Question 1

An exporter increasing its prices by 5% as a result of examining the risk of the foreign exchange rate dropping 5% is called:

Accepted Answer

A)  lagging. 
B)  leading. 
C)  counter-trade. 
D)  mark-up. 
A)  lagging. 
B)  leading. 
C)  counter-trade. 
D)  mark-up.

Question 2

A US-based company that is exporting car components into Australia is about to complete an export order and expects to receive payment of AUD 500 000 in three months' time.The spot exchange rate is USD/AUD 1.5380.In conducting an analysis of its foreign exchange risk exposure,the company considers the impact of the following exchange rate changes:
i.USD/AUD 1.5180
ii.USD/AUD 1.5280
iii.USD/AUD 1.5480
Which of the exchange rate scenarios represents foreign exchange risk to the company?

Accepted Answer

A)  i 
B)  ii 
C)  iii 
D)  All of the given answers are correct 
A)  i 
B)  ii 
C)  iii 
D)  All of the given answers are correct

Question 3

When a foreign subsidiary's assets are _______ than its liabilities,if the foreign currency value depreciates for the country in which the foreign subsidiary operates,_______ will occur.

Accepted Answer

A)  greater; currency exchange gains 
B)  greater; currency exchange losses 
C)  less; nothing 
D)  greater; nothing 
A)  greater; currency exchange gains 
B)  greater; currency exchange losses 
C)  less; nothing 
D)  greater; nothing

Question 4

Which of the following does NOT relate to a transaction exposure being undertaken by a company?

Accepted Answer

A)  A contract denominated in US dollars to purchase US goods 
B)  Borrowing yen from a Japanese bank 
C)  The incorporation of a New Zealand subsidiary onto the Australian parent company balance sheet 
D)  Selling Australian goods to Germany 
A)  A contract denominated in US dollars to purchase US goods 
B)  Borrowing yen from a Japanese bank 
C)  The incorporation of a New Zealand subsidiary onto the Australian parent company balance sheet 
D)  Selling Australian goods to Germany

Question 5

A US company has an AUD 1 million receivable in two months.How can the US company hedge the foreign currency receivable? It could:

Accepted Answer

A)  buy AUD in the spot market. 
B)  sell AUD in the forward market. 
C)  sell USD in the spot market. 
D)  buy USD in the forward market. 
A)  buy AUD in the spot market. 
B)  sell AUD in the forward market. 
C)  sell USD in the spot market. 
D)  buy USD in the forward market.

Question 6

Which of the following statements is correct?

Accepted Answer

A)  The majority of trade transactions and international finance transactions are conducted in hard currencies, such as the USD, euro and sterling. 
B)  The advantage of diversifying the currency spread of a company's transactions is enhanced if the foreign currencies have a highly positive correlation. 
C)  Leading refers to changing the timing of a cash flow so it takes place prior to the originally agreed date. 
D)  Counter-trade refers to an arrangement in which two companies, each exposed to FX risk, enter into an arrangement whereby they exchange one product for another. 
A)  The majority of trade transactions and international finance transactions are conducted in hard currencies, such as the USD, euro and sterling. 
B)  The advantage of diversifying the currency spread of a company's transactions is enhanced if the foreign currencies have a highly positive correlation. 
C)  Leading refers to changing the timing of a cash flow so it takes place prior to the originally agreed date. 
D)  Counter-trade refers to an arrangement in which two companies, each exposed to FX risk, enter into an arrangement whereby they exchange one product for another.

Question 7

Which of the following are strategies used to manage transaction exposure?

Accepted Answer

A)  Leading and lagging foreign exchange transactions 
B)  Buying or selling foreign exchange in the forward market 
C)  Borrowing in foreign currency markets, using foreign currency receivables as collateral 
D)  All of the given answers 
A)  Leading and lagging foreign exchange transactions 
B)  Buying or selling foreign exchange in the forward market 
C)  Borrowing in foreign currency markets, using foreign currency receivables as collateral 
D)  All of the given answers

Question 8

An Australian company borrowing Japanese yen will benefit in which of the following situations?

Accepted Answer

A)  If the AUD depreciates or the Japanese yen appreciates 
B)  If the AUD appreciates or the Japanese yen depreciates 
C)  If the AUD and the Japanese yen both appreciate 
D)  If the AUD and the Japanese yen both depreciate 
A)  If the AUD depreciates or the Japanese yen appreciates 
B)  If the AUD appreciates or the Japanese yen depreciates 
C)  If the AUD and the Japanese yen both appreciate 
D)  If the AUD and the Japanese yen both depreciate

Question 9

A company decides to hedge a foreign exchange risk associated with a USD 1 000 000 receivable by carrying out a money market hedge.Which of the following statements in relation to the USD receivable money market hedge is correct?

Accepted Answer

A)  Interest rate calculations will need to recognise US convention differences. 
B)  The company will borrow sufficient AUD today and spot convert into USD. 
C)  USD will be invested in the US money markets for the period of cover. 
D)  All of the given choices. 
A)  Interest rate calculations will need to recognise US convention differences. 
B)  The company will borrow sufficient AUD today and spot convert into USD. 
C)  USD will be invested in the US money markets for the period of cover. 
D)  All of the given choices.

Question 10

Market-based hedging techniques for FX include:

Accepted Answer

A)  futures contracts. 
B)  options on foreign currency. 
C)  currency swaps. 
D)  all of the given choices. 
A)  futures contracts. 
B)  options on foreign currency. 
C)  currency swaps. 
D)  all of the given choices.

Question 11

_______ is the risk that arises from the effects of unexpected fluctuations in foreign exchange rates on the net present value of a corporation's future cash flows.

Accepted Answer

A)  Accounting exposure 
B)  Economic exposure 
C)  Macro-political risk 
D)  Micro-political risk 
A)  Accounting exposure 
B)  Economic exposure 
C)  Macro-political risk 
D)  Micro-political risk

Question 12

Which of the following represents a source of foreign exchange risk exposure?

Accepted Answer

A)  Economic exposure 
B)  Transaction exposure 
C)  Translation exposure 
D)  All of the given choices 
A)  Economic exposure 
B)  Transaction exposure 
C)  Translation exposure 
D)  All of the given choices

Question 13

An Australian company is preparing to export beer into the lucrative German market in direct competition with the established local brewers.There is some concern within the company that it is exposed to foreign exchange risk.To which type of foreign exchange risk is the company initially exposed?

Accepted Answer

A)  Transaction risk exposure 
B)  Sovereign risk exposure 
C)  Translation risk exposure 
D)  Economic risk exposure 
A)  Transaction risk exposure 
B)  Sovereign risk exposure 
C)  Translation risk exposure 
D)  Economic risk exposure

Question 14

If a Singaporean-based company has a USD 1 million receivable due on 20 August and a USD 1 million payable on 20 August,the company has a perfect natural hedge.

Accepted Answer

A) True 
 B)False

Question 15

When a company has entered into a contract denominated in yen to buy cars from Japan,it faces:

Accepted Answer

A)  accounting exposure. 
B)  economic exposure. 
C)  operating exposure. 
D)  transaction exposure. 
A)  accounting exposure. 
B)  economic exposure. 
C)  operating exposure. 
D)  transaction exposure.

Question 16

Consider these five statements:
i.If an Australian business decides to hedge a USD receivable at time t + 3,it would hedge through a forward contract in which it sells the AUD forward for t + 3.
ii.An Australian exporter with a USD receivable would be hedging through a money market hedge if it borrows USD today and repays the loan on the day on which the USDs are received from the payments of the export account receivable.
iii.If an Australian company borrows through an offshore sale of AUD-denominated bonds in the eurobond market,it is not exposed to FX risk.
iv.'Internal' hedging techniques may save a company the costs incurred in using 'market-based' hedging techniques,but they have recognisable costs as well.
v.A net payable in one currency and a net payable in another currency is a relatively low-risk set of exposures if the amounts and timing are identical,and the correlation coefficient between the two currencies is -0.99.
Which of the following are correct?

Accepted Answer

A)  i, ii, iii and iv are true 
B)  ii, iii, iv and v are true 
C)  ii, iii, and iv are true 
D)  ii, iii and v are true 
A)  i, ii, iii and iv are true 
B)  ii, iii, iv and v are true 
C)  ii, iii, and iv are true 
D)  ii, iii and v are true

Question 17

When a company uses the internal foreign exchange hedging technique and changes the timing of a cash flow so it occurs earlier than the original agreed date,this is called:

Accepted Answer

A)  currency diversification. 
B)  lagging. 
C)  leading. 
D)  advancing. 
A)  currency diversification. 
B)  lagging. 
C)  leading. 
D)  advancing.

Question 18

A board of directors is concerned about the variability of the company's various foreign currency exposures.The company treasurer prepares a report showing the standard deviations for a range of currencies over the past decade.Which of the following statements is correct?

Accepted Answer

A)  Standard deviation does not provide an accurate measure of the future probability of percentage exchange rate changes. 
B)  Use of ten-year data smooths out periodic fluctuations, to give a more reliable future indication of exposure. 
C)  Exposures in currencies that have a low standard deviation against the AUD involve greater foreign exchange risk. 
D)  Different patterns of future currency movements are reflected in the historical data used in calculating standard deviations. 
A)  Standard deviation does not provide an accurate measure of the future probability of percentage exchange rate changes. 
B)  Use of ten-year data smooths out periodic fluctuations, to give a more reliable future indication of exposure. 
C)  Exposures in currencies that have a low standard deviation against the AUD involve greater foreign exchange risk. 
D)  Different patterns of future currency movements are reflected in the historical data used in calculating standard deviations.

Question 19

In relation to foreign exchange risk policy formulation and the policy document,discuss the role of the management structure of an organisation.

Accepted Answer

The board of directors must ensure a sui

Question 20

An Australian exporter has despatched a consignment to the USA and expects to receive payment of USD 250 000 in three months' time.The company wishes to hedge part of its exposure to the USD,and enters into a forward exchange contract with its bank,based on the amount USD 125 000.Based on today's data (below),what amount in AUD will the company receive in three months' time?
Spot rate:
AUD/USD 0.7345-50
Three-month forward rate:
AUD/USD 0.7430-35

Accepted Answer

A)  AUD 340 136.05 
B)  AUD 340 367.60 
C)  AUD 336 473.76 
D)  AUD 336 247.48 
A)  AUD 340 136.05 
B)  AUD 340 367.60 
C)  AUD 336 473.76 
D)  AUD 336 247.48

An exporter increasing its prices by 5% as a result of examining the risk of the foreign exchange rate dropping 5% is called:

When a foreign subsidiary's assets are _ than its liabilities,if the foreign currency value depreciates for the country in which the foreign subsidiary operates,_ will occur.

Which of the following does NOT relate to a transaction exposure being undertaken by a company?

A US company has an AUD 1 million receivable in two months.How can the US company hedge the foreign currency receivable? It could:

Which of the following statements is correct?

Which of the following are strategies used to manage transaction exposure?

An Australian company borrowing Japanese yen will benefit in which of the following situations?

A company decides to hedge a foreign exchange risk associated with a USD 1 000 000 receivable by carrying out a money market hedge.Which of the following statements in relation to the USD receivable money market hedge is correct?

Market-based hedging techniques for FX include:

_______ is the risk that arises from the effects of unexpected fluctuations in foreign exchange rates on the net present value of a corporation's future cash flows.

Which of the following represents a source of foreign exchange risk exposure?

An Australian company is preparing to export beer into the lucrative German market in direct competition with the established local brewers.There is some concern within the company that it is exposed to foreign exchange risk.To which type of foreign exchange risk is the company initially exposed?

If a Singaporean-based company has a USD 1 million receivable due on 20 August and a USD 1 million payable on 20 August,the company has a perfect natural hedge.

When a company has entered into a contract denominated in yen to buy cars from Japan,it faces:

When a company uses the internal foreign exchange hedging technique and changes the timing of a cash flow so it occurs earlier than the original agreed date,this is called:

A board of directors is concerned about the variability of the company's various foreign currency exposures.The company treasurer prepares a report showing the standard deviations for a range of currencies over the past decade.Which of the following statements is correct?

In relation to foreign exchange risk policy formulation and the policy document,discuss the role of the management structure of an organisation.

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

Exam 17: Foreign Exchange: Risk Identification and Management

An exporter increasing its prices by 5% as a result of examining the risk of the foreign exchange rate dropping 5% is called:

When a foreign subsidiary's assets are _______ than its liabilities,if the foreign currency value depreciates for the country in which the foreign subsidiary operates,_______ will occur.

Which of the following does NOT relate to a transaction exposure being undertaken by a company?

A US company has an AUD 1 million receivable in two months.How can the US company hedge the foreign currency receivable? It could:

Which of the following statements is correct?

Which of the following are strategies used to manage transaction exposure?

An Australian company borrowing Japanese yen will benefit in which of the following situations?

A company decides to hedge a foreign exchange risk associated with a USD 1 000 000 receivable by carrying out a money market hedge.Which of the following statements in relation to the USD receivable money market hedge is correct?

Market-based hedging techniques for FX include:

_______ is the risk that arises from the effects of unexpected fluctuations in foreign exchange rates on the net present value of a corporation's future cash flows.

Which of the following represents a source of foreign exchange risk exposure?

An Australian company is preparing to export beer into the lucrative German market in direct competition with the established local brewers.There is some concern within the company that it is exposed to foreign exchange risk.To which type of foreign exchange risk is the company initially exposed?

If a Singaporean-based company has a USD 1 million receivable due on 20 August and a USD 1 million payable on 20 August,the company has a perfect natural hedge.

When a company has entered into a contract denominated in yen to buy cars from Japan,it faces:

When a company uses the internal foreign exchange hedging technique and changes the timing of a cash flow so it occurs earlier than the original agreed date,this is called:

A board of directors is concerned about the variability of the company's various foreign currency exposures.The company treasurer prepares a report showing the standard deviations for a range of currencies over the past decade.Which of the following statements is correct?

In relation to foreign exchange risk policy formulation and the policy document,discuss the role of the management structure of an organisation.

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

When a foreign subsidiary's assets are _ than its liabilities,if the foreign currency value depreciates for the country in which the foreign subsidiary operates,_ will occur.