Lecture #7 – Practice Questions – International Financial Management 456
Chapter 8 – Management of Transaction Exposure
1.Transaction exposure is defined as
A. the nsitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes.
B. the extent to which the value of the firm would be affected by unanticipated changes in exchange rate.
C. the potential that the firm's consolidated financial statement can be affected by changes in exchange rates.
D. ex post and ex ante currency exposures.
2.The most direct and popular way of hedging transaction exposure is by
rumor has itA. exchange-traded futures options.
beretB. currency forward contracts.
C. foreign currency warrants.
D. borrowing and lending in the domestic and foreign money markets.
3.If you owe a foreign currency denominated debt, you can hedge with
A. a long position in a currency forward contract.
wannianB. a long position in an exchange-traded futures option.
C. buying the foreign currency today and investing it in the foreign county.
D. both a) and c)
4.With any hedge
A. your loss on one side should about equal your gains on the other side.
B. you should try to make money on both sides of the transaction: that way you make money coming and going.
C. you should spend at least as much time working the hedge as working the underlying deal itlf.
D. you should agree to anything your banker puts in front of your face.
5.The choice between a forward market hedge and a money market hedge often comes
down to
A. interest rate parity.
B. option pricing.
C. flexibility and availability.
D. none of the above
6. Suppo that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows:sport是什么意思
The euro zone one-year interest rate: 9.00% per annum; The U.S. one-year interest rate: 6.10% per annum; The spot exchange rate: 1.50 dollar per euro; The one-year forward exchange rate: 1.46 dollar per euro.
Assume that Boeing lls a currency forward contract of €10 million for delivery in one year, in exchange for a predetermined amount of U.S. dollar. Suppo that on the maturity date of the forward contract, the spot rate turns out to be $1.40/€ (i.e. less than t
he forward rate of $1.46/€). Which of the following is true?
A. Boeing would have received only $14.0 million, rather than €14.6 million, had it not entered into the forward contract
B. Boeing gained $0.6 million from forward hedging
C. a) and b)
D. none of the above
7.Your firm has a British customer that is willing to place a $1 million order, but wants to pay in pounds instead of dollars. The spot exchange rate is $1.85 = £1.00 and the one-year forward rate is $1.90 = £1.00. The lead time on the order is such that payment is due in one year. What is the fairest exchange rate to u?
A. $1.85 = £1.00
B. $1.8750 = £1.00
C. $1.90 = £1.00
D. none of the above
8.Your firm is a U.K.-bad exporter of British bicycles. You have sold an order to an American firm for $1,000,000 worth of bicycles. Payment from the American firm (in U.S. dollars) is due in six months. Detail a strategy using futures contracts that will hedge your exchange rate risk.
A. Go short 12 six-month forward contracts; pay £555,600.
B. Go short 9 six-month forward contracts. Rai approximately £537,600.
C. Go long 12 six-month forward contracts. Receive approximately £549,500.
D. Go long 16 six-month forward contracts; rai approximately £537,600.
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9.A U.S. firm has sold an Italian firm €1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65. They paid an option premium $0.01 per euro. If at maturity, the exchange rate is $1.60,
A. the firm will realize $1,145,000 on the sale net of the cost of hedging.
基金会计B. the firm will realize $1,150,000 on the sale net of the cost of hedging.
C. the firm will realize $1,640,000 on the sale net of the cost of hedging.
D. none of the above
10.Buying a currency option provides
A. a flexible hedge against exchange exposure.
B. limits the downside risk while prerving the upside potential.
C. a right, but not an obligation, to buy or ll a currency.
D. all of the above
11.共筑中国梦演讲稿A Japane EXPORTER has a €1,000,000 receivable due in one year.laney
Detail a strategy using options that will eliminate exchange rate risk.
A. Buy 16 put options on euro, ll 10 call options on yen.
B. Buy 16 put options on euro, buy 10 call options on yen.
C. Sell 16 call options on euro, buy 10 put options on yen.sculley
D. None of the above
