Answered: Explain why the following statement is…

Explain why the following statement is true or false: “Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.”

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 3BIC

See similar textbooks

Related questions

Q: d. Discuss whether Galina Works should avoid exchange rate risk by invoicing foreign customers in…

A: Foreign Exchange Risk: The risk of an abnormal loss or gain that accrues to a company on their…

Q: What are the difficulties or dangers inherent in analyzing foreign financial statements? Consider…

A: To describe financial statements, think of them as the official record to assess a company's or…

Q: A country with a fixed exchange rate experiences downward pressure on the exchange rate value of its…

A: The exchange rates in financial markets are rates at which the currencies of different countries are…

Q: A company purchases currency futures to respond to currency risk. However, due to increasing…

A: Solution: A company purchases currency futures to respond to currency risk. However, due to…

Q: Which one of the following is not true regarding a currency board? Currency board holds…

A: Currency board is one of the way to manage the exchange rate and foreign currency and supply of…

Q: Explain the managed floating exchange rate regime. How can the monetary authorities prevent effects…

A: The managed floating exchange rate regime refers to the effect of demand and supply on the value of…

Q: What concept underlies the two-transaction perspective in accounting for foreign currency…

A: Foreign Exchange Transaction: It is a transaction involving two or more currencies where one…

Q: Under a flexible exchange rate system, a decrease in the value of a domestic currency in terms of…

A: Under a flexible exchange rate system, a decrease in the value of a domestic currency in terms of…

Q: A U.S. company purchases inventory from a foreign vendor, and purchases are denominated in the…

Q: In what way is the accounting for a foreign currency borrowing more complicated than the accounting…

A: The accounting for a foreign currency borrowing involves keeping track of two foreign currency…

Q: Which of the following is true regarding Bretton Woods Agreement EXCEPT _______. A. silver…

A: Bretton Woods Agreement was made in 1944 and led to various significant developments in regards to…

Q: If the U.S.A. imports more than it exports, then: O a. The supply of dollars is likely to exceed the…

A: The exchange rate of a country's currency as compared to other currencies depends upon its supply…

Q: The Hi-Stakes Company has a number of importing and exporting transactions. Importing activities…

A: In the context of the given question, we are required to compute the effect of direct exchange rates…

Q: once the capital markets are integrated it is difficult for a country to maintain a fixed exchange…

A: Market is a place to exchange the products, in the financial market (FM), financial securities are…

Q: Which of the following statement is NOT true regarding a foreign currency transaction? a. When a…

A: b. If an FC transaction is unsettled at the end of the accounting period, the exchange gains/losses…

Q: Foreign exchange risk or exchange rate risk is a financial risk that occurs when a financial deal is…

A: A currency is a medium of exchange for goods and services and is issued by a government. It is…

Q: Which of the following items will result to foreign currency transaction gain/loss due to settlement…

A: Gains or losses from remeasurement are generally reported under net income, while foreign currency…

Q: What action should the Hong Kong Monetary Authority (which is acting as Central Bank for Hong Kong)…

A: Hong Kong Monetary Authority worked under the Banking Ordinance and the Exchange Fund Ordinanc, and…

Q: A foreign subsidiary with more revenue than expenses impacted by foreign currency exchange rate…

A: A foreign subsidiary, sometimes known as a parent or holding company, is a company that operates…

Q: What are the consequences of accounting for foreign currency translation on financial statement…

A: Introduction: According to IAS 21, if an entity has an activity in a foreign nation, its financial…

Q: Leads are deliberate early payments of amounts due to be paid in foreign currency to…

A: In the international market, the companies are dealing with exchange of transactions on the basis of…

Q: Maintaining a foreign currency account is helpful to avoid O a. Exchange risk and domestic currency…

A: A foreign currency account is an account which allows maintaining balance in currency other than…

Q: Anticipated cash inflows may fall in value if unexpected movements in the exchange rate hurt your…

A: Different types of exposure are: 1. Transaction exposure. 2. Translation exposure. 3. Economic…

Q: Which of the following suggests that the foreign entity's functional currency is the parent's…

A: Functional currency is the currency of primary economic environment in which company operates.There…

Q: Which of the following situation is NOT the case that a domestic company is exposed to foreign…

A: An investment in a domestic subsidiary would not result in foreign curreny risk as the transaction…

Q: Because capital flows were an important element in the currency crises, it has been advocated that…

A: Capital is the main concern through which the economy of a country has financially stable and…

Q: One of the issues that companies need to address when dealing with foreign currencies is how…

A: Currency fluctuations are a natural result of floating exchange rates, which is the norm for most…

Q: What are the advantages or the disadvantages of hedging with currency options as opposed to future…

A: Hedging is used to insulate the investor of the risks of currency fluctuations in an international…

Q: If a U.S.-based MNC focused completely on exporting, then its valuation would likely be adversely…

A: According to the foreign exchange if the company is exporting to another country and if the exchange…

Q: True or False? Unsettled foreign currency transactions, including financial instruments, shall be…

A: This question is related to the unsettled foreign currency exchange . In this we find the derivative…

Q: Assume that a German corporation exports electronic equipment to USA in a transaction denominated in…

A: Foreign exchange- Foreign exchange is the conversion of one currency into another at a specific rate…

Q: Why might a foreign government’s policies be closely monitored by investors in other countries,…

A: Investors, analysts, and policymakers in other nations keep an eye on the policies of governments of…

Q: Explain the effect a drop in value of the U.S. dollar in relation to other currencies on the foreign…

A: The question is based on the concept relative currency exchange rate, an exchange rate is define as…

Q: main reason that U.S. currency cannot be turned in to the government in exchange for a tangible…

A: The answer is stated below:

Q: Direct Intervention How can a central bank use direct intervention to change the value of a…

A: Central bank can make a direct intervention to change the value of a currency. This is achieved by…

Q: Assume that a U.S. company has a foreign subsidiary whose functional currency is the U.S. dollar.…

A: Step 1 The reporting currency for a subsidiary will be the currency that is adopted by the holding…

Q: An important problem with the gold standard was that a. one country could easily manipulate the…

A: Gold standard: As per the gold standard, the currency/money of a nation has a value directly…

Question

Explain why the following statement is true or false: “Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.”

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Consider the following statement: "Arbitrage from currency trade could exist only under capital restrictions" True or false
Which of the following is not an argument for central bank intervention? Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the macroeconomy. The market knows better than economic policy makers what the appropriate level of the exchange rate is. Central bank intervention can smooth out fluctuations in exchange rates.
(TCO F) What is the rationale for the remeasurement of foreign currency transactions?
Leads are deliberate early payments of amounts due to be paid in foreign currency to overseas suppliers, or other foreign currency payments. Leads can avoid the risk that the sterling cost of these payments may rise if the amounts of the payments are quoted in foreign currency and the foreign currency increases in value Under what circumstances can how an international company can use ‘leads and lags’ to protect itself against foreign exchange risk.
Devalued currency may be a good reason for a country to: a. import. b. export. c. countertrade.
Leads are deliberate early payments of amounts due to be paid in foreign currency to overseassuppliers, or other foreign currency payments. Leads can avoid the risk that the sterling cost of these payments may rise if the amountsof the payments are quoted in foreign currency and the foreign currencyincreases in value. Under what circumstances can how an international company can use ‘leads and lags’ to protect itself againstforeign exchange risk?
Which of the following is NOT a benefit of investing in ADRs? The dividends are received in U.S. currency. Currency risk is minimized. ADRs are subject to anti-fraud rules. The transactions are done in U.S. currency.
Maintaining a foreign currency account is helpful to avoid O a. Exchange risk and domestic currency depreciation O b. Transaction cost only. O c. Both transaction cost and exchange risk. O d. Exchange risk only.
An exporter is trying to reduce transaction exposure in the face of a depreciating foreign currency, which of the following strategies would be best? A) Paying or collecting early B) Paying or collecting late C) Paying bate, collecting early. D) Paying early, collecting late
d. Discuss whether Galina Works should avoid exchange rate risk by invoicing foreign customers in dollars. e. Explain to Galina Works how, in respect of foreign sales, discounting and factoring can be used as hedging tools to manage foreign currency risk.