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Question 48

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Premises:
A pasta company is worried about the value of its Italian subsidiary.
A hedge fund thinks that the Canadian dollar is overvalued.
A diamond importer must make non-dollar payments.
A copper fabricator enters into a long-term supply contract.
A shipyard desires to fix its floating rate payments.
A borrower wants to take advantage of lower floating interest rates.
A wine distributor has French franc-denominated zero coupon bonds.
Responses:
Speculative
Fair value hedge
Cash flow hedge
Foreign currency fair value hedge
Foreign currency cash flow hedge
Foreign currency hedge of net investment in foreign operation
Not a derivative

Correct Answer:

A pasta company is worried about the value of its Italian subsidiary.
A hedge fund thinks that the Canadian dollar is overvalued.
A diamond importer must make non-dollar payments.
A copper fabricator enters into a long-term supply contract.
A shipyard desires to fix its floating rate payments.
A borrower wants to take advantage of lower floating interest rates.
A wine distributor has French franc-denominated zero coupon bonds.
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