Which of the following is (are) an example of short-run exposure to exchange rat

Question

Which of the following is (are) an example of short-run exposure to exchange rate risk:

A) A few years ago, you built a factory overseas to take advantage of the lower raw materials cost. Today, those costs have increased such that your overseas factory no longer provides a cost advantage to your firm.

B) Your firm owns land in Canada valued at C$1 million. That value has remained constant in Canadian dollars for the past two years. However, the financial statements of your firm, which are expressed in U.S. dollars, reflect a 5% increase in value of that property over the past year.

C) You order a shipment of diamonds for South Africa at a cost of 5 million South African rand. You wait until the shipment arrives to pay for the order. When you pay the invoice, your cost in U.S. dollars has increased by $1,500 since the order date.

D) You sold some equipment to a firm in the U.K. at an invoice of 300,000 pound. At the time of the sale, the invoice price was worth $565,000. However, when the firm paid the invoice and you exchanged the funds into dollars, you only received $558,000.

c only

b and d only

a only

a and b only

c and d only

Explanation / Answer

a and b are examples of short term exposure to exchange rate risk.

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