When a company invests in another country that uses a different currency it is exposed to the risk that its cash flows will be affected by changes in the exchange rate for currency. What is this called: A. transaction risk B. translation risk C. overseas risk D. political risk E. economic risk

When a company invests in another country that uses a different currency it is exposed to the risk that its cash flows will be affected by changes in the exchange rate for currency. What is this called: A. transaction risk B. translation risk C. overseas risk D. political risk E. economic risk

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP1: Part 1: Integrative Problem: The International Financial Environment

Section: Chapter Questions

Problem 4Q

See similar textbooks

Related questions

Q: under what circumstances can how an international company can use 'leads and lags' to protect itself…

A: Foreign exchange risk is the risk that the firm may have to face loss due to change in foreign…

Q: What adjustments might be made due to exchange rate riskand political risk to the domestic cost of…

A: The question is based on the concept of international risk management in cost of capital. An…

Q: How does the timing of hedges of (a) foreign currency denominated assets and liabilities, (b)…

A: The three terms are differentiated based on the time when the price or the foreign exchange rate is…

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: Illustrate how to synthesize a forward hedging strategy by using only the money markets, in order to…

A: The idea of forward hedging is to lock-in the price (or exchange rate) today for a future foreign…

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: how would market forces be affected? Does arbitrage opportunity destabilize foreign exchange…

A: Arbitrage is nothing but buying in one market with some price and selling the same with other market…

Q: If the firm ,NAB economists,had exposures in currencies such as Brazilian Real or Indonesian Rupiah,…

A: Hedging is the act of protecting oneself against any occurrence of event of loss in future. It is…

Q: A second function of the foreign exchange market is to provide exchange possibility that unpredicted…

A: Since you have not mentioned the specific question we will just answer the first question in case…

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

Q: When a firm enters a transaction that need to be settled in foreign currency, what are the risks…

A: The foreign exchange market is a global decentralized market for the trading of currencies. It…

Q: Does Arbitrage destabilize foreign exchange markets? Support your logic about that statement

A: Solution- F = S*1+if/1+id F= Forward Exchange Rate S= Current Spot Exchange Rate Id= Interest…

Q: What are the three types of risk that a global company is exposed to as a consequence of currency…

A: Three types of risk: Transaction exposure Translation exposure Economic exposure Transaction…

Q: Economic exposure refers to: A. the exposure of a firm's cash flows to exchange rate fluctuations.…

A: Economic Exposure is also known as Operating exposure. This is defined as an effect caused on a…

Q: Transaction exposure: A. measures the extent to which foreign exchange volatility may affect a…

A: Transaction exposure refers to the exposure level of loss happened from the risk involved in the…

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: As used in international accounting, a “hedge” is: A)a business transaction made to reduce the…

A: In international accounting, a “hedge” is a business transaction made to reduce the exposure of…

Q: “Foreign exchange risk represents exposures to changes in the values of current holdings and future…

A: Net Foreign Currency exposure is the net position of the bank in the foreign exchange risk.…

Q: Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar…

A: Introduction: Exchange rate is nothing but the country’s price expressed in terms of another…

Q: How may the domestic cost of capital for a foreign venture be adjusted to account for currency rate…

A: Country risk refers to a country's economic, political, and corporate hazards, all of which may…

Q: Foreign exchange risk

A: Foreign currency is necessary for worldwide business coordination. Foreign exchange administration…

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: The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign…

A: Translation exposure emerges by the requirement of converting the income (denominated in foreign…

Q: What is the value of a unit of domestic currency against foreign currency? A) Parity B) Exchange…

A: The exchange rate is the percentage of foreign currency in domestic currency units, or, in another…

Q: Investors and MNCs exporting or importing goods and services or making foreign investments…

A: Hedging in Forex is done by an investor to ensure that no financial losses should be incurred if…

Q: Discuss the condition under which exchange rate changes may actually reduce the risk of foreign…

A: Exchange rate changes are largely unpredictable. Exchange rates are nonstationary and may deviate…

Q: Under what conditions can companies use hedge accounting to account for a foreign currency option…

A: Hedge Accounting: Hedge accounting is a process which identifies gains or losses on hedging tools in…

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: A key issue facing financial executives of multinational firms is exposure to exchange rate…

A: Note : As per the bartelby guidelines, only first three parts will be answered. Part A : Accounting…

Q: Explain what is a hedging arrangement and how does it reduce foreign currency risk exposure?

A: Hedging is an arrangement made to reduce the risk of foriegn exchange. It is a strategy to offset…

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: If the value of contractual transactions is affected by exchange rate fluctuations, most likely the…

A: Changes in currency exchange rates can have a detrimental influence on a company's operations and…

Q: What modifications may be made to the domestic cost of capital for a foreign venture to account for…

A: Introduction: The question is founded on the idea of international risk management in terms of cost…

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

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

Question

The questions about Risks when investing in another country

When a company invests in another country that uses a different currency it
is exposed to the risk that its cash flows will be affected by changes in the
exchange rate for currency. What is this called:
A. transaction risk
B. translation risk
C. overseas risk
D. political risk
E. economic risk

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

Foreign exchange risk or exchange rate risk is a financial risk that occurs when a financialdeal is denominated in a currency other than that of the base currency of the company.Explain the following types of risks that international firms are exposed to:a. Transaction riskb. Translation riskc. Economic risk
Foreign exchange risk may be best defined as:a. the chance of value change in foreign exchange ratesb. the chance that the demand for your currency will dropc. the chance that exchange rates will be fixedd. the political risk posed by foreign governments
What type of banking risk includes deterioration of the value of the local currency in terms of the bank’s base currency; convertibility or transfer risks. a. Credit Risk b. Liquidity Risk c. Foreign Exchange Risk d. Interest Rate Risk
Investors who have international investments are subject to I. political risk II. currency risk III. regulatory risk A I and III B I and II C II and III D I, II, and III
Which hedging strategy uses an exchange rate agreed to today for future delivery of currency to minimize the financial institution’s risk exposure? a. Hedging with forwards. b. On balance sheet hedging. c. Off balance sheet hedging. d. Spot hedging.
Exchange rate risk is a. The risk associated with the use of debt financing by companies b. The risk of doing business in a particular industry or environment c. The risk of loss due to imports and exports dominated in other currencies d. The uncertainty about the time element, the price concession, and the conversion to cash. ************************** correct answer please.
How may the domestic cost of capital for a foreign venture be adjusted to account for currency rate risk, political risk, and nation risk?
A foreign currency loan is a typical example for O a. Currency Risk O b. Interest rate risk O c. Translation Exposure O d. Transaction Exposure
Country risk is: Group of answer choices A. The risk that a counterparty or obligor will not be able to pay its obligations because of cross-border restrictions. B. An assessment of the political and economic risk of a country. C. Both A & B D. Neither A or B
What risk is due to changes in the level of interest rate in the economy and may affect industries at the same time? a.systematic risk b. inflation rate risk c.foreign exchange rate risk d.interest rate risk
Transaction exposure: A. measures the extent to which foreign exchange volatility may affect a firm's future ongoing revenues and costs. B. measures the effects of FX changes on the balance sheet of the firm. C. refers to the extent to which the value of the firm's cash flows may be affected by changes in the exchange rate. D. tries to measure the impact of unexpected exchange rate fluctuations on the net present value of the firm's future cash flows.
Match the risk with the correct transaction (if any): v The DC appreciates, altering relative prices in the current account A. Risk from translation to the FC firm with DC operations v The DC depreciates, altering relative prices in the current account B. Risk to the seller of goods to the FC buyers v The DC depreciates, altering relative prices in the financial account C. Risk to the foreign investor invested domestically v The DC appreciates, altering relative prices in the financial account D. Risk to the buyer of inputs from FC firms v The DC appreciates, altering the spot FX rate E. RIsk form translation to the DC firm with FC operations F. Risk to the investor invested abroad