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Global Business Today 4th Canadian Edition By Charles Hill – Test Bank

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  • ISBN-10 ‏ : ‎ 1259024989
  • ISBN-13 ‏ : ‎ 978-1259024986

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SKU:tb1001749

Global Business Today 4th Canadian Edition By Charles Hill – Test Bank

c9 Student: ___________________________________________________________________________ 1. A stronger Korean won, remembering that Kia cars sold in the United States are paid for in dollars, means what for the Korean based Kia? A. a need to hedge Japanese yen B. a use for the Euro, a neutral currency C. less profit D. a use for gold to protect against currency fluctuations E. more profit 2. The _____________ is a market for converting the currency of one country into that of another. A. foreign exchange market B. cross-cultural interchange C. financial barter market D. monetary replacement market E. international currency spot market 3. The rate at which one currency is converted into another is called the ___________. A. replacement percentage B. resale rate C. exchange rate D. interchange ratio E. valuation rate 4. Without the ____________ market, international trade and international investment on the scale that we see today would be impossible. A. foreign exchange B. financial barter C. foreign resale D. monetary replacement E. capital market 5. Although the _____________ offers some insurance against foreign exchange risk, it cannot provide complete insurance. A. foreign exchange market B. the Euro C. World Bank D. foreign currency exchange E. the CDC 6. The ______________ is the market that enables companies based in countries that use different currencies to trade with each other. A. World Bank B. foreign currency exchange C. foreign exchange market D. foreign monetary mart E. foreign exchange mechanism 7. The movement of foreign exchange rates A. provide some insurance against foreign exchange risk. B. has significantly deteriorated the overall volume of foreign trade. C. sets interest rates charged to foreign investors. D. introduces many risks into international trade and investment. E. is a natural function of supply and demand among currency traders. 8. When a tourist exchanges one currency into another, she is participating in the: A. foreign barter market B. foreign exchange market C. foreign replacement market D. foreign swap market E. international trade exchange 9. The ______________ is the rate at which the market converts one currency into another. A. international conversion factor B. world barter factor C. foreign exchange rate D. global replacement percentage E. discount rate 10. One function of the foreign exchange market is to provide some insurance against the risks that arise from changes in exchange rates, commonly referred to as: A. foreign market hazard B. global jeopardy C. foreign exchange risk D. commerce uncertainty E. trade payment risk 11. Which of the following statements is true? A. The existence of the foreign exchange market has removed all forms of foreign exchange risk for business organizations. B. Despite the existence of the foreign exchange market, firms do suffer losses because of unpredicted changes in exchange rates, although these occasions are rare. C. The foreign exchange market eliminates very little foreign exchange risk. D. The foreign exchange market is characterized by large numbers of speculators who increase the foreign exchange risk for firms E. Despite the existence of the foreign exchange market, it is not unusual for international businesses to suffer losses because of unpredicted changes in exchange rates. 12. The foreign exchange market serves two main functions. These are what? A. collect duties on imported products and convert the currency of one country into the currency of another. B. insure companies against foreign exchange risk and set interest rates charged to foreign investors. C. collect duties on imported products and set interest rates charged to foreign investors. D. convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk. E. reduce the trade imbalances between countries and convert the currency of one country into another. 13. The foreign exchange market converts the currency of one country into the currency of another and: A. provides some insurance against foreign exchange risk B. collects duties on imported products C. sets interest rates charged to foreign investors D. arbitrates disputes between trade partners E. reduces trade imbalances between countries 14. Tourists are minor participants in what? A. the currency conversion exchange B. capital venturing C. foreign traveling D. FDI E. the foreign exchange market 15. Canadian businesses will normally use the ________________ in international transactions. A. German mark B. Euro C. U.S. dollar D. Japanese yen E. British pound 16. Small Canadian businesses will be ____________ than large Canadian businesses to be exposed to currency risk associated with the Canadian dollar. A. less likely B. unlikely C. likely D. probably likely E. more likely 17. Which of the following is not one of the four main uses that international businesses have for the foreign exchange market? A. International businesses use foreign exchange markets to convert money they earn in foreign currencies to their home currencies B. International businesses use foreign exchange markets in determining domestic wage rates C. International businesses use foreign exchange markets when they have spare cash that they wish to invest for short terms in money markets D. Currency speculation E. Short term money market investments 18. _____________ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. A. Capital venturing B. Currency speculation C. Monetary risk taking D. Investment contemplation E. Currency conversion 19. Barrick Gold used, until 2009, a(n) _______________ strategy to protect itself against changes in the price of gold. A. Gold swap B. forward gold exchange C. insurance D. spot gold exchange E. gold hedging 20. Currency speculation typically involves what? A. the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates B. the permanent movement of funds from one currency to another in the hopes of profiting from long-term investment in a particular country C. the simultaneous purchase of currencies from several countries in hopes of profiting from increasing economic prosperity D. the liquidation of currency in favour of precious metals as a hedge against inflation E. Buying low and holding currency until it stabilizes, than selling 21. What do many Canadian businesspeople NOT buy into with respect to the value of the Canadian dollar? A. A stronger dollar will result in more outbound tourism B. A weaker dollar is good for tourists coming to Canada C. A stronger dollar means that Canadian resources are more in demand D. A weaker dollar will make imports more expensive E. A stronger dollar will reduce demand for Canada’s exports 22. When two parties agree to exchange currency and execute the deal immediately, the transaction is referred to as a ______________. A. point-in-time exchange B. temporal exchange C. spot exchange D. forward exchange E. transaction 23. When a U.S. tourist in Japan goes to a bank to convert her dollars into Japanese yen, the exchange rate is the A. forward exchange rate. B. regulated exchange rate. C. sanctioned exchange rate. D. spot exchange rate. E. Japanese central bank rate. 24. It is necessary to use a ______________ exchange rate to execute a transaction immediately. A. real time B. spot C. statutory D. sanctioned E. bank determined 25. _____________ are reported on a real time basis on many financial Web sites. A. Real time rates B. Spot exchange rates C. Sanctioned rates D. Statutory exchange rates E. Hedging costs 26. The value of a currency is determined by A. the interaction between the demand and supply of that currency relative to the demand and supply of other currencies. B. a consortium of international currency traders. C. the World Trade Organization. D. negotiations between the central banks of the leading five industrial powers of the world. E. currency speculators. 27. A ______________ exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. A. reverse B. spot C. hedge D. forward E. futures 28. ______________ exchange rates represent market participants’ collective predictions of likely spot exchange rates at specified future dates. A. Reciprocal B. Hedge C. Reverse D. Forward E. Future 29. A(n) ______________ is purchase and sale of a given amount of foreign exchange for two different value dates, at the same time. A. currency swap B. FDI C. economic fund D. short selling E. arbitrage group 30. _____________ occurs when an investor purchases securities in one market for immediate resale in another. A. Hedge fund B. Foreign direct investment C. Foreign exchange risk D. Arbitrage E. Financial gain 31. An importer enters into a 60 day forward exchange rate for converting dollars into yuan. The spot exchange rate is 5.28 yuan for 1 dollar. The forward exchange rate is 5.27 yuan for 1 dollar. How many yuan would the importer get for 50,000 dollars? A. 264,000 B. 364,000 C. 364,500 D. 353,500 E. 263,500 32. An importer enters into a 60 day forward exchange rate for converting dollars into yuan. The spot exchange rate is 5.28 yuan for 1 dollar. The forward exchange rate is 5.27 yuan for 1 dollar. What is the difference in the amount the importer receives using the forward exchange rate and the spot exchange rate. A. 100,000 B. 5,000 C. 500 D. 50 E. 250 33. Rates for currency exchange quoted for 30, 90, or 180 days into the future are referred to as _____________. A. forward exchange rates B. foreign exchange quotes C. united trade rates D. generic exchange quotes E. future exchange rates 34. Current estimates are that currencies worth approximately __________ trillion dollars (U.S.) were traded every day. A. 1 B. 200 C. 13 D. 4.2 E. 5.3 35. When the dollar buys more yen on the spot market than the 30-day forward market, we say the dollars is selling at a ______________. Conversely, when the dollars buys fewer yen on the spot market than the 30-day forward market, we say the dollar is selling at a ______________. A. premium; discount B. handicap; bonus C. discount; premium D. subsidy; handicap E. gain; loss 36. The foreign exchange market: A. is not located in any one place B. is located in New York City C. has offices in the Capitols of the five most powerful industrialized nations in the world D. is located in London E. is managed by the UN 37. The most important trading centers for the foreign exchange market are in A. New York, Singapore, Tokyo. B. San Paulo, New York, and Paris. C. San Francisco, Tokyo, and Singapore. D. New York, Hong Kong, and Paris. E. London, New York, and Tokyo. 38. One feature of the London exchange market is _____________ A. Lower exchange fees. B. Higher margins. C. New investment products. D. The ability to short the market. E. Its geography between the Tokyo and New York Markets. 39. Which of the following is a feature of the foreign exchange market? A. The market never sleeps B. The market has not yet created a global link C. There are not yet significant differences in the exchange rates D. High-speed computer linkages between trading centers have yet to be created E. Prices for various currencies are primarily set in New York and London 40. The largest trading center in the foreign exchange market is __________. A. Hong Kong B. London C. San Paulo D. Paris E. New York 41. The process of buying a currency low and selling it high at the same time is called A. forward exchange. B. skimming C. profiteering D. arbitrage E. hedging 42. If the prices differed in London and New York and a dealer spent $1 million to purchase 125 million, then sold that 125 immediately for $1.046666 million, the trader would earn a profit of $46,666 on the transaction. This is accomplished through A. arbitrage. B. skimming. C. FDI. D. pre exchange agreements. E. buying low and selling high. 43. Although a foreign exchange transaction can involve any two currencies, most transactions involve A. Japanese yen. B. British pounds. C. U.S. dollars. D. French francs. E. Euros. 44. At the most basic level, exchange rates are determined by the demand and supply of one currency relative to the A. permanent value of another. B. 30-day average of another. C. 90-day average of another. D. demand and supply of another. E. market psychology. 45. Most economic theories suggest that three import factors have an important impact on future exchange rate movements in a country’s currency. These factors are A. the country’s price inflation, its interest rate, and its market philosophy. B. the country’s rate of GNP, its unemployment rate, and its economic policy. C. the country’s participation in the World Trade Organization, its monetary policy, and its market philosophy. D. the country’s rate of economic growth, its participation in the World Trade Organization, and its economy policy. E. the country’s economic policy, its trade balance, and its national deficits. 46. The three factors that have the most important impact on future exchange rate movement include the country’s price inflation, its market philosophy, and its ______________. A. rate of economic growth B. unemployment rate C. interest rate D. participation in the World Trade Organization E. current account balance 47. The law of one price and purchasing power parity are two components of A. market psychology. B. price and exchange rates. C. interest rate. D. prices inflation. E. economic theory. 48. The _____________ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. A. law of one price B. principle of consistent pricing C. model of fair pricing D. principle of equitable pricing E. law of purchasing power equity 49. According to the ______________, identical products sold in different countries must sell for the same price when their price is expressed in the same currency in competitive markets free of transportation costs and barriers to trade. A. model of fair pricing B. law of purchasing power equity C. principle of equitable pricing D. principle of consistent pricing E. law of one price 50. The exchange rate between the British pound and the dollar is 1 = $1.50 and a jacket that retails for $75 in New York sells for 50 in London ($75/1.5 = 50). This reflects what? A. model of fair pricing. B. law of one price. C. principle of equitable pricing. D. principle of consistent pricing. E. purchasing power equity 51. The text gives Bolivia as an example of the impact of ______________ on exchange rates. A. interest rates B. trade imbalances C. market psychology D. bad economic management E. money supply 52. PPP theory stands for what? A. productivity power premium theory B. process productivity predictor theory C. purchasing power parity theory D. personal power predictor theory E. production possibilités parameter theory 53. A(n) _______________ has no impediments to the free flow of goods and services. A. classical market B. efficient market C. traditional market D. inefficient market E. free market 54. A less extreme version of the PPP theory state that given _____________ the price of a “basket of goods” should be roughly equivalent in each country. A. tolerant markets B. relatively efficient markets C. classical markets D. closed markets E. free markets 55. If the law of one price were true for all goods and services, the _____________ exchange rate could be found from any individual set of prices. A. stability power similarity (SPS) B. purchasing ability adeptness (PAA) C. buying prowess equality (BPE) D. purchasing power parity (PPP) E. spot 56. A(n) _______________ is a market in which few impediments to international trade and investment exist. A. relatively efficient market B. consistently inefficient market C. absolutely free market D. absolutely closed E. free market 57. The _____________ theory tells us that a country with a high inflation rate will see deprecation in its currency exchange rate. A. law of one price B. monetary system C. PPP D. price inflation E. currency determinism 58. In essence, PPP theory predicts that A. there is no relationship between changes in relative prices and changes in exchange rates. B. changes in relative prices will result in stability in exchange rates. C. stability in relative prices will result in a change in exchange rates. D. changes in relative prices will result in a change in exchange rates. E. changes in market barriers will result in changes in exchange rates 59. A less extreme version of the PPP theory states that given ______________, that is, markets in which few impediments to international trade and investment exist-the price of a “basket of goods” should be roughly equivalent in each country. A. relatively efficient markets B. statutory markets C. stable markets D. absolutely free markets E. mixed economies 60. In essence, the _______________ theory predicts that changes in relative prices will result in a change in exchange rates. A. buying power equality (BPE) B. purchasing power parity (PPP) C. stability power similarity (SPS) D. buying prowess equality (BPE) E. price stabilization potential 61. Theoretically, a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower refers to A. buying purchase power. B. purchasing power parity. C. power similarities. D. comparative advantage. E. national competitive disadvantage. 62. The Canadian money supply is growing more rapidly than Canadian output. Dollars will be relatively more plentiful than the currencies of countries where monetary growth is closer to output growth. This is an example of A. buying purchase power. B. buying prowess equality. C. stability power similarities. D. purchasing power parity. E. inflationary pressures. 63. Inflation is a(n) _____________ phenomenon. A. legal B. political C. monetary D. social E. economic 64. According to our textbook, when the growth in a country’s money supply is faster than the growth in its output, _____________ is(are) fuelled. A. economic growth B. unemployment C. inflation D. per capita savings E. wage increases 65. The PPP theory tells us that a country with a high inflation rate will see: A. a depreciation in its currency exchange rate B. an appreciation in its currency exchange rate C. no change in its currency exchange rate as a result of the inflation rate D. economic stability as a result of high inflation E. price rises to match neighbouring country prices 66. Economic theory tells us that _____________ rates reflect expectations about likely future inflation rates. A. currency B. exchange C. interest D. unemployment E. forward 67. ______________ determines whether the rate of growth in a country’s money supply is greater than the rate of growth in output. A. The international monetary authority B. Market mechanisms C. The private sector D. Government policy E. Demand for money 68. The inevitable result of excessive growth in money supply is called A. interest rate. B. price inflation. C. economic growth. D. per capita savings. E. wage increases 69. PPP theory predicts that changes in ______________ will result in a change in exchange rates. A. relative prices B. interest rates C. unemployment rates D. statutory prices E. wholesale prices 70. According to the textbook, PPP theory does not seem to be a particularly good predictor of exchange rate movements for time spans of A. one year or less. B. three years or less. C. five years or less. D. ten years or less. E. twenty years or less. 71. The ______________ is less useful for predicting exchange movements between the currencies of advanced industrialized nation that have relatively small differentials in inflation rates. A. tolerant market B. efficiency theory C. PPP theory D. closed market E. supply and demand mechanism 72. The PPP theory seems to best predict exchange rate changes for countries with what? A. very low rates of inflation and developed capital markets. B. very low rates of inflation and underdeveloped capital markets. C. very high rates of inflation and underdeveloped capital markets. D. very high rates of inflation and developed capital markets. E. low rates of inflation and underdeveloped capital markets 73. The _____________ states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries. A. Worldwide James Effect B. Universal Phillips Effect C. International Fisher Effect D. Global Miller Effect E. Law of One Price Effect 74. The International Fisher Effect states that for any two countries, the _____________ exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries. A. reciprocal B. spot C. forward D. inward E. future 75. According to the International Fisher Effect, if the real rate of interest in a country is 5 percent and the annual inflation is expected to be 10 percent, the nominal interest rate will be A. 5 percent. B. 10 percent. C. 12.5 percent. D. 15 percent. E. 20 percent. 76. Empirical evidence suggests that neither PPP theory nor the International Fisher Effect is particularly good at explaining A. long-term movements in exchange rates. B. interest rates. C. short-term movements in exchange rates. D. unemployment rates. E. short-term wage levels. 77. Short run exchange rate movements may be explained by ______________. A. the bandwagon effect B. investor expectations C. psychological factors D. nominal interest rates E. the bandwagon effect, investor expectations, and psychological factors 78. Calculate the forward exchange rate using the following information. Spot exchange rate is $1.45 for 1 Euro. The nominal interest rate in Canada is 6 percent and the nominal interest rate in Europe is 4%. A. 1.44 B. 1.43 C. 1.45 D. 1.41 E. 1.42 79. Investor expectations about likely future exchange rates have a tendency to become __________. A. the PPP B. speculative exchange rates C. self-fulfilling prophecies D. the IFE E. interest rates 80. The _____________ market school argues that forward exchange rates do the best possible job of forecasting future spot exchange rates, so investing in exchange rate forecasting services would be a waste of time. A. efficient B. closed C. inefficient D. free E. open 81. The ______________ market school argues that companies can improve the foreign exchange market’s estimate of future exchange rates by investing in forecasting services. A. inefficient B. free C. open D. closed E. efficient 82. A(n) ___________ market is one in which prices do not reflect all available information. A. efficient B. inefficient C. free D. closed E. regulated 83. In an _____________ market, forward exchange rates will not be the best possible predictors of future spot exchange rates. A. closed B. inefficient C. efficient D. reciprocal E. regulated 84. ______________ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. A. Principal investigation B. Fundamental analysis C. Primary evaluation D. Technical analysis E. Economic analysis 85. The variables in fundamental analysis models can include what? A. price B. volume C. investor psychology D. the bandwagon effect E. money supply 86. _____________ uses price and volume data to determine past trends, which are expected to continue into the future. A. Principal investigation B. Primary evaluation C. Fundamental analysis D. Technical analysis E. Econometric analysis 87. The type of analysis that predicts exchange rate movements by using price and volume data to determine past trends is called A. fundamental analysis. B. primary evaluation. C. technical analysis. D. principal investigation. E. econometric analysis. 88. _____________ is based on the premise that analyzable market trends and waves can be used to predict future trends and waves. A. Technical analysis B. Fundamental analysis C. Basic analysis D. Central analysis E. Econometric analysis 89. Because there is no theoretical rationale for assumptions of predictability, many economists compare ______________ to fortune telling. A. technical analysis B. PPP C. exchange rate analysis D. inflation rates E. currency speculation 90. A country’s currency is said to be _____________ when the country’s government allows both residents and non-residents to purchase unlimited amounts of foreign currency with it. A. technically convertible B. freely convertible C. externally convertible D. nonconvertible E. internally convertible 91. ______________ is most likely to occur when the value of the domestic currency is depreciating rapidly because of hyperinflation. A. Counter trade B. Separate trade C. Reciprocal trade D. Capital flight E. Run on banks 92. A currency is said to be ______________ when only non-residents may convert it into a foreign currency without any limitations. A. externally convertible B. freely convertible C. technically convertible D. nonconvertible E. internally convertible 93. A currency is _____________ when neither residents nor non-residents are allowed to convert it into a foreign currency. A. freely convertible B. nonconvertible C. externally convertible D. technically convertible E. inconvertible 94. A government restricts the convertibility of its currency to protect the country’s _____________ and to halt any capital flight. A. membership in the World Trade Organization B. foreign exchange reserves C. political stature D. national sovereignty E. economic stability 95. ______________ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. A. Separate trade B. Reciprocal trade C. Countertrade D. Alternative trade E. Cashless trade 96. If an Canadian grain company exported corn to Russia, and instead of receiving nonconvertible Russian currency in exchange for the corn received Russian crude oil, that would be an example of ______________. A. countertrade B. synergistic trade C. separate trade D. reciprocal trade E. barter trade 97. Currency exchange fluctuations are important for a business to understand because they can ____________________. A. affect profitability in an international transaction B. affect pricing in a country market C. affect the competitive advantage of a company D. increase costs for imported goods E. all of these answers are correct 98. A stronger Korean won means that Kia cars sold in Canada for dollars are recorded at a higher value when translated back into won in Korea. True False 99. The international reserve market is a market for converting the currency of one country into that of another country. True False 100. Without the foreign market exchange, international trade and international investment on the scale that we see today would be impossible. True False 101. In addition to altering the value of trade deals and foreign investments, currency movements can also open or close export opportunities and alter the attractiveness of imports. True False 102. An exchange rate is simply the rate at which one currency is converted into another. True False 103. In international trade, the risk of not getting paid for a product that is exported from one country to another is referred to foreign exchange risk. True False 104. The market through which an individual or institution exchanges one currency into another is called the foreign exchange market. True False 105. When a tourist changes one currency into another, she is participating in currency speculation. True False 106. Tourists play a major role in the foreign exchange market. True False 107. Currency speculation typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. True False 108. When a Canadian tourist in England goes to a bank to convert her dollars in pounds, the exchange rate is the forward exchange rate. True False 109. Spot exchange rates change daily as determined by the relative demand and supply for difference currencies. True False 110. A forward exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. True False 111. A forward exchange is an investment fund that not only buys financial assets but also sells them short. True False 112. A currency swap is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. True False 113. Arbitrage is the process of buying a currency high and selling it low. True False 114. At the basic level, exchange rates are determined by the demand and supply of one currency relative to the demand and supply for another. True False 115. The law of one price states that identical products sold in different countries must sell for the same price when their price is expressed in the same currency in competitive markets free of transportation costs and barriers to trade. True False 116. According to the International Fisher Effect, for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries. True False 117. An efficient market has significant impediments to the free flow of goods and services. True False 118. An efficient market is one in which prices reflect all available public information. True False 119. Fundamental analysis uses price and volume data to determine past trends, which are expected to continue into the future. True False 120. Technical analysis draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. True False 121. A currency is said to be externally convertible when only non-residents may convert it into foreign currency without limitations. True False 122. A country’s currency is said to be freely convertible when neither residents nor non-residents are allowed to convert it into a foreign currency. True False 123. The majority of the countries in the world have currency that is freely convertible. True False 124. Countertrade refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. True False 125. What are the functions of the foreign exchange market? Would international commerce be possible without its existence? 126. Explain the difference between spot exchange rates and forward exchange rates. Briefly explain how the forward exchange market works. 127. Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis? 128. What is the International Fisher Effect? (note: you do not need to provide the mathematical formula provided in the book) 129. Explain how the psychology of investors and bandwagon effects can have an impact on the movement in exchange rates. Do you believe that bandwagon effects really happen? Explain your answer. 130. In the context of forecasting exchange rate movements, describe the difference between fundamental analysis and technical analysis. Which approach is preferred by economists? Why? 131. Explain the concept of countertrade. When does countertrade make sense? How does countertrade help solve the no convertibility problem? 132. Why do companies prefer not to use countertrade if it can be avoided? 133. The Canadian dollar has risen against the U.S. dollar. Many manufacturers are complaining that this rise may affect their U.S. export market. Explain. 134. You are the manager of a company that operates internationally providing agricultural equipment that has been manufactured and assembled in Canada. You have sold your products in the United States for many years and are now looking to enter other markets. For a firm like yours that deals in international markets, what does “foreign exchange risk” mean? How could foreign exchange risk affect the profitability of your firm exporting tractors to a German buyer? 135. You are the manager of a company that operates internationally providing agricultural equipment that has been manufactured and assembled in Canada. You have sold your products in the United States for many years and are now looking to enter other markets. The Canadian dollar has been falling against the US dollar, but has held steady against other currencies. You have been asked by the CEO of your firm to prepare a marketing plan for entering EU countries. One of the key elements of your marketing plan is to price your product in Euros. What are the pros and cons of this currency strategy? 136. You are the manager of a company that operates internationally providing agricultural equipment that has been manufactured and assembled in Canada. You have sold your products in the United States for many years and are now looking to enter other markets. Your company has decided to enter the Argentinean market. You have decided to use two wholesalers, who will distribute to the retail market. The potential size of the market is $10,000,000 USD per year. However, both of your wholesalers will not assume the risk of invoices charging USD and they want at least 60 days before paying. They argue that they will have to give their retailers 60 days to pay and their retailers will only pay them in pesos. Argentina has just come out of a currency crisis and your Canadian bank has warned you of possible severe currency fluctuations. What payment and currency strategy will you suggest to your senior management? Explain your answer. 137. You are the manager of a company that operates internationally providing agricultural equipment that has been manufactured and assembled in Canada. You have sold your products in the United States for many years and are now looking to enter other markets. What factors will have an impact on the value of the Canadian dollar in six months’ time. Make a prediction for your company as to whether the dollar will rise or fall against other currencies such as the: U.S. dollar and the Euro. Justify your answer.

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