QUESTION 13 With respect to production management of exchange risk, ________ and
ID: 2757065 • Letter: Q
Question
QUESTION 13
With respect to production management of exchange risk, ________ and plant location are the principal variables that companies may change to manage the risk.
product innovation
product retirement
market selection
product sourcing
5 points
QUESTION 14
Jet engine manufacturing entails enormous economies of scale. Pratt & Whitney, a large U.S. jet engine producer, faces substantial competition from Rolls Royce, the British engine manufacturer. What would be the best way for P & W to cope with a dollar that has recently appreciated by 50%?
accelerate R&D spending and cost cutting efforts
shift some of its production abroad
raise the foreign currency prices of its engines sold abroad
buy dollars forward
5 points
QUESTION 15
Suppose that the spot rate and the 90 day forward rate on the pound sterling are $1.35 and $1.30, respectively. Your company, wishing to avoid foreign exchange risk, sells £500,000 forward 90 days. Assuming that the spot rate remains the same 90 days hence, your company would
receive £500,000 90 days hence
receive more than £500,000 in 90 days
have been better off not to have sold pounds forward
receive nothing
5 points
QUESTION 16
The following information is to be used in answering the next question.
Suppose Alcoa has a payable of SF 1 million due in one year. Alcoa's cost of the payable using a money market hedge is ______ and its cost using a forward market hedge is _______.
$173,900; $177,470
$174,925; $176,300
$176,671; $172,900
$178,937; $174,700
product innovation
product retirement
market selection
product sourcing
Explanation / Answer
Answers
Q. 13 : PRODUCT INNOVATION
Q. 14 : Accelerate R&D spending and cost cutting.
Q. 15 : have been better off not to have sold pounds forward
Q. 16 : $ 176,671 ; $ 172,900
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