Exam 11: Managing Transaction Exposure

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.

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

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:

Pablo Corp.will need 150,000 Jordanian dinar (JOD)in 360 days.The current spot rate of the dinar is $1.48,while the 360-day forward rate is $1.46.What is Pablo's cost from implementing a money market hedge (assume Pablo does not have any excess cash)

Assume that Smith Corporation will need to purchase 200,000 British pounds in 90 days.  A call option exists on British pounds with an exercise price of $1.68,a 90day expiration date,and a premium of $.04.  A put option exists on British pounds,with an exercise price of $1.69,a 90day expiration date,and a premium of $.03.  Smith Corporation plans to purchase options to cover its future payables.  It will exercise the option in 90 days (if at all).  It expects the spot rate of the pound to be $1.76 in 90 days.  Determine the amount of dollars it will pay for the payables,including the amount paid for the option premium.

You are the treasurer of Arizona Corporation and must decide how to hedge (if at all)future receivables of 350,000 Australian dollars (A$)180 days from now.Put options are available for a premium of $.02 per unit and an exercise price of $.50 per Australian dollar.The forecasted spot rate of the Australian dollar in 180 days is: The 90-day forward rate of the Australian dollar is $.50. What is the probability that the put option will be exercised (assuming Arizona purchased it)

Assume that Kramer Co.will receive SF800,000 in 90 days.  Today's spot rate of the Swiss franc is $.62,and the 90day forward rate is $.635.  Kramer has developed the following probability distribution for the spot rate in 90 days: The probability that the forward hedge will result in more dollars received than not hedging is:

To hedge payables with futures,an MNC would sell futures;to hedge receivables with futures,an MNC would buy futures.

When the real cost of hedging is positive,this implies that hedging was more favorable than not hedging.

Celine Co.will need €500,000 in 90 days to pay for German imports.Today's 90-day forward rate of the euro is $1.07.There is a 40 percent chance that the spot rate of the euro in 90 days will be $1.02,and a 60 percent chance that the spot rate of the euro in 90 days will be $1.09.Based on this information,the expected value of the real cost of hedging payables is $________.

If an MNC is extremely risk-averse,it may decide to hedge even though its hedging analysis indicates that remaining unhedged will probably be less costly than hedging.

To hedge a payable position with a currency option hedge,an MNC would write a call option.

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

MNCs generally do not need to hedge because shareholders can hedge their own risk.

An example of crosshedging is:

If an MNC is hedging various currencies,it should measure the real cost of hedging in each currency as a dollar amount for comparison purposes.

A put option essentially represents two swaps of currencies,one swap at the inception of the loan contract and another swap at a specified date in the future.

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

Currency futures are very similar to forward contracts,except that they are standardized and are more appropriate for firms that prefer to hedge in smaller amounts.

Quasik Corporation will be receiving 300,000 Canadian dollars (C$)in 90 days.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.Quasik plans to purchase options to hedge its receivable position.Assuming that the spot rate in 90 days is $.71,what is the net amount received from the currency option hedge