Consider these five statements:
i.If an Australian-based company has a USD 1 million payable on 1 July next year and a USD 1 million receivable due on 1 August,the company has a perfect natural hedge.
ii.An Australian exporter with a transaction denominated in Singapore dollars (SGD)is exposed to downside risk if the AUD appreciates.
iii.An exposure in a currency with a high standard deviation against the AUD entails a greater degree of risk than does a similarly sized exposure in a currency that has a relatively low standard deviation.
iv.If an Australian-based company has net exposures in a range of currencies,each exposure should be not hedged because each of them involves the same degree of risk.
v.If an Australian company imports components from Italy,and at the same time exports goods to Germany,with both contracts under a euro-denominated contract and dated 31 July next year,the company has no FX exposure.
How many of these statements are true and how many are false?
A) 4 statements are true and 1 is false
B) 3 statements are true and 2 are false
C) 2 statements are true and 3 are false
D) 1 statement is true and 4 are false

Question

Quizplus · Accepted Answer

Statement i is false because the company is still exposed to the risk of exchange rate fluctuations between the dollar and the Australian dollar during the one-month period between the payable and receivable dates. 
Statement ii is true because an appreciation of the AUD would make the SGD-denominated transaction less valuable in AUD terms. 
Statement iii is true because currencies with higher standard deviations are more volatile and therefore carry more risk. 
Statement iv is false because each exposure may have different levels of risk due to factors such as volatility, timing, and the size of the exposure. 
Statement v is true because the company's euro-denominated imports and exports cancel each other out, resulting in no net FX exposure.

Consider These Five Statements