QUESTION 9 Suppose the direct quote for sterling in New York is 1.3110-5. Then t

Question

QUESTION 9

Suppose the direct quote for sterling in New York is 1.3110-5. Then the direct quote for dollars in London is:

.7110-5

2.6220-30

.7625-8

1.3110-5

5 points   

QUESTION 10

One way an MNC may improve productivity in the face of exchange rate volatility is by revising ________.

product offerings

the input mix

shifting production among plants

changing the promotional strategy

5 points   

QUESTION 11

Which of the following products is most likely to benefit from depreciation of the dollar?

high end signal processor from Hewlett Packard that faces minimal competition

Chevrolet automobile with a highly price elastic demand

Mercedes Benz auto facing price inelastic demand

low end Japanese machine tool

5 points   

QUESTION 12

Economic exposure is based on the extent to which the ______ of the firm will change when exchange rates change.

value

current assets

long-term liabilities

competitive advantages

.7110-5

2.6220-30

.7625-8

1.3110-5

Explanation / Answer

9)

direct quote for sterling in New York is 1.3110-5 means that bid price is 1.3110 and ask price is 1.3110+.0005=1.3115

the direct quote for dollars in London is=1/1.3110=0.7628 is the ask price and 1/1.3115=0.7625 is the bid price.

Thus direct quote for dollars in London is 0.7625-8

10)One way an MNC may improve productivity in the face of exchange rate volatility is by revising product offerings. In face of exchange rate volatility one way to cope with this volatility is to increase volume of sales that can be done by revising product offerings.

11) Chevrolet automobile with a highly price elastic demand.Since the demand is highly elastic the depreciation of dollar shall cause decline in price that shall cause increase in the demand by a larger percentage as compared to the precent decreaase in price therefore a higher overall percent increase in the overall revenues from the automobile sales.Thus Chevrolet automobile with a highly price elastic demand shall benefit the most.

12) Economic exposure is based on the extent to which the value of the firm will change when exchange rates change.The value that is the long term cash flows of the firm and thus the market value of the firm are affected by exchange rates change.

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