Consider a U.S.-based MNC with manufacturing activities in Japan.The result of a change in the ¥-$ exchange rate on the assets and liabilities of the consolidated balance sheet is: $$\begin{array} { l l l }
\text { Exposed assets } & \text { ¥ } & 700,000,000 \
\text { Exposed liabilities } & \text { ¥ } & 500,000,000
\end{array}$$ Ignoring transaction exposure in the yen,the translation exposure will indicate a possible need for a "derivatives hedge" of
A)short position in ¥200,000,000 currency futures.
B)long position in ¥200,000,000 currency futures.
C)either short position in ¥200,000,000 currency futures or long position in ¥200,000,000 currency futures.
D)none of the options

Question

Consider a U.S.-based MNC with manufacturing activities in Japan.The result of a change in the ¥-$ exchange rate on the assets and liabilities of the consolidated balance sheet is: $$\begin{array} { l l l } 
\text { Exposed assets } & \text {  ¥ } & 700,000,000 \
\text { Exposed liabilities } & \text {  ¥ } & 500,000,000
\end{array}$$ Ignoring transaction exposure in the yen,the translation exposure will indicate a possible need for a "derivatives hedge" of
A)short position in ¥200,000,000 currency futures.
B)long position in ¥200,000,000 currency futures.
C)either short position in ¥200,000,000 currency futures or long position in ¥200,000,000 currency futures.
D)none of the options

Quizplus · Accepted Answer

The Answer of Consider a U.S.-based MNC with manufacturing activities in Japan.The result of a change in the ¥-$ exchange rate on the assets and liabilities of the consolidated balance sheet is: $$\begin{array} { l l l } 
\text { Exposed assets } & \text {  ¥ } & 700,000,000 \
\text { Exposed liabilities } & \text {  ¥ } & 500,000,000
\end{array}$$ Ignoring transaction exposure in the yen,the translation exposure will indicate a possible need for a "derivatives hedge" of
A)short position in ¥200,000,000 currency futures.
B)long position in ¥200,000,000 currency futures.
C)either short position in ¥200,000,000 currency futures or long position in ¥200,000,000 currency futures.
D)none of the options

Consider a U Ignoring Transaction Exposure in the Yen,the Translation Exposure Will Indicate