CFC International Financial Management 2

Question 1

A US company has a €5 million payable due in 90 days. To hedge using a forward contract, the company should:

Accepted Answer

Buy euros forward

Answer

To hedge a euro payable, the company buys euros forward, locking in the exchange rate and eliminating currency risk.

Question 2

The International Fisher Effect (IFE) states that:

Accepted Answer

Exchange rate changes are proportional to nominal interest rate differentials between countries

Answer

The IFE holds that currencies of countries with higher nominal interest rates will depreciate by the amount of the interest rate differential.

Question 3

Which of the following best describes 'translation exposure' in multinational corporations?

Accepted Answer

Risk arising from consolidating foreign subsidiaries' financial statements into the parent's reporting currency

Answer

Translation exposure (accounting exposure) arises when consolidating foreign subsidiaries' statements into the parent company's home currency.

Question 4

A country running a persistent current account deficit will most likely experience:

Accepted Answer

Currency depreciation due to excess supply of domestic currency in forex markets

Answer

A persistent current account deficit means more domestic currency is sold to buy foreign goods, creating downward pressure on the currency.

Question 5

Under ASC 830 (formerly SFAS 52), which method is used to translate a foreign subsidiary that operates as a self-contained entity?

Accepted Answer

Current rate method

Answer

The current rate method translates all balance sheet items at the current exchange rate and is used when the subsidiary's functional currency differs from the parent's reporting currency.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC International Financial Management 2