Which of the Following Statements Is FALSE

question 3

Multiple Choice

Which of the following statements is FALSE?

• A)The most common method firms use to reduce the risk that results from changes in exchange rates is to hedge the transaction using currency forward contracts.
• B)Fluctuating exchanges rates cause a problem known as the importer-exporter dilemma for firms doing business in international markets.
• C)Exchange rate risk naturally arises whenever transacting parties use different currencies: Both of the parties will be at risk if exchange rates fluctuate.
• D)Because the supply and demand for currencies varies with global economic conditions,exchange rates are volatile.

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Definitions:

Optimal Structure

The ideal mix of debt, equity, and internal funds that minimizes the cost of capital while maximizing shareholder value.

IRR

Internal Rate of Return, a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Cost Of Capital

The minimum return that a company must earn on existing asset base to satisfy its creditors, owners, and other providers of capital.

Capital Structure

The mix of different forms of capital used by a firm to finance its overall operations and growth, including debt, equity, and any hybrid securities.