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.

---

Definitions:

Sold Unit

Refers to a single unit of product that has been sold, representing a measure of the volume of sales transactions.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, influenced by the proportion of fixed costs to variable costs.

Variable Costs

Expenses that vary in direct relation to the amount of output or sales.

Fixed Costs

Expenses that do not change with the level of output or sales, such as rent, salaries, and insurance, remaining constant regardless of business activity levels.