Exam 17: Foreign Exchange: Risk Identification and Management

An Australian company that is exposed to FX risk as the result of having a USD foreign currency receivable due in 3 months can enter into:

Operating exposure:

A company wishes to obtain a loan denominated in yen but considers the US market to offer better terms.How can the company accomplish this?

An exposure to a currency with a lower standard deviation against an importer's local currency results in a lower degree of risk than exposure to a currency that has a higher standard deviation.

Which of the following describes the difference between transaction exposure and translation exposure?

Consider these five statements: i.If an Australian-based company has a USD 1 million payable on 1 July next year and a USD 1 million receivable due on 1 August,the company has a perfect natural hedge. ii.An Australian exporter with a transaction denominated in Singapore dollars (SGD)is exposed to downside risk if the AUD appreciates. iii.An exposure in a currency with a high standard deviation against the AUD entails a greater degree of risk than does a similarly sized exposure in a currency that has a relatively low standard deviation. iv.If an Australian-based company has net exposures in a range of currencies,each exposure should be not hedged because each of them involves the same degree of risk. v.If an Australian company imports components from Italy,and at the same time exports goods to Germany,with both contracts under a euro-denominated contract and dated 31 July next year,the company has no FX exposure. Which of the following are correct?

When a company receives a USD 10 million payment for export goods on the same day as it pays USD 10 million for imports,this is called a/an:

_______ is the risk that arises from the effects of foreign exchange rates on the translated value of a corporation's accounts,denominated in a given foreign currency.

In relation to foreign exchange risk policy formulation and the policy document,discuss the FX objectives of an organisation.

When a company analyses and forecasts foreign exchange movements and then applies strategies based on this,this strategy is called:

An Australian company has contracted to buy a piece of machinery produced in Japan,with delivery in six months and payment to be made in Japanese yen.How can this company reduce its foreign exchange risk?

If a company takes out a forward exchange contract,which of the following is correct?

If a company has a YEN 1 000 000 account receivable in three months and it expects the AUD to depreciate by the time of payment,a reasonable strategy would be to:

A British company has a USD 1 million payable in two months.How can the British company hedge the foreign currency payable?

A company is reviewing the function of foreign exchange within its treasury division.Which one of the following is NOT one of the 'controls' the company should have in place for the FX function?

Companies that operate in an international market place are faced with different FX risk exposures.These are accounting,translation and transaction risk.

A company is about to implement its new foreign exchange risk management strategy.Which of the following controls should the company have in place before it actually implements the strategy?

The currency risk of an exporter can be reduced by:

The policy document that governs FX management should specify how communication should occur across the organisation structure.Discuss this statement.

An Australian company that imports goods from a German supplier on credit can protect itself against transaction exposure risk by: