Briefly discuss the risks of unexpected changes in exchange rates and how these risks affect the use by a multinational enterprise (MNE) of borrowing foreign currency to fund its foreign affiliates.
What will be an ideal response?
POSSIBLE RESPONSE: Unexpected changes in exchange rates can alter the value of the MNE's direct investments in the foreign country. If the foreign currency depreciates relative to the MNE's home currency, the value of the MNE's foreign assets, as measured in terms of the home currency, declines. A good risk-reducing strategy for a parent company that has foreign-currency assets in its affiliates is to take on foreign-currency liabilities, by using borrowing in the foreign currency to finance its assets. This type of "hedge" would help minimize the risk associated with a loss in the value of the company's foreign-currency assets. The decline in the value of the foreign-currency assets (what it owns) would be offset by a decline in the value of the foreign-currency liabilities (what it owes).
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At a wage of $25 per hour, the firm employs 50,000 of hours of labor per week. If the wage would increase to $27 per hour, the firm would employ 45,000 hours of labor per week. What is the elasticity of labor demand?
A. ?1.25 B. ?0.25 C. ?1.50 D. ?2.50 E. ?0.50
If a developing country has sufficient reserves, the buying and selling of foreign currency by the central bank is:
A. likely to have a much smaller impact on the exchange rate than in developed countries. B. completely ineffective on the exchange rate. C. likely to have a much greater impact on the exchange rate than in developed countries. D. likely to have roughly the same impact on the exchange rate as in developed countries.
Which of the following assets is the most liquid in the United States?
A. U.S. currency B. U.S. Treasury bonds C. Alphabet stock shares D. an antique car
Marginal cost describes a change in _________ when output is expanded by one more unit.
A) average total cost B) total cost C) average variable cost D) total fixed cost