Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

When comparing the forward hedge to the options hedge, the MNC can easily determine which hedge is more desirable, because the cost of each hedge can be determined with certainty.

Accepted Answer

A) True 
 B)False

Question 3

To hedge a receivables position with a currency option hedge, an MNC would buy a put option.

Accepted Answer

A) True 
 B)False

Question 4

If hedging projections cause a firm to believe that it will definitely be adversely affected by its transaction exposure, a currency option hedge is more appropriate than other methods.

Accepted Answer

A) True 
 B)False

Question 5

A ____ does not represent an obligation.​

Accepted Answer

A)  ​long-term forward contract 
B)  ​currency swap 
C)  ​parallel loan 
D)  ​currency option 
A)  ​long-term forward contract 
B)  ​currency swap 
C)  ​parallel loan 
D)  ​currency option

Question 6

MNCs should hedge receivables using bear spreads only for currencies that are expected to appreciate substantially prior to option expiration.

Accepted Answer

A) True 
 B)False

Question 7

Linden Co. has 1,000,000 euros as payables due in 90 days, and is certain that the euro is going to depreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:

Accepted Answer

A)  sell euros forward. 
B)  purchase euro currency put options. 
C)  purchase euro currency call options. 
D)  purchase euros forward. 
E)  remain unhedged. 
A)  sell euros forward. 
B)  purchase euro currency put options. 
C)  purchase euro currency call options. 
D)  purchase euros forward. 
E)  remain unhedged.

Question 8

Sometimes the overall performance of an MNC may already be insulated by offsetting effects between subsidiaries, and it may not be necessary to hedge the position of each individual subsidiary.

Accepted Answer

A) True 
 B)False

Question 9

Mender Co. will be receiving 500,000 Australian dollars in 180 days. Currently, a 180-day call option with an exercise price of $.68 and a premium of $.02 is available. Also, a 180-day put option with an exercise price of $.66 and a premium of $.02 is available. Mender plans to purchase options to hedge its receivables position. Assuming that the spot rate in 180 days is $.67, what is the amount received from the currency option hedge (after considering the premium paid)?

Accepted Answer

A)  $330,000 
B)  $325,000 
C)  $320,000 
D)  $340,000 
A)  $330,000 
B)  $325,000 
C)  $320,000 
D)  $340,000

Question 10

Since forward contracts are easy to use for hedging, any exposure to exchange rate movements should be hedged.

Accepted Answer

A) True 
 B)False

Question 11

​The real cost of hedging payables with a forward contract equals:

Accepted Answer

A)  ​the dollar cost of hedging minus the dollar cost of not hedging. 
B)  ​the dollar cost of not hedging minus the dollar cost of hedging. 
C)  ​the dollar cost of hedging divided by the dollar cost of not hedging. 
D)  ​the dollar cost of not hedging divided by the dollar cost of hedging. 
A)  ​the dollar cost of hedging minus the dollar cost of not hedging. 
B)  ​the dollar cost of not hedging minus the dollar cost of hedging. 
C)  ​the dollar cost of hedging divided by the dollar cost of not hedging. 
D)  ​the dollar cost of not hedging divided by the dollar cost of hedging.

Question 12

​A ____ involves an exchange of currencies between two parties, with a promise to re-exchange currencies at a specified exchange rate and future date.

Accepted Answer

A)  ​long-term forward contract 
B)  ​currency option contract 
C)  ​parallel loan 
D)  ​money market hedge 
A)  ​long-term forward contract 
B)  ​currency option contract 
C)  ​parallel loan 
D)  ​money market hedge

Question 13

Johnson Co. has 1,000,000 euros as payables due in 30 days, and is certain that the euro is going to appreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:

Accepted Answer

A)  sell euros forward. 
B)  purchase euro currency put options. 
C)  purchase euro currency call options. 
D)  purchase euros forward. 
E)  remain unhedged. 
A)  sell euros forward. 
B)  purchase euro currency put options. 
C)  purchase euro currency call options. 
D)  purchase euros forward. 
E)  remain unhedged.

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

When comparing the forward hedge to the options hedge, the MNC can easily determine which hedge is more desirable, because the cost of each hedge can be determined with certainty.

To hedge a receivables position with a currency option hedge, an MNC would buy a put option.

If hedging projections cause a firm to believe that it will definitely be adversely affected by its transaction exposure, a currency option hedge is more appropriate than other methods.

A ____ does not represent an obligation.

MNCs should hedge receivables using bear spreads only for currencies that are expected to appreciate substantially prior to option expiration.

Linden Co. has 1,000,000 euros as payables due in 90 days, and is certain that the euro is going to depreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:

Sometimes the overall performance of an MNC may already be insulated by offsetting effects between subsidiaries, and it may not be necessary to hedge the position of each individual subsidiary.

Since forward contracts are easy to use for hedging, any exposure to exchange rate movements should be hedged.

The real cost of hedging payables with a forward contract equals:

A ____ involves an exchange of currencies between two parties, with a promise to re-exchange currencies at a specified exchange rate and future date.

Johnson Co. has 1,000,000 euros as payables due in 30 days, and is certain that the euro is going to appreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:

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

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

When comparing the forward hedge to the options hedge, the MNC can easily determine which hedge is more desirable, because the cost of each hedge can be determined with certainty.

To hedge a receivables position with a currency option hedge, an MNC would buy a put option.

If hedging projections cause a firm to believe that it will definitely be adversely affected by its transaction exposure, a currency option hedge is more appropriate than other methods.

A ____ does not represent an obligation.​

MNCs should hedge receivables using bear spreads only for currencies that are expected to appreciate substantially prior to option expiration.

Linden Co. has 1,000,000 euros as payables due in 90 days, and is certain that the euro is going to depreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:

Sometimes the overall performance of an MNC may already be insulated by offsetting effects between subsidiaries, and it may not be necessary to hedge the position of each individual subsidiary.

Since forward contracts are easy to use for hedging, any exposure to exchange rate movements should be hedged.

​The real cost of hedging payables with a forward contract equals:

​A ____ involves an exchange of currencies between two parties, with a promise to re-exchange currencies at a specified exchange rate and future date.

Johnson Co. has 1,000,000 euros as payables due in 30 days, and is certain that the euro is going to appreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:

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 ____ does not represent an obligation.

The real cost of hedging payables with a forward contract equals:

A ____ involves an exchange of currencies between two parties, with a promise to re-exchange currencies at a specified exchange rate and future date.