When a Company with a Foreign Subsidiary Needs to Arrange

question 58

Multiple Choice

When a company with a foreign subsidiary needs to arrange funding in a foreign currency to pay its foreign employees,it faces:

• A) accounting exposure.
• B) economic exposure.
• C) operating exposure.
• D) translation exposure.

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Definitions:

SMB Beta

A measure used in finance to assess the sensitivity of a stock's return relative to the size factor in an asset pricing model.

Factor Portfolio

A portfolio that is constructed to have a high sensitivity to certain economic or financial factors, aiming to capture specific risk premiums.

Well-diversified Portfolio

An investment portfolio comprised of various assets to reduce exposure to risk by spreading investments across different industries, asset classes, or other categories.

Beta

A measure of the volatility, or systematic risk, of a security or portfolio compared to the market as a whole.