Exam 11: Managing Transaction Exposure

Assume the following information: U.S. deposit rate for 1 year = 11% US. borrowing rate for 1 year = 12% Swiss deposit rate for 1 year = 8% Swiss borrowing rate for 1 year = 10% Swiss forward rate for 1 year = $)40 Swiss franc spot rate = $)39 Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF600,000 in 1 year. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a forward hedge?

(Multiple Choice)

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Question 41

Which of the following might be used to hedge exposure in the long run?

(Multiple Choice)

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Question 42

The real cost of hedging payables in Japanese yen is especially high when the yen appreciates over time.

(True/False)

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Question 43

Which of the following reflects a hedge of net payables in British pounds by a U.S. firm?

(Multiple Choice)

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Question 44

The trade-off when considering alternative call options to hedge a currency position is that an MNC can obtain a call option with a higher exercise price, but would have to pay a higher premium.

(True/False)

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Question 45

A money market hedge on payables would involve, among others, borrowing and investing in the .

(Multiple Choice)

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Question 46

Lagging refers to the delay of payment by a subsidiary if the currency denominating the payable is expected to depreciate.

(True/False)

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Question 47

When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least reduce exposure, such as:

(Multiple Choice)

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Question 48

A futures hedge involves taking a money market position to cover a future payables or receivables position.

(True/False)

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Question 49

If interest rate parity exists, and transaction costs do not exist, the option hedge will yield the same results as no hedge.

(True/False)

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Question 50

FAB Corp. will need 200,000 Canadian dollars (C$) in 90 days to cover a payables position. Currently, a 90-day call option with an exercise price of $.75 and a premium of $.01 is available. Also, a 90-day put option with an exercise price of $.73 and a premium of $.01 is available. FAB plans to purchase options to hedge its payables position. Assuming that the spot rate in 90 days is $.71, what is the net amount paid, assuming FAB wishes to minimize its cost?

(Multiple Choice)

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Question 51

Assume zero transaction costs. If the 180-day forward rate overestimates the spot rate 180 days from now, then the real cost of hedging payables will be:

(Multiple Choice)

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Question 52

To hedge a in a foreign currency, a firm may a currency futures contract for that currency.

(Multiple Choice)

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Question 53

Money Corp. frequently uses a forward hedge to hedge its Malaysian ringgit (MYR) receivables. For the next month, Money has identified its net exposure to the ringgit as being MYR1,500,000. The 30-day forward rate is $.23. Furthermore, Money's financial center has indicated that the possible values of the Malaysian ringgit at the end of next month are $.20 and $.25, with probabilities of .30 and .70, respectively. Based on this information, the revenue from hedging minus the revenue from not hedging receivables is:

(Multiple Choice)

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Question 54

Your company will receive C$600,000 in 90 days. The 90-day forward rate in the Canadian dollar is $.80. If you use a forward hedge, you will:

(Multiple Choice)

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Question 55

In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:

(Multiple Choice)

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Question 56

The ____ hedge is not a technique to eliminate transaction exposure discussed in your text.

(Multiple Choice)

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Question 57

Many MNCs use selective hedging, in which they consider each type of transaction separately.

(True/False)

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Question 58

The price at which a currency put option allows the holder to sell a currency is called the settlement price.

(True/False)

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Question 59

An example of cross-hedging is:

(Multiple Choice)

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Question 60

Showing 41 - 60 of 73

Which of the following might be used to hedge exposure in the long run?

The real cost of hedging payables in Japanese yen is especially high when the yen appreciates over time.

Which of the following reflects a hedge of net payables in British pounds by a U.S. firm?

The trade-off when considering alternative call options to hedge a currency position is that an MNC can obtain a call option with a higher exercise price, but would have to pay a higher premium.

A money market hedge on payables would involve, among others, borrowing and investing in the .

Lagging refers to the delay of payment by a subsidiary if the currency denominating the payable is expected to depreciate.

When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least reduce exposure, such as:

A futures hedge involves taking a money market position to cover a future payables or receivables position.

If interest rate parity exists, and transaction costs do not exist, the option hedge will yield the same results as no hedge.

Assume zero transaction costs. If the 180-day forward rate overestimates the spot rate 180 days from now, then the real cost of hedging payables will be:

To hedge a in a foreign currency, a firm may a currency futures contract for that currency.

Your company will receive C$600,000 in 90 days. The 90-day forward rate in the Canadian dollar is $.80. If you use a forward hedge, you will:

In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:

The ____ hedge is not a technique to eliminate transaction exposure discussed in your text.

Many MNCs use selective hedging, in which they consider each type of transaction separately.

The price at which a currency put option allows the holder to sell a currency is called the settlement price.

An example of cross-hedging is:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 11: Managing Transaction Exposure

Which of the following might be used to hedge exposure in the long run?

The real cost of hedging payables in Japanese yen is especially high when the yen appreciates over time.

Which of the following reflects a hedge of net payables in British pounds by a U.S. firm?

The trade-off when considering alternative call options to hedge a currency position is that an MNC can obtain a call option with a higher exercise price, but would have to pay a higher premium.

A money market hedge on payables would involve, among others, borrowing ____ and investing in the ____.​

Lagging refers to the delay of payment by a subsidiary if the currency denominating the payable is expected to depreciate.

When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least reduce exposure, such as:

A futures hedge involves taking a money market position to cover a future payables or receivables position.

If interest rate parity exists, and transaction costs do not exist, the option hedge will yield the same results as no hedge.

Assume zero transaction costs. If the 180-day forward rate overestimates the spot rate 180 days from now, then the real cost of hedging payables will be:​

To hedge a ____ in a foreign currency, a firm may ____ a currency futures contract for that currency.

Your company will receive C$600,000 in 90 days. The 90-day forward rate in the Canadian dollar is $.80. If you use a forward hedge, you will:

In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:

The ____ hedge is not a technique to eliminate transaction exposure discussed in your text.​

Many MNCs use selective hedging, in which they consider each type of transaction separately.

The price at which a currency put option allows the holder to sell a currency is called the settlement price.

An example of cross-hedging is:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

A money market hedge on payables would involve, among others, borrowing and investing in the .

Assume zero transaction costs. If the 180-day forward rate overestimates the spot rate 180 days from now, then the real cost of hedging payables will be:

To hedge a in a foreign currency, a firm may a currency futures contract for that currency.

The ____ hedge is not a technique to eliminate transaction exposure discussed in your text.