Exchange Rate Risk

question 37

Multiple Choice

Exchange rate risk

• A) arises from the fact that the spot exchange rate on a future date is a random variable.
• B) applies only to certain types of international businesses.
• C) has been phased out due to recent international legislation.
• D) has been reduced by the adoption of floating exchange rates.

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Definitions:

Common Stock

Equity securities that represent ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often with predetermined dividends.

Debt Instrument

A written obligation to repay borrowed funds or debts under defined terms, such as bonds, notes, or mortgages.

Preemptive Rights

Privileges granted to existing shareholders to buy additional shares in the company before the shares are offered to the public, thereby protecting their ownership percentage.