 8th Edition Madura

International Financial Management 11th Edition Madura

International Financial Management 13th Edition Madura

International Financial Management 2nd Edition Bekaert

4) When the Mexican peso collapsed in 1994, declining by 37 percent,

6) When exchange rates change,

8) It is conventional to classify foreign currency exposures into the following types:

10) Operating exposure measures

11) Economic exposure refers to

14) The exposure coefficient in the regression P = a + b × S + e is given by

D) none of the options

16) The exposure coefficient b = in the regression P = a + b × S + e informs

A) how much of a foreign currency to sell forward.

28) Operating exposure can be defined as

32) With regard to operational hedging versus financial hedging,

(i) Selecting low-cost production sites

State 1 State 2 State 3

The expected value of the investment in U.S. dollars is

State 1 State 2 State 3

The variance of the exchange rate is:

State 1 State 2 State 3

P* = Pound sterling price of the asset held by the U.S. firm

The "exposure" (i.e. the regression coefficient beta) is

Hint: Calculate the expression .

State 1 State 2 State 3

Which of the following conclusions are correct?

State 1 State 2 State 3

Which of the following would be an effective hedge?

State 1 State 2 State 3

The expected value of the investment in U.S. dollars is

State 1 State 2 State 3

The variance of the exchange rate is

State 1 State 2 State 3

The "exposure" (i.e. the regression coefficient beta) is

Hint: Calculate the expression .

State 1 State 2 State 3

Which of the following conclusions are correct?

State 1 State 2 State 3

Which of the following would be an effective hedge?

State 1 State 2 State 3

The expected value of the investment in U.S. dollars is:

State 1 State 2 State 3

The variance of the exchange rate is

State 1 State 2 State 3

The "exposure" (i.e. the regression coefficient beta) is

Hint: Calculate the expression .

State 1 State 2 State 3

Which of the following conclusions are correct?

State 1 State 2 State 3

Which of the following would be an effective hedge?

State 1 State 2 State 3

The expected value of the investment in U.S. dollars is: