A Board of Directors Is Concerned About the Variability of the Company's

question 78

Multiple Choice

A board of directors is concerned about the variability of the company's various foreign currency exposures.The company treasurer prepares a report showing the standard deviations for a range of currencies over the past decade.Which of the following statements is correct?

• A) Standard deviation does not provide an accurate measure of the future probability of percentage exchange rate changes.
• B) Use of ten-year data smooths out periodic fluctuations, to give a more reliable future indication of exposure.
• C) Exposures in currencies that have a low standard deviation against the AUD involve greater foreign exchange risk.
• D) Different patterns of future currency movements are reflected in the historical data used in calculating standard deviations.

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Definitions:

Debt

Money that is owed or due to be paid to creditors.

Capital Structure

The mix of various types of debt and equity that a company uses to finance its operations.

Tax Rate

The proportion of one's earnings or company profits that is required to be paid as tax.

Degree Of Financial Leverage (DFL)

A measure that evaluates the sensitivity of a company's earnings per share to fluctuations in its operating income, indicating financial risk.