Question 1

A put option to sell $18,000 at a strike price of $1.80 = £1.00 is equivalent to

Accepted Answer

A) a call option to buy £10,000 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 options 
A) a call option to buy £10,000 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 options

Question 2

A call option on £1,000 with a strike price of €1,250 is equivalent to

Accepted Answer

A) a put option on €1,250 with an exercise price of €1,000. 
B) a portfolio of options: a put on €1,250 with a strike price in dollars plus a call on £1,000 with a strike price in dollars. 
C) a put option on £1,000 with an exercise price of €1,250. 
D) both a put option on €1,250 with an exercise price of €1,000 and a portfolio of options: a put on €1,250 with a strike price in dollars plus a call on £1,000 with a strike price in dollars. 
A) a put option on €1,250 with an exercise price of €1,000. 
B) a portfolio of options: a put on €1,250 with a strike price in dollars plus a call on £1,000 with a strike price in dollars. 
C) a put option on £1,000 with an exercise price of €1,250. 
D) both a put option on €1,250 with an exercise price of €1,000 and a portfolio of options: a put on €1,250 with a strike price in dollars plus a call on £1,000 with a strike price in dollars.

Question 3

Your firm is a Swiss importer of bicycles.You have placed an order with an Italian firm for €1,000,000 worth of bicycles.Payment (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.                           U.S. $ equiv.        Currency per U.S. $               Contract Size       Country       Tuesday          Monday           Tuesday               Monday                £ 10,000       Britain (pound)       $ 1.9600       $ 1.9400       £ 0.5102       £ 0.5155                       1 months forward            $ 1.9700       $ 1.9500       £ 0.5076       £ 0.5128                      3 months forward       $ 1.9800       $ 1.9600       £ 0.5051       £ 0.5102                       6 months forward       $ 1.9900       $ 1.9700       £ 0.5025       £ 0.5076                       12 months forward       $ 2.0000        $ 1.9800       £ 0.5000       £ 0.5051               € 10,000       Euro       $ 1.5600        $ 1.5400       € 0.6410       € 0.6494                       1 months forward       $ 1.5700       $ 1.5500       € 0.6369       € 0.6452                       3 months forward       $ 1.5800        $ 1.5600       € 0.6329       € 0.6410                       6 months forward       $ 1.5900        $ 1.5700       € 0.6289       € 0.6369                       12 months forward       $ 1.6000       $ 1.5800       € 0.6250       € 0.6329               SFr. 10,000       Swiss franc       $ 0.9200       $ 0.9000       SFr. 1.0870       SFr. 1.1111                      1 months forward       $ 0.9400        $ 0.9200       SFr. 1.0638       SFr. 1.0870                      3 months forward       $ 0.9600        $ 0.9400       SFr. 1.0417       SFr. 1.0638                      6 months forward       $ 0.9800        $ 0.9600       SFr. 1.0204       SFr. 1.0417                      12 months forward       $ 1.0000       $ 0.9800       SFr. 1.0000       SFr. 1.0204

Accepted Answer

A) Go short 100 12-month euro futures contracts; and short 160 12-month Swiss franc futures contracts. 
B) Go long 100 12-month euro futures contracts; and long 160 12-month Swiss franc 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 options 
A) Go short 100 12-month euro futures contracts; and short 160 12-month Swiss franc futures contracts. 
B) Go long 100 12-month euro futures contracts; and long 160 12-month Swiss franc 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 options

Question 4

Exchange rate risk of a foreign currency payable is an example of

Accepted Answer

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

Question 5

A U.S.firm has sold an Italian firm €1,000,000 worth of product.In one year the U.S.firm gets paid.To hedge,the U.S.firm bought put options on the euro with a strike price of $1.65.They paid an option premium $0.01 per euro.If at maturity,the exchange rate is $1.60,

Accepted Answer

A) the firm will realize $1,145,000 on the sale net of the cost of hedging. 
B) the firm will realize $1,150,000 on the sale net of the cost of hedging. 
C) the firm will realize $1,140,000 on the sale net of the cost of hedging. 
D) none of the options 
A) the firm will realize $1,145,000 on the sale net of the cost of hedging. 
B) the firm will realize $1,150,000 on the sale net of the cost of hedging. 
C) the firm will realize $1,140,000 on the sale net of the cost of hedging. 
D) none of the options

Question 6

A Japanese exporter has a €1,000,000 receivable due in one year.Estimate the cost today of an options strategy that will eliminate exchange rate risk. $\begin{array}{llll}
\text { Listed Options }\
&\text { Strike } & \text { Puts }  &\text { Calls }  \
\text { Euro€62,500 } & \$ 1.25=€ 1.0 C & \$ 0.0075 \text { per } € & \$ 0.01^{ per€ } \
\text { Yen?12,500,000 } & \$ 1.00=¥ 10 C & \$ 0.0075 \text { per } ¥ 100 & 0.010^{ per ¥10 }
\end{array}$

Accepted Answer

A) $20,000 
B) $5,000 
C) $12,500 
D) none of the options 
A) $20,000 
B) $5,000 
C) $12,500 
D) none of the options

Question 7

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.             Contract Size       Country        U.S. $ equiv.       Currency per U.S. $       interest rates         APR               £ 10,000       Britain (pound)       1.9600       £ 0.5102                                    12 months forward       2.0000       £ 0.5000                             € 10,000       Euro       1.5600       € 0.6410       i$ =       1%                      12 months forward       1.6000       € 0.6250       i€ =       2%               SFr. 10,000       Swiss franc       0.9200       SFr. 1.0870       i£ =       3%                      12 months forward       1.0000       SFr. 1.0000       iSFr. = 4       4%       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 8

Transaction exposure is defined as

Accepted Answer

A) the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. 
B) the extent to which the value of the firm would be affected by unanticipated changes in exchange rate. 
C) the potential that the firm's consolidated financial statement can be affected by changes in exchange rates. 
D) ex post and ex ante currency exposures. 
A) the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. 
B) the extent to which the value of the firm would be affected by unanticipated changes in exchange rate. 
C) the potential that the firm's consolidated financial statement can be affected by changes in exchange rates. 
D) ex post and ex ante currency exposures.

Question 9

The extent to which the value of the firm would be affected by unexpected changes in the exchange rate is

Accepted Answer

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

Question 10

Buying a currency option provides

Accepted Answer

A) a flexible hedge against exchange exposure. 
B) limits the downside risk while preserving the upside potential. 
C) a right,but not an obligation,to buy or sell a currency. 
D) all of the options 
A) a flexible hedge against exchange exposure. 
B) limits the downside risk while preserving the upside potential. 
C) a right,but not an obligation,to buy or sell a currency. 
D) all of the options

Question 11

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) a long position in a currency forward contract,or buying the foreign currency today and investing it in the foreign county. 
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 long position in a currency forward contract,or buying the foreign currency today and investing it in the foreign county.

Question 12

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 options 
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 options

Question 13

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. 
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.

Question 14

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.                           U.S. $ equiv.        Currency per U.S. $               Contract Size       Country       Tuesday          Monday           Tuesday               Monday                £ 10,000       Britain (pound)       $ 1.9600       $ 1.9400       £ 0.5102       £ 0.5155                       1 months forward            $ 1.9700       $ 1.9500       £ 0.5076       £ 0.5128                      3 months forward       $ 1.9800       $ 1.9600       £ 0.5051       £ 0.5102                       6 months forward       $ 1.9900       $ 1.9700       £ 0.5025       £ 0.5076                       12 months forward       $ 2.0000        $ 1.9800       £ 0.5000       £ 0.5051               € 10,000       Euro       $ 1.5600        $ 1.5400       € 0.6410       € 0.6494                       1 months forward       $ 1.5700       $ 1.5500       € 0.6369       € 0.6452                       3 months forward       $ 1.5800        $ 1.5600       € 0.6329       € 0.6410                       6 months forward       $ 1.5900        $ 1.5700       € 0.6289       € 0.6369                       12 months forward       $ 1.6000       $ 1.5800       € 0.6250       € 0.6329               SFr. 10,000       Swiss franc       $ 0.9200       $ 0.9000       SFr. 1.0870       SFr. 1.1111                      1 months forward       $ 0.9400        $ 0.9200       SFr. 1.0638       SFr. 1.0870                      3 months forward       $ 0.9600        $ 0.9400       SFr. 1.0417       SFr. 1.0638                      6 months forward       $ 0.9800        $ 0.9600       SFr. 1.0204       SFr. 1.0417                      12 months forward       $ 1.0000       $ 0.9800       SFr. 1.0000       SFr. 1.0204

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 options 
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 options

Question 15

From the perspective of a corporate CFO,when hedging a payable versus a receivable

Accepted Answer

A) credit risk considerations are more germane for a payable. 
B) credit risk considerations are more germane for a receivable. 
C) none of the options 
A) credit risk considerations are more germane for a payable. 
B) credit risk considerations are more germane for a receivable. 
C) none of the options

Question 16

An exporter faced with exposure to an appreciating currency can reduce transaction exposure with a strategy of

Accepted Answer

A) paying or collecting early. 
B) paying or collecting late. 
C) paying late,collecting early. 
D) paying early,collecting late. 
A) paying or collecting early. 
B) paying or collecting late. 
C) paying late,collecting early. 
D) paying early,collecting late.

Question 17

Your firm is a Swiss exporter of bicycles.You have sold an order to a British firm for £1,000,000 worth of bicycles.Payment from the British firm (in pounds sterling)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.                           U.S. $ equiv.        Currency per U.S. $               Contract Size       Country       Tuesday          Monday           Tuesday               Monday                £ 10,000       Britain (pound)       $ 1.9600       $ 1.9400       £ 0.5102       £ 0.5155                       1 months forward            $ 1.9700       $ 1.9500       £ 0.5076       £ 0.5128                      3 months forward       $ 1.9800       $ 1.9600       £ 0.5051       £ 0.5102                       6 months forward       $ 1.9900       $ 1.9700       £ 0.5025       £ 0.5076                       12 months forward       $ 2.0000        $ 1.9800       £ 0.5000       £ 0.5051               € 10,000       Euro       $ 1.5600        $ 1.5400       € 0.6410       € 0.6494                       1 months forward       $ 1.5700       $ 1.5500       € 0.6369       € 0.6452                       3 months forward       $ 1.5800        $ 1.5600       € 0.6329       € 0.6410                       6 months forward       $ 1.5900        $ 1.5700       € 0.6289       € 0.6369                       12 months forward       $ 1.6000       $ 1.5800       € 0.6250       € 0.6329               SFr. 10,000       Swiss franc       $ 0.9200       $ 0.9000       SFr. 1.0870       SFr. 1.1111                      1 months forward       $ 0.9400        $ 0.9200       SFr. 1.0638       SFr. 1.0870                      3 months forward       $ 0.9600        $ 0.9400       SFr. 1.0417       SFr. 1.0638                      6 months forward       $ 0.9800        $ 0.9600       SFr. 1.0204       SFr. 1.0417                      12 months forward       $ 1.0000       $ 0.9800       SFr. 1.0000       SFr. 1.0204

Accepted Answer

A) Go short 100 12-month pound futures contracts; and long 200 12-month SFr.futures contracts. 
B) Go long 100 12-month pound futures contracts; and short 200 12-month SFr.futures contracts. 
C) Go short 100 12-month pound futures contracts; and short 200 12-month SFr.futures contracts. 
D) Go long 100 12-month pound futures contracts; and long 200 12-month SFr.futures contracts. 
E) none of the options 
A) Go short 100 12-month pound futures contracts; and long 200 12-month SFr.futures contracts. 
B) Go long 100 12-month pound futures contracts; and short 200 12-month SFr.futures contracts. 
C) Go short 100 12-month pound futures contracts; and short 200 12-month SFr.futures contracts. 
D) Go long 100 12-month pound futures contracts; and long 200 12-month SFr.futures contracts. 
E) none of the options

Question 18

ABC Inc.,an exporting firm,expects to earn $20 million if the dollar depreciates,but only $10 million if the dollar appreciates.Assume that the dollar has an equal chance of appreciating or depreciating.Calculate the expected tax of ABC if it is operating in a foreign country that has progressive corporate taxes as shown.Corporate income tax rate = 15% for the first $7,500,000.Corporate income tax rate = 30% for earnings exceeding $7,500,000.

Accepted Answer

A) $3,375,000 
B) $6,000,000 
C) $1,500,000 
D) $4,500,000 
A) $3,375,000 
B) $6,000,000 
C) $1,500,000 
D) $4,500,000

Question 19

Your firm is a U.K.-based importer of bicycles.You have placed an order with an Italian firm for €1,000,000 worth of bicycles.Payment (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.                           U.S. $ equiv.        Currency per U.S. $               Contract Size       Country       Tuesday          Monday           Tuesday               Monday                £ 10,000       Britain (pound)       $ 1.9600       $ 1.9400       £ 0.5102       £ 0.5155                       1 months forward            $ 1.9700       $ 1.9500       £ 0.5076       £ 0.5128                      3 months forward       $ 1.9800       $ 1.9600       £ 0.5051       £ 0.5102                       6 months forward       $ 1.9900       $ 1.9700       £ 0.5025       £ 0.5076                       12 months forward       $ 2.0000        $ 1.9800       £ 0.5000       £ 0.5051               € 10,000       Euro       $ 1.5600        $ 1.5400       € 0.6410       € 0.6494                       1 months forward       $ 1.5700       $ 1.5500       € 0.6369       € 0.6452                       3 months forward       $ 1.5800        $ 1.5600       € 0.6329       € 0.6410                       6 months forward       $ 1.5900        $ 1.5700       € 0.6289       € 0.6369                       12 months forward       $ 1.6000       $ 1.5800       € 0.6250       € 0.6329               SFr. 10,000       Swiss franc       $ 0.9200       $ 0.9000       SFr. 1.0870       SFr. 1.1111                      1 months forward       $ 0.9400        $ 0.9200       SFr. 1.0638       SFr. 1.0870                      3 months forward       $ 0.9600        $ 0.9400       SFr. 1.0417       SFr. 1.0638                      6 months forward       $ 0.9800        $ 0.9600       SFr. 1.0204       SFr. 1.0417                      12 months forward       $ 1.0000       $ 0.9800       SFr. 1.0000       SFr. 1.0204

Accepted Answer

A) Go short 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. 
B) Go long 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. 
C) Go long 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. 
D) Go short 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. 
E) none of the options 
A) Go short 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. 
B) Go long 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. 
C) Go long 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. 
D) Go short 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. 
E) none of the options

Question 20

Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in one year.The money market interest rates and foreign exchange rates are given as follows: $\begin{array}{ll}
\text { The U.S. one-vear interest rate: } & 6.10 \% \text { per annum } \
\text { The euro zone one-year interest rate: } & 9.00 \% \text { per annum } \
\text { The spot exchange rate: } & \$ 1.50/€ \
\text { The one-year forward exchange rate } & \$ 1.46 /€
\end{array}$ Assume that Boeing sells a currency forward contract of €10 million for delivery in one year,in exchange for a predetermined amount of U.S.dollars.Suppose that on the maturity date of the forward contract,the spot rate turns out to be $1.40/€ (i.e.less than the forward rate of $1.46/€).Which of the following is true?

Accepted Answer

A) Boeing would have received only $14.0 million,rather than $14.6 million,had it not entered into the forward contract. 
B) Boeing gained $0.6 million from forward hedging. 
C) Boeing would have received only $14.0 million,rather than $14.6 million,had it not entered into the forward contract.Additionally,Boeing gained $0.6 million from forward hedging. 
D) none of the options 
A) Boeing would have received only $14.0 million,rather than $14.6 million,had it not entered into the forward contract. 
B) Boeing gained $0.6 million from forward hedging. 
C) Boeing would have received only $14.0 million,rather than $14.6 million,had it not entered into the forward contract.Additionally,Boeing gained $0.6 million from forward hedging. 
D) none of the options

A put option to sell $18,000 at a strike price of $1.80 = £1.00 is equivalent to

A call option on £1,000 with a strike price of €1,250 is equivalent to

Exchange rate risk of a foreign currency payable is an example of

A U.S.firm has sold an Italian firm €1,000,000 worth of product.In one year the U.S.firm gets paid.To hedge,the U.S.firm bought put options on the euro with a strike price of $1.65.They paid an option premium $0.01 per euro.If at maturity,the exchange rate is $1.60,

A Japanese exporter has a €1,000,000 receivable due in one year.Estimate the cost today of an options strategy that will eliminate exchange rate risk. Listed Options Strike Puts Calls Euro62,500 \ 1.25=1.0C \ 0.0075 per \ 0.0 Yen?12,500,000 \ 1.00=¥10C \ 0.0075 per ¥100 0.01

Transaction exposure is defined as

The extent to which the value of the firm would be affected by unexpected changes in the exchange rate is

Buying a currency option provides

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

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

From the perspective of a corporate CFO,when hedging a payable versus a receivable

An exporter faced with exposure to an appreciating currency can reduce transaction exposure with a strategy of

International Monetary System

Globalization and the Multinational Firm

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

		U.S. $ equiv.		Currency per U.S. $
Contract Size	Country	Tuesday	Monday	Tuesday	Monday
£ 10,000	Britain (pound)	$ 1.9600	$ 1.9400	£ 0.5102	£ 0.5155
	1 months forward	$ 1.9700	$ 1.9500	£ 0.5076	£ 0.5128
	3 months forward	$ 1.9800	$ 1.9600	£ 0.5051	£ 0.5102
	6 months forward	$ 1.9900	$ 1.9700	£ 0.5025	£ 0.5076
	12 months forward	$ 2.0000	$ 1.9800	£ 0.5000	£ 0.5051
€ 10,000	Euro	$ 1.5600	$ 1.5400	€ 0.6410	€ 0.6494
	1 months forward	$ 1.5700	$ 1.5500	€ 0.6369	€ 0.6452
	3 months forward	$ 1.5800	$ 1.5600	€ 0.6329	€ 0.6410
	6 months forward	$ 1.5900	$ 1.5700	€ 0.6289	€ 0.6369
	12 months forward	$ 1.6000	$ 1.5800	€ 0.6250	€ 0.6329
SFr. 10,000	Swiss franc	$ 0.9200	$ 0.9000	SFr. 1.0870	SFr. 1.1111
	1 months forward	$ 0.9400	$ 0.9200	SFr. 1.0638	SFr. 1.0870
	3 months forward	$ 0.9600	$ 0.9400	SFr. 1.0417	SFr. 1.0638
	6 months forward	$ 0.9800	$ 0.9600	SFr. 1.0204	SFr. 1.0417
	12 months forward	$ 1.0000	$ 0.9800	SFr. 1.0000	SFr. 1.0204

Contract Size	Country	U.S. $ equiv.	Currency per U.S. $	interest rates	APR
£ 10,000	Britain (pound)	1.9600	£ 0.5102
	12 months forward	2.0000	£ 0.5000
€ 10,000	Euro	1.5600	€ 0.6410	ⁱ$ =	1%
	12 months forward	1.6000	€ 0.6250	ⁱ€ =	2%
SFr. 10,000	Swiss franc	0.9200	SFr. 1.0870	ⁱ£ =	3%
	12 months forward	1.0000	SFr. 1.0000	ⁱSFr. = 4	4%

Exam 8: Management of Transaction Exposure

A put option to sell $18,000 at a strike price of $1.80 = £1.00 is equivalent to

A call option on £1,000 with a strike price of €1,250 is equivalent to

Exchange rate risk of a foreign currency payable is an example of

A U.S.firm has sold an Italian firm €1,000,000 worth of product.In one year the U.S.firm gets paid.To hedge,the U.S.firm bought put options on the euro with a strike price of $1.65.They paid an option premium $0.01 per euro.If at maturity,the exchange rate is $1.60,

A Japanese exporter has a €1,000,000 receivable due in one year.Estimate the cost today of an options strategy that will eliminate exchange rate risk. Listed Options Strike Puts Calls Euro62,500 \ 1.25=1.0C \ 0.0075 per \ 0.0 Yen?12,500,000 \ 1.00=¥10C \ 0.0075 per ¥100 0.01

Transaction exposure is defined as

The extent to which the value of the firm would be affected by unexpected changes in the exchange rate is

Buying a currency option provides

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

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

From the perspective of a corporate CFO,when hedging a payable versus a receivable

An exporter faced with exposure to an appreciating currency can reduce transaction exposure with a strategy of

International Monetary System

Globalization and the Multinational Firm

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