Eun & Resnick 4e
CHAPTER 9 Management of Economic Exposure

How to Measure Economic Exposure
International Finance in Practice: U.S. Firms Feel the Pain of Peso’s Plunge
Operating Exposure: Definition
Illustration of Operating Exposure
Determinants of Operating Exposure
Managing Operating Exposure
Selecting Low-Cost Production Sites
International Finance in Practice: The Strong Yen and Toyota’s Choice Flexible Sourcing Policy
Diversification of the Market R&D Efforts and Product Differentiation Financial Hedging
International Finance in Practice: Porsche Powers Profit with Currency Plays
CASE APPLICATION: Exchange Risk Management at Merck
Summary
MINI CASE: Economic Exposure of Albion Computers PLC

How to Measure Economic Exposure
1. Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate a) Can have a significant economic consequences for U.S. firms. b) Can have a significant economic consequences for Japanese firms. c) Can have a significant economic consequences for both U.S. and Japanese firms. d) None of the above
Answer: c)

2. Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate a) Will tend to weaken the competitive position of import-competing U.S. car makers. b) Will tend to strengthen the competitive position of import-competing U.S. car makers. c) Will tend to strengthen the competitive position of Japanese car makers at the expense of U.S. makers. d) None of the above
Answer: b)

3. When the Mexican peso collapsed in 1994, declining by 37 percent, a) U.S. firms that exported to Mexico and priced in peso were adversely affected. b) U.S. firms that exported to Mexico and priced in dollars were adversely affected. c) U.S. firms were unaffected by the peso collapse, since Mexico