A Purely Domestic Firm That Sources and Sells Only Domestically

question 62

Multiple Choice

A purely domestic firm that sources and sells only domestically,

• A)faces exchange rate risk to the extent that it has international competitors in the domestic market.
• B)faces no exchange rate risk.
• C)should never hedge since this could actually increase its currency exposure.
• D)both b and c

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent and salaries.

Depreciation Expense

Apportioning the value of a concrete asset throughout its operational life.

Sales Price

The amount of money for which a product or service is sold to customers, not necessarily reflecting the cost of production or provision.

Contribution Margin

The amount by which a product's selling price exceeds its total variable costs, indicating how much contributes to covering fixed costs and generating profit.