Which of the Following Is a Step Taken to Manage

question 104

Multiple Choice

Which of the following is a step taken to manage foreign exchange risk?

• A)Firms should focus solely on managing transaction and translation exposures.
• B)Forecasting future exchange rate movements should be avoided as it is speculative.
• C)Firms need to develop strategies for dealing with economic exposure.
• D)Firms should avoid central control of exposure.
• E)Firms should not distinguish between transaction and translation exposure and economic exposure.

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Definitions:

Regression Coefficient

A number that represents the relationship between a dependent variable and an independent variable in statistical models, indicating the strength and direction of the correlation.

Single Factor Model

A financial model that describes an asset's returns as dependent on a single market index or factor.

Fama-French Three Factor Model

The Fama-French Three Factor Model expands on the Capital Asset Pricing Model by incorporating three factors: market risk, size risk, and value risk, to explain stock returns.

Risk Premiums

The extra return expected by investors for holding a risky asset compared to a risk-free asset, as compensation for the additional risk.