Consider the following statements:
i.'Transaction exposure' refers to the risk that in the long run a company's net present value may be affected by future changes in the foreign exchange rate.
ii.Foreign exchange 'economic' risk exposure is a measure of the effect that a change in the exchange rate will have on the value of a company's worth.
iii.Foreign exchange risk implies that every change in the exchange rate will have detrimental effects on the home currency value of a company's foreign currency assets,liabilities and transactions.
iv.A company's board of directors is responsible for establishing policy in relation to the measurement and management of FX risk exposures within the company.
v.If an Australian-based company has a USD 1 million payable and a USD 1 million receivable,both due on 1 July next year,it is not exposed to FX risk.
How many of these statements are true and how many are false?
A) 1 statement is true and 4 are false
B) 2 statements are true and 3 are false
C) 3 statements are true and 2 are false
D) 4 statements are true and 1 is false

Question

Quizplus · Accepted Answer

i. False - Transaction exposure refers to the risk that in the short term a company's cash flows may be affected by future changes in the foreign exchange rate.
ii. True - Foreign exchange economic risk exposure measures the effect that changes in exchange rates will have on a company's value.
iii. False - Foreign exchange risk can have both positive and negative effects on a company's foreign currency assets, liabilities, and transactions.
iv. True - The board of directors has responsibility for establishing policy in relation to the measurement and management of FX risk exposures within the company.
v. False - The company is exposed to FX risk because the exchange rate may change between now and the due date, impacting the value of the payable and receivable.

Consider the Following Statements