This HW require fully understand three types of exchange rate exposure.

3. Discuss how firms manage transaction and operating exposure in practice: the various financial hedges and strategic responses. Draw upon the relevant Wharton/CIBC survey evidence when discussing the degree to which firm use financial hedges, and for what purpose.

4. Explain how accounting rules (and which ones) affect a multinational corporation's translation exposure. Should a firm be concerned about translation exposure?

5. Explain how a currency swap works, and what it achieves.

6. Identify whether the following create substantial transaction, operating, and/or translation exposure (or no exposure at all) for a U.S. company, and how the company will be affected if the foreign currency depreciates. The examples will typically create more than one type of exposure.

a) Budweiser sells 50-million-euro worth of beer in Germany; payment will be made in euro next October.

b) Honda-U.S. imports parts from its Japanese parent corporation, and locks in a dollar price through a forward contract.

c) IBM issues Swiss franc-denominated bonds in Zurich.

d) Widgets International (WI) purchases a British factory, financed by issuing dollar debt and swapping for pound-denominated debt. WI is expecting a steady stream of pound revenues from the factory. FASB 8 is in effect.

e) Same as above, only FASB 52 is in effect.