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International Financial Management Study Set 9

Business

Quiz 11 :

Managing Transaction Exposure

Quiz 11 :

Managing Transaction Exposure

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

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Assume zero transaction costs. If the 90-day forward rate of the euro is an accurate estimate of the spot rate 90 days from now, then the real cost of hedging payables will be:
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D

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Quasik ltd will be receiving $300,000 in 90 days. Currently, a 90-day call option with an exercise price of £0.55 and a premium of £0.01 is available. Also, a 90-day put option with an exercise price of £0.54 and a premium of £0.01 is available. Quasik plans to purchase options to hedge its receivable position. Assuming that the spot rate in 90 days is £0.51, what is the net amount received from the currency option hedge?
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C

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Your company will receive C$600,000 in 90 days. The 90-day forward rate in the Canadian dollar is £0.47. If you use a forward hedge, you will (to the nearest £):
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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:
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A parallel loan means that one company takes out two different loans in two different currencies in order to hedge the transaction exposure.
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To hedge a contingent exposure, in which an MNC's exposure is contingent on a specific event occurring, the appropriate hedge would be a(n) ____ hedge.
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A futures hedge involves taking a money market position to cover a future payables or receivables position.
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The hedging of a foreign currency for which no forward contract is available with a highly correlated currency for which a forward contract is available is referred to as cross-hedging.
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Assume zero transaction costs. If the 180-day forward rate is an accurate estimate of the spot rate 180 days from now, then the real cost of hedging receivables will be:
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FAB plc will need $200,000 in 90 days to cover a payable position. Currently, a 90-day call option with an exercise price of £0.57 and a premium of £0.01 is available. Also, a 90-day put option with an exercise price of £0.55 and a premium of £0.01 is available. FAB plans to purchase options to hedge its payable position. Assuming that the spot rate in 90 days is £0.52, what is the net amount paid, assuming FAB wishes to minimize its cost?
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A put option essentially represents two swaps of currencies, one swap at the inception of the loan contract and another swap at a specified date in the future.
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To hedge a ____ in a foreign currency, a firm may ____ a currency futures contract for that currency.
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Money ltd. frequently uses a forward hedge to hedge its Malaysian ringgit (MYR) receivables. For the next month, Money has identified its net exposure to the ringgit as being MYR 1,500,000. The 30-day forward rate is £0.14. Furthermore, Money's financial center has indicated that the possible values of the Malaysian ringgit at the end of next month are £0.12 and £0.15, with probabilities of 0.30 and 0.70, respectively. Based on this information, what is the expected real cost of hedging receivables?
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When a perfect hedge is not available to eliminate transaction exposure, the firm may consider methods to at least reduce exposure, such as ____.
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Which of the following reflects a hedge of net receivables in British pounds by a US firm?
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Sometimes the overall performance of an MNC may already be insulated by offsetting effects between subsidiaries and it may not be necessary to hedge the position of each individual subsidiary.
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A forward contract hedge is very similar to a futures contract hedge, except that ____ contracts are commonly used for ____ transactions.
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A money market hedge involves taking a money market position to cover a future payables or receivables position.
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Samesong Inc. needs 1,000,000 euros in 30 days. Samsong can earn 5 per cent annualized on a German security. The current spot rate for the euro is £0.67. Samesong can borrow funds in the UK at an annualized interest rate of 6 percent. If Samsong uses a money market hedge, how much should it borrow in the UK?
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