1) As opposed to transaction exposure, managing economic exposure involves developing a(n) ____ solution.

a, short-term

b, long-term

c, immediate

d, none of the above

2,Which of the following is not a factor that should be considered in multinational capital budgeting?

a, Blocked funds

b, Exchange rate fluctuations

c, Inflation

d, Financing arrangements

e, All of the above should be considered 

 

1.b, long-term

2.e, All of the above should be considered

Step-by-step explanation

1.Transaction exposure arises from the impact that changes in exchange rates on a firm's obligations to either pay or receive payments that are denominated in a foreign currency. It is either short-term or medium-term in nature. Economic exposure on the other hand is caused by the impact of unexpected changes in currency exchange rates on a company's future cash flows and market value. It is therefore long term in nature because market value and future cash flows are long term measures.

2.There are various factors that are taken into account in making capital budgeting decisions for multinational firms. They include blocked funds, exchange rate fluctuations, inflation and financing arrangements. Others include host government incentives, impact of the new project on the firm's current cash flows and the uncertainties in salvage value. All the factors listed above are therefore considered in multinational capital budgeting.