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

Question

Quizplus · Accepted Answer

Statement i is not entirely true as the company still faces some basis risk, but it can be considered a near-perfect hedge. 
Statement ii is true as an Australian exporter with a transaction denominated in SGD is exposed to downside risk if the AUD appreciates. 
Statement iii is true as a currency with a high standard deviation against the AUD entails greater risk than one with a relatively low standard deviation. 
Statement iv is not true as each currency exposure carries its own unique set of risks and should be evaluated and hedged separately. 
Statement v is true as both contracts are euro-denominated, so there is no currency exposure.

Consider These Five Statements