The Firm May Not Be Subject to High Degrees of Operating

question 88

Multiple Choice

The firm may not be subject to high degrees of operating exposure

• A)when changes in real exchange rates are exactly offset by the inflation differential.
• B)when changes in nominal exchange rates are exactly matched by the inflation differential.
• C)when changes in nominal exchange rates are exactly offset by the inflation differential.
• D)none of the above

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Definitions:

Exchange Rates

The worth of a currency when exchanged for another currency.

Functional Currency

The currency of the primary economic environment in which an entity operates, usually determined by the currency that influences sales prices for goods and services.

Exchange Differences

Gains or losses resulting from the conversion of foreign currency transactions into the functional currency of a business.

Equity

The value of an owner's interest in a property, calculated by subtracting liabilities from the value of an asset.