Exam 8: Management of Transaction Exposure

Your firm is a U.K.-based exporter of British bicycles. You have sold an order to an American firm for $1,000,000 worth of bicycles. Payment from the American firm (in U.S. dollars) is due in six months. Detail a strategy using futures contracts that will hedge your exchange rate risk.

XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. Which of the following is NOT part of a money market hedge?

Generally speaking, a firm with recurrent exposure can best hedge using which product?

Your firm is an Italian exporter of bicycles. You have sold an order to a British firm for £1,000,000 worth of bicycles. Payment from the customer (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.

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

Your firm is bidding on a large construction contract in a foreign country. This contingent exposure could best be hedged

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.

On a recent sale, Boeing allowed British Airways to pay either $18 million or £10 million.

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.

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.

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. 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.

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 U.S.-based MNC with exposure to the Swedish krona could best cross-hedge with

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

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: 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. dollar. Which of the following is (or are) true? On the maturity date of the contract Boeing will: (i) have to deliver €10 million to the bank (the counterparty of the forward contract) (ii) take delivery of $14.6 million (iii) have a zero net pound exposure (iv) have a profit, or a loss, depending on the future changes in the exchange rate, from this British sale

Buying a currency option provides

Which of the following options strategies are internally consistent?

Suppose that the exchange rate is €1.25 = £1.00. Options (calls and puts) are available on the London exchange in units of €10,000 with strike prices of £0.80 = €1.00. Options (calls and puts) are available on the Frankfurt exchange in units of £10,000 with strike prices of €1.25 = £1.00. For a U.K. firm to hedge a €100,000 payable,

A 5-year swap contract can be viewed as a portfolio of 5 forward contracts with maturities of 1, 2, 3, 4 and 5 years. One important exception is that

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 . Not dollars. Use the following table for exchange rate data. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type.