Exam 17: Foreign Exchange: Risk Identification and Management

The use of hedging by a company should:

The part of a company that is responsible for balance sheet funding,managing cash flows and financial risk management is the:

_______ is the risk that changes in the foreign exchange rate will affect future ongoing revenues and costs for a company.

The general principle of exchange-rate hedging is to:

An Australian importer with a USD payable in three months would be hedging through a money-market hedge if it borrows AUD today,invests the funds in the US money market for three months and then pays the account payable with the maturing money market funds.

Which of the following about foreign exchange objectives for a large company is incorrect?

After assessing the risk of the various exposures,a company decides to take a money market hedge.The general principle of a money market hedge is to:

When one currency is appreciating in equal but opposite amounts to another currency,the two currencies are said to be perfectly negatively correlated.

An Australian tourist,who is planning a trip to Germany and anticipates a change in exchange rates,faces what kind of FX risk?

Foreign exchange risk refers to the risk that arises from:

The over-the-counter market-based FX instrument that locks in an exchange rate on a currency pair that will apply at specified future date is:

All of the following are market-based hedging techniques for FX,except:

Consider the following statements: i.'Transaction exposure' refers to the risk that in the long run a company's net present value may be affected by future changes in the foreign exchange rate. ii.Foreign exchange 'economic' risk exposure is a measure of the effect that a change in the exchange rate will have on the value of a company's worth. iii.Foreign exchange risk implies that every change in the exchange rate will have detrimental effects on the home currency value of a company's foreign currency assets,liabilities and transactions. iv.A company's board of directors is responsible for establishing policy in relation to the measurement and management of FX risk exposures within the company. v.If an Australian-based company has a USD 1 million payable and a USD 1 million receivable,both due on 1 July next year,it is not exposed to FX risk. How many of these statements are true and how many are false?

In calculating net FX exposures a company should collate payables and receivables according to the currency of the transaction rather than the country of the transaction.

If a company has a EUR 100 000 account payable in three months and it expects the AUD to appreciate by the time of payment,a reasonable strategy would be to:

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

An Australian company with subsidiary operations in a number of international markets has an audit into its financial risk exposures that reveals it has a potential exposure to translation risk.Which of the following statements relates to its translation risk exposure?

When a company with a foreign subsidiary needs to arrange funding in a foreign currency to pay its foreign employees,it faces:

A company that is preparing a report on its current net cash-flow exposures to foreign exchange risk is only concerned with its net foreign currency cash exposure.Which of the following items are necessary for the report? i.Timing of each transaction ii.Amount of each receivable and payable iii.Country of origin of foreign cash flow iv.Currency of each transaction

A decentralised FX operation is where: