Question 1

To hedge payables with futures, an MNC would sell futures; to hedge receivables with futures, an MNC would buy futures.

Accepted Answer

A) True 
 B)False

Question 2

In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:

Accepted Answer

A)  highly positive. 
B)  highly negative. 
C)  zero. 
D)  none of the above 
A)  highly positive. 
B)  highly negative. 
C)  zero. 
D)  none of the above

Question 3

A futures hedge involves taking a money market position to cover a future payables or receivables position.

Accepted Answer

A) True 
 B)False

Question 4

The exact cost of hedging with call options (as measured in the text) is not known with certainty at the time that the options are purchased.

Accepted Answer

A) True 
 B)False

Question 5

A money market hedge involves taking a money market position to cover a future payables or receivables position.

Accepted Answer

A) True 
 B)False

Question 6

Currency futures are very similar to forward contracts, except that they are standardized and are more appropriate for firms that prefer to hedge in smaller amounts.

Accepted Answer

A) True 
 B)False

Question 7

The price at which a currency put option allows the holder to sell a currency is called the settlement price.

Accepted Answer

A) True 
 B)False

Question 8

When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least reduce exposure, such as ____.

Accepted Answer

A)  leading 
B)  lagging 
C)  cross-hedging 
D)  currency diversification 
E)  all of the above 
A)  leading 
B)  lagging 
C)  cross-hedging 
D)  currency diversification 
E)  all of the above

Question 9

Assume that Parker Company will receive SF200,000 in 360 days. Assume the following interest rates:
$$\begin{array} { l c c } 
& \text { U.S. } & \text { Switzerland } \
 \text { 360-day borrowing rate } & 6 \% & 5 \% \
\text { 360-day deposit rate } & 6 \% & 4 \%
\end{array}$$
Assume the forward rate of the Swiss franc is $.50 and the spot rate of the Swiss franc is $.48. If Parker Company uses a money market hedge, it will receive ____ in 360 days.

Accepted Answer

A)  $101,904 
B)  $101,923 
C)  $98,769 
D)  $96,914 
E)  $92,307 
A)  $101,904 
B)  $101,923 
C)  $98,769 
D)  $96,914 
E)  $92,307

Question 10

If interest rate parity exists, and transaction costs do not exist, the money market hedge will yield the same result as the ____ hedge.

Accepted Answer

A)  put option 
B)  forward 
C)  call option 
D)  none of the above 
A)  put option 
B)  forward 
C)  call option 
D)  none of the above

Question 11

MNCs generally do not need to hedge because shareholders can hedge their own risk.

Accepted Answer

A) True 
 B)False

Question 12

If an MNC is hedging various currencies, it should measure the real cost of hedging in each currency as a dollar amount for comparison purposes.

Accepted Answer

A) True 
 B)False

To hedge payables with futures, an MNC would sell futures; to hedge receivables with futures, an MNC would buy futures.

In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:

A futures hedge involves taking a money market position to cover a future payables or receivables position.

The exact cost of hedging with call options (as measured in the text) is not known with certainty at the time that the options are purchased.

A money market hedge involves taking a money market position to cover a future payables or receivables position.

Currency futures are very similar to forward contracts, except that they are standardized and are more appropriate for firms that prefer to hedge in smaller amounts.

The price at which a currency put option allows the holder to sell a currency is called the settlement price.

When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least reduce exposure, such as ____.

If interest rate parity exists, and transaction costs do not exist, the money market hedge will yield the same result as the ____ hedge.

MNCs generally do not need to hedge because shareholders can hedge their own risk.

If an MNC is hedging various currencies, it should measure the real cost of hedging in each currency as a dollar amount for comparison purposes.

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 11: Managing Transaction Exposure

To hedge payables with futures, an MNC would sell futures; to hedge receivables with futures, an MNC would buy futures.

In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:

A futures hedge involves taking a money market position to cover a future payables or receivables position.

The exact cost of hedging with call options (as measured in the text) is not known with certainty at the time that the options are purchased.

A money market hedge involves taking a money market position to cover a future payables or receivables position.

Currency futures are very similar to forward contracts, except that they are standardized and are more appropriate for firms that prefer to hedge in smaller amounts.

The price at which a currency put option allows the holder to sell a currency is called the settlement price.

When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least reduce exposure, such as ____.

If interest rate parity exists, and transaction costs do not exist, the money market hedge will yield the same result as the ____ hedge.

MNCs generally do not need to hedge because shareholders can hedge their own risk.

If an MNC is hedging various currencies, it should measure the real cost of hedging in each currency as a dollar amount for comparison purposes.

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters