A firm with a highly elastic demand for its products: (Points : 1) will be unabl

Question

A firm with a highly elastic demand for its products: (Points : 1)        will be unable to pass increased costs following unfavorable changes in the exchange rate without significantly lowering the quantity sold.
       will be able to raise prices following unfavorable changes in the exchange rate without significantly lowering the quantity sold.
       can easily pass increased costs on to consumers.
       will sell about the same amount of product regardless of price.

Question 2. 2. A U.S.-based MNC with exposure to the Swedish krona could best cross-hedge with: (Points : 1)        forward contracts on the euro.
       forward contracts on the ruble.
       forward contracts on the pound.
       forward contracts on the yen.

Explanation / Answer

1. will be unable to pass increased costs following unfavorable changes in the exchange rate without significantly lowering the quantity sold

2. forward contracts on the euro

3. all of the above.

4. the "functional currency".

5. the extent to which the firm's operating cash flows would be affected by random changes in exchange rates.

6. buy call options on the foreign currency with a strike in the domestic currency.

7. transaction exposure.

8. asset exposure.

9. Temporal Method

10. both a) and c).

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