Question 1

Which of the following is a financial hedge?

Accepted Answer

A)  Invoice currency selection 
B)  Lead/lag strategy 
C)  Exposure netting 
D)  Money market hedge 
A)  Invoice currency selection 
B)  Lead/lag strategy 
C)  Exposure netting 
D)  Money market hedge

Question 2

Quebec Inc.,manufactures prefabricated houses in Quebec and sells them all over the world in local currencies.The firm has just received an order from China for renminbi 8,280,000 to be paid at delivery in 1 year.The Chinese renminbi is pegged to the US dollar at an exchange rate of 8.28 per dollar.Does Quebec Inc have a transaction exposure?

Accepted Answer

Quebec Inc is exposed to exchange rate r

Question 3

ABC Corporation, located in Canada, has an accounts receivable of SF 1 million to be received in one year. The current spot rate is $0.80/SF and the six-month forward rate is $0.82/SF. The one year interest rates are 4.5 percent and 2 percent in Canada and Switzerland respectively. A one-year call option on Swiss franc at the strike price of $0.81 per Swiss franc for a premium of 0.2 cent per Swiss franc is available.
-Assume that the forward rate is the best predictor of the future spot rate.The expected future dollar amount of this receivable using the option hedge is:

Accepted Answer

A)  $799,100 
B)  $800,000 
C)  $810,100 
D)  $820,000 
A)  $799,100 
B)  $800,000 
C)  $810,100 
D)  $820,000

Question 4

All of the following financial contracts may be used to hedge transaction exposure:

Accepted Answer

A)  forward market hedge, money market hedge, option market hedge, swap market hedge. 
B)  forward market hedge, capital market hedge, option market hedge, swap market hedge. 
C)  forward market hedge, money market hedge, option market hedge, interest rate hedge. 
D)  forward market hedge, capital market hedge, option market hedge, interest rate hedge. 
A)  forward market hedge, money market hedge, option market hedge, swap market hedge. 
B)  forward market hedge, capital market hedge, option market hedge, swap market hedge. 
C)  forward market hedge, money market hedge, option market hedge, interest rate hedge. 
D)  forward market hedge, capital market hedge, option market hedge, interest rate hedge.

Question 5

Which hedging technique is best to use to hedge contingent exposure?

Accepted Answer

A)  Forward hedge 
B)  Money market hedge 
C)  Option hedge 
D)  Hedging with swaps 
A)  Forward hedge 
B)  Money market hedge 
C)  Option hedge 
D)  Hedging with swaps

Question 6

Fashion Shoes Inc.manufactures its shoes in Milano,Italy.The company just received an order from the United States for USD 1 million to be received in one year.The current spot rate is EUR 1/USD and the 1 year forward rate is EUR 1.01/USD.The current interest rates are 4% in the United States and 5% in Italy.A call option on the US dollar is available with a strike price of EUR 1.01/USD and a premium of EUR 0.03 and a put option is available with a strike price of EUR 1/USD and a premium of EUR 0.025/USD.Determine the net proceeds from a forward hedge and an options hedge.Which option should Fashion Shoes use?

Accepted Answer

Forward hedge:
USD 1,000,000*1.01 = EUR

Question 7

ABC Corporation, located in Canada, has an accounts receivable of SF 1 million to be received in one year. The current spot rate is $0.80/SF and the six-month forward rate is $0.82/SF. The one year interest rates are 4.5 percent and 2 percent in Canada and Switzerland respectively. A one-year call option on Swiss franc at the strike price of $0.81 per Swiss franc for a premium of 0.2 cent per Swiss franc is available.
-The future dollar amount of this receivable using the forward hedge is:

Accepted Answer

A)  $800,000 
B)  $820,000 
C)  $836,400 
D)  $856,900 
A)  $800,000 
B)  $820,000 
C)  $836,400 
D)  $856,900

Question 8

Encana Inc,a Canadian firm has a US dollar receivable which it hedges using a forward market contract.The Canadian dollar is quoted directly.Which of the following statements is true?

Accepted Answer

A)  If the spot rate is greater than the forward rate at maturity, Encana is better off with the hedge than without the hedge. 
B)  If the spot rate is less than the forward rate at maturity, Encana is better off with the hedge than without the hedge. 
C)  If the spot rate is equal to the forward rate at maturity, Encana is better off with the hedge than without the hedge. 
D)  Need more information 
A)  If the spot rate is greater than the forward rate at maturity, Encana is better off with the hedge than without the hedge. 
B)  If the spot rate is less than the forward rate at maturity, Encana is better off with the hedge than without the hedge. 
C)  If the spot rate is equal to the forward rate at maturity, Encana is better off with the hedge than without the hedge. 
D)  Need more information

Which of the following is a financial hedge?

All of the following financial contracts may be used to hedge transaction exposure:

Which hedging technique is best to use to hedge contingent exposure?

Encana Inc,a Canadian firm has a US dollar receivable which it hedges using a forward market contract.The Canadian dollar is quoted directly.Which of the following statements is true?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Futures and Options on Foreign Exchange

Interest Rate and Currency Swaps

International Portfolio Investment

Management of Economic Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

Exports and Imports

International Tax Environment

Corporate Governance Around the World

Filters

Exam 13: Management of Transaction Exposure

Which of the following is a financial hedge?

All of the following financial contracts may be used to hedge transaction exposure:

Which hedging technique is best to use to hedge contingent exposure?

Encana Inc,a Canadian firm has a US dollar receivable which it hedges using a forward market contract.The Canadian dollar is quoted directly.Which of the following statements is true?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Futures and Options on Foreign Exchange

Interest Rate and Currency Swaps

International Portfolio Investment

Management of Economic Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

Exports and Imports

International Tax Environment

Corporate Governance Around the World

Filters