Which of the following statements is incorrect?
a. Transaction exposure represents only the exchange rate risk when converting net foreign cash inflows to U.S. dollars or when purchasing foreign currencies to send payments.
b. Economic exposure represents any impact of exchange rate fluctuations on a firm's future cash flows.
c. Firms can simply focus on hedging their foreign currency payables and/or receivables to hedge economic exposure.
d. The management of economic exposure tends to serve as a long-term solution rather than just a short-term solution.
c. Firms can simply focus on hedging their foreign currency payables and/or receivables to hedge economic exposure.
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An auditor ordinarily uses a working trial balance resembling the financial statements without notes, but containing columns for
a. Cash flow increases and decreases b. Risk assessments and assertions c. Reclassifications and adjustments d. Reconciliations and tickmarks
Amalgamated Enterprises is planning to purchase some new equipment. With this new equipment, the
company expects sales to increase from $8,000,000 to $10,000,000. A portion of the financing for the purchase of the equipment will come from a $1,000,000 new common stock issue. The company knows that its current assets, fixed assets, accounts payable, and accrued expenses increase directly with sales. The company's net profit margin on sales is 8 percent, and the company plans to pay 40 percent of its after-tax earnings in dividends. A copy of the company's current balance sheet is given below. Amalgamated Enterprises Balance Sheet Current assets $3,000,000 Fixed assets 12,000,000 Total assets $15,000,000 Accounts payable $4,000,000 Accrued expenses 1,000,000 Long-term debt 3,000,000 Common stock 2,000,000 Retained earnings 5,000,000 Total liabilities and net worth $15,000,000 Prepare a pro forma balance sheet for Amalgamated for next year.