Question 1

The sensitivity of the firm's consolidated financial statements to unexpected changes in the exchange rate is

Accepted Answer

A) transaction exposure. 
B) translation exposure. 
C) economic exposure. 
D) none of the above 
A) transaction exposure. 
B) translation exposure. 
C) economic exposure. 
D) none of the above

Question 2

If you own a foreign currency denominated bond,you can hedge with

Accepted Answer

A) a long position in a currency forward contract. 
B) a long position in an exchange-traded futures option. 
C) buying the foreign currency today and investing it in the foreign county. 
D) a swap contract where pay the cash flows of the bond in exchange for dollars. 
A) a long position in a currency forward contract. 
B) a long position in an exchange-traded futures option. 
C) buying the foreign currency today and investing it in the foreign county. 
D) a swap contract where pay the cash flows of the bond in exchange for dollars.

Question 3

XYZ Corporation,located in the United States,has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo.The current spot rate is ¥116/$1.00 and the one year forward rate is ¥109/$1.00.The annual interest rate is 3 percent in Japan and 6 percent in the United States.XYZ can also buy a one-year call option on yen at the strike price of $0.0086 per yen for a premium of 0.012 cent per yen.The future dollar cost of meeting this obligation using the forward hedge is

Accepted Answer

A) $6,450,000. 
B) $6,545,400. 
C) $6,653,833. 
D) $6,880,734. 
A) $6,450,000. 
B) $6,545,400. 
C) $6,653,833. 
D) $6,880,734.

Question 4

Find the net exposure of the MNC with the following intra affiliate transactions shown.

Accepted Answer

A) $55 
B) $65 
C) $800 
D) none of the above See PowerPoint slides 39-41   See PowerPoint 
A) $55 
B) $65 
C) $800 
D) none of the above See PowerPoint slides 39-41   See PowerPoint

Question 5

Your firm is a U.K.-based importer of bicycles.You have placed an order with a Swiss firm for SFr.1,000,000 worth of bicycles.Payment (in Swiss francs)is due in 12 months.Use a money market hedge to redenominate this one-year receivable into a euro-denominated receivable with a one-year maturity.   The following were computed without rounding.Select the answer closest to yours.

Accepted Answer

A) £500,000 
B) £464,874.41 
C) £446,730.77 
D) £509,900.99 
A) £500,000 
B) £464,874.41 
C) £446,730.77 
D) £509,900.99

Question 6

Your firm is an Italian exporter of bicycles.You have sold an order to a Swiss firm for SFr.2,000,000 worth of bicycles.Payment from the customer (in Swiss francs)is due in 12 months.Use a money market hedge to redenominate this one-year franc denominated receivable into a euro-denominated receivable with a one-year maturity.   The following were computed without rounding.Select the answer closest to yours.

Accepted Answer

A) €1,116,826.92 
B) €1,250,000 
C) €1,134,122.29 
D) €1,156,804.73 
A) €1,116,826.92 
B) €1,250,000 
C) €1,134,122.29 
D) €1,156,804.73

Question 7

Your firm is a U.K.-based exporter of bicycles.You have sold an order to a French firm for €1,000,000 worth of bicycles.Payment from the French firm (in euro)is due in 12 months.Use a money market hedge to redenominate this one-year receivable into a pound-denominated receivable with a one-year maturity.   The following were computed without rounding.Select the answer closest to yours.

Accepted Answer

A) £803,721.49 
B) €800,000 
C) £780,312.13 
D) £72,352.94 
A) £803,721.49 
B) €800,000 
C) £780,312.13 
D) £72,352.94

Question 8

Which of the following options strategies are internally consistent?

Accepted Answer

A) Sell puts and buy calls 
B) Buy puts and sell calls 
C) Buy puts and buy calls 
D) Both a) and b) 
A) Sell puts and buy calls 
B) Buy puts and sell calls 
C) Buy puts and buy calls 
D) Both a) and b)

Question 9

The current exchange rate is €1.25 = £1.00 and a British firm offers a French customer the choice of paying a £10,000 bill due in 90 days with either £10,000 or €12,500.

Accepted Answer

A) The seller has given the buyer an at-the-money put option. 
B) The seller has given the buyer an at-the-money call option. 
C) Both a) and b) are correct 
D) None of the above 
A) The seller has given the buyer an at-the-money put option. 
B) The seller has given the buyer an at-the-money call option. 
C) Both a) and b) are correct 
D) None of the above

Question 10

Simplify the following set of intra company cash flows for this Swiss Firm.
Consider the following exchange rates.

Accepted Answer

Step 1: Convert all cash flows

Question 11

The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is

Accepted Answer

A) transaction exposure. 
B) translation exposure. 
C) economic exposure. 
D) none of the above 
A) transaction exposure. 
B) translation exposure. 
C) economic exposure. 
D) none of the above

Question 12

Your firm is a Swiss exporter of bicycles.You have sold an order to a French firm for €1,000,000 worth of bicycles.Payment from the French firm (in euro)is due in 12 months.Detail a strategy using futures contracts that will hedge your exchange rate risk.Have an estimate of how many contracts of what type and maturity.

Accepted Answer

A) Go short 100 12-month euro futures contracts; and short 160 12-month SFr.futures contracts. 
B) Go long 100 12-month € futures contracts; and long 160 12-month SFr.futures contracts. 
C) Go long 100 12-month euro futures contracts; and short 160 12-month Swiss Franc futures contracts. 
D) Go short 100 12-month euro futures contracts; and long 160 12-month Swiss Franc futures contracts. 
E) None of the above 
A) Go short 100 12-month euro futures contracts; and short 160 12-month SFr.futures contracts. 
B) Go long 100 12-month € futures contracts; and long 160 12-month SFr.futures contracts. 
C) Go long 100 12-month euro futures contracts; and short 160 12-month Swiss Franc futures contracts. 
D) Go short 100 12-month euro futures contracts; and long 160 12-month Swiss Franc futures contracts. 
E) None of the above

Question 13

Your firm is an Italian exporter of bicycles.You have sold an order to a Swiss firm for SFr.2,000,000 worth of bicycles.Payment from the customer (in Swiss francs)is due in 12 months.Detail a strategy using futures contracts that will hedge your exchange rate risk.Have an estimate of how many contracts of what type and maturity.

Accepted Answer

A) Go long 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts. 
B) Go short 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contracts. 
C) Go long 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contracts. 
D) Go short 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts. 
E) None of the above 
A) Go long 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts. 
B) Go short 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contracts. 
C) Go long 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contracts. 
D) Go short 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts. 
E) None of the above

Question 14

Suppose that the exchange rate is €1.25 = £1.00. Options (calls and puts)are available on the Philadelphia exchange in units of €10,000 with strike prices of $1.60/€1.00.
Options (calls and puts)are available on the Philadelphia exchange in units of £10,000 with strike prices of $2.00/£1.00.
For a U.S.firm to hedge a €100,000 receivable,

Accepted Answer

A) buy 10 call options on the euro with a strike in dollars. 
B) buy 10 put options on the pound with a strike in dollars. 
C) sell 10 call options on the euro with a strike in dollars. 
D) sell 8 put options on the pound with a strike in dollars. 
E) both a) and b)
F)both c) and d) 
A) buy 10 call options on the euro with a strike in dollars. 
B) buy 10 put options on the pound with a strike in dollars. 
C) sell 10 call options on the euro with a strike in dollars. 
D) sell 8 put options on the pound with a strike in dollars. 
E) both a) and b)
F)both c) and d)

Question 15

To find the swap rate for a 3-year swap,you would

Accepted Answer

A) take the arithmetic average of the 1-, 2-, and 3-year forward rates. 
B) take the geometric average of the 1-, 2-, and 3-year forward rates. 
C) bootstrap the LIBOR yield curve. 
D) none of the above 
A) take the arithmetic average of the 1-, 2-, and 3-year forward rates. 
B) take the geometric average of the 1-, 2-, and 3-year forward rates. 
C) bootstrap the LIBOR yield curve. 
D) none of the above

Question 16

Your U.S.firm has a £100,000 payable with a 3-month maturity.Which of the following will hedge your liability?

Accepted Answer

A) Buy a call option on £100,000 with a strike price in euro. 
B) Buy a put option on £100,000 with a strike price in dollars. 
C) Buy a call option on £100,000 with a strike price in dollars. 
D) None of the above 
A) Buy a call option on £100,000 with a strike price in euro. 
B) Buy a put option on £100,000 with a strike price in dollars. 
C) Buy a call option on £100,000 with a strike price in dollars. 
D) None of the above

Question 17

A call option to buy £10,000 at a strike price of $1.80 = £1.00 is equivalent to

Accepted Answer

A) a put option to sell $18,000 at a strike price of $1.80 = £1.00. 
B) a call option on $18,000 at a strike price of $1.80 = £1.00. 
C) a put option on £10,000 at a strike price of $1.80 = £1.00. 
D) none of the above 
A) a put option to sell $18,000 at a strike price of $1.80 = £1.00. 
B) a call option on $18,000 at a strike price of $1.80 = £1.00. 
C) a put option on £10,000 at a strike price of $1.80 = £1.00. 
D) none of the above

Question 18

Your firm is a U.K.-based exporter of British bicycles.You have sold an order to an Italian firm for €1,000,000 worth of bicycles.Payment from the Italian firm (in €)is due in twelve months.Your firm wants to hedge the receivable into pounds.Not dollars.Interest rates are 3% in €,2% in $ and 4% in £.   Detail a strategy using spot exchange rates and borrowing or lending that will hedge your exchange rate risk. 
A.Borrow €970,873.79 in one year you owe €1m, which will be financed with the receivable.Convert €970,873.79 to dollars at spot, receive $1,165,048.54.Convert dollars to pounds at spot, receive £728,155.34.
B.Sell €1m forward using 16 contracts at $1.20 per €1.Buy £750,000 forward using 12 contracts at $1.60 per £1.
C.Sell €1m forward using 16 contracts at the forward rate of $1.29 per €1.Buy £750,000 forward using 12 contracts at the forward rate of $1.72 per £1.
D.None of the above

Accepted Answer

The answer of Your firm is a U.K.-based exporter of...

Question 19

A Japanese EXPORTER has a €1,000,000 receivable due in one year. Detail a strategy using options that will eliminate exchange rate risk.

Accepted Answer

A) Buy 16 put options on euro, sell 10 call options on yen. 
B) Buy 16 put options on euro, buy 10 call options on yen. 
C) Sell 16 call options on euro, buy 10 put options on yen. 
D) None of the above 
A) Buy 16 put options on euro, sell 10 call options on yen. 
B) Buy 16 put options on euro, buy 10 call options on yen. 
C) Sell 16 call options on euro, buy 10 put options on yen. 
D) None of the above

Question 20

If you owe a foreign currency denominated debt,you can hedge with

Accepted Answer

A) a long position in a currency forward contract. 
B) a long position in an exchange-traded futures option. 
C) buying the foreign currency today and investing it in the foreign county. 
D) both a) and c) 
A) a long position in a currency forward contract. 
B) a long position in an exchange-traded futures option. 
C) buying the foreign currency today and investing it in the foreign county. 
D) both a) and c)

The sensitivity of the firm's consolidated financial statements to unexpected changes in the exchange rate is

If you own a foreign currency denominated bond,you can hedge with

Find the net exposure of the MNC with the following intra affiliate transactions shown.

Which of the following options strategies are internally consistent?

The current exchange rate is €1.25 = £1.00 and a British firm offers a French customer the choice of paying a £10,000 bill due in 90 days with either £10,000 or €12,500.

Simplify the following set of intra company cash flows for this Swiss Firm. Consider the following exchange rates.

The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is

To find the swap rate for a 3-year swap,you would

Your U.S.firm has a £100,000 payable with a 3-month maturity.Which of the following will hedge your liability?

A call option to buy £10,000 at a strike price of $1.80 = £1.00 is equivalent to

A Japanese EXPORTER has a €1,000,000 receivable due in one year. Detail a strategy using options that will eliminate exchange rate risk.

If you owe a foreign currency denominated debt,you can hedge with

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

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Exam 8: Management of Transaction Exposure

The sensitivity of the firm's consolidated financial statements to unexpected changes in the exchange rate is

If you own a foreign currency denominated bond,you can hedge with

Find the net exposure of the MNC with the following intra affiliate transactions shown.

Which of the following options strategies are internally consistent?

The current exchange rate is €1.25 = £1.00 and a British firm offers a French customer the choice of paying a £10,000 bill due in 90 days with either £10,000 or €12,500.

Simplify the following set of intra company cash flows for this Swiss Firm. Consider the following exchange rates.

The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is

To find the swap rate for a 3-year swap,you would

Your U.S.firm has a £100,000 payable with a 3-month maturity.Which of the following will hedge your liability?

A call option to buy £10,000 at a strike price of $1.80 = £1.00 is equivalent to

A Japanese EXPORTER has a €1,000,000 receivable due in one year. Detail a strategy using options that will eliminate exchange rate risk.

If you owe a foreign currency denominated debt,you can hedge with

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters