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.
Which of the following are correct?
A) i, ii, iii and iv are true
B) i, ii, iv and v are true
C) i, iii, and iv are true
D) only ii and v are true

Question

Quizplus · Accepted Answer

Statement ii is correct as it defines economic risk exposure accurately. Statement v is correct because the payable and receivable in the same currency offset each other, eliminating FX risk.

Consider the Following Statements