国际金融学练习题：lecture 13

Lecture13(Chapter8)ManagementofTransactionExposure

MultipleChoiceQuestions

1.

Transactionexposureisdefinedas

A.

thesensitivityofrealizeddomesticcurrencyvaluesofthefirm'scontractualcashflowsdenominatedinforeigncurrenciestounexpectedexchangeratechanges.

B.

theextenttowhichthevalueofthefirmwouldbeaffectedbyunanticipatedchangesinexchangerate.

C.

thepotentialthatthefirm'sconsolidatedfinancialstatementcanbeaffectedbychangesinexchangerates.

D.

expostandexantecurrencyexposures.

2.

Themostdirectandpopularwayofhedgingtransactionexposureisby

A.

exchange-tradedfuturesoptions.

B.

currencyforwardcontracts.

C.

foreigncurrencywarrants.

D.

borrowingandlendinginthedomesticandforeignmoneymarkets.

3.

Ifyouhavealongpositioninaforeigncurrency,youcanhedgewith:

A.

Ashortpositioninanexchange-tradedfuturesoption

B.

Ashortpositioninacurrencyforwardcontract

C.

Ashortpositioninforeigncurrencywarrants

D.

Borrowing(notlending)inthedomesticandforeignmoneymarkets

4.

Ifyouoweaforeigncurrencydenominateddebt,youcanhedgewith

A.

alongpositioninacurrencyforwardcontract.

B.

alongpositioninanexchange-tradedfuturesoption.

C.

buyingtheforeigncurrencytodayandinvestingitintheforeigncounty.

D.

botha)andc)

5.

Ifyouownaforeigncurrencydenominatedbond,youcanhedgewith

A.

alongpositioninacurrencyforwardcontract.

B.

alongpositioninanexchange-tradedfuturesoption.

C.

buyingtheforeigncurrencytodayandinvestingitintheforeigncounty.

D.

aswapcontractwherepaythecashflowsofthebondinexchangefordollars.

6.

Thesensitivityof"realized"domesticcurrencyvaluesofthefirm'scontractualcashflowsdenominatedinforeigncurrencytounexpectedchangesintheexchangerateis

A.

transactionexposure.

B.

translationexposure.

C.

economicexposure.

D.

noneoftheabove

7.

Thesensitivityofthefirm'sconsolidatedfinancialstatementstounexpectedchangesintheexchangerateis

A.

transactionexposure.

B.

translationexposure.

C.

economicexposure.

D.

noneoftheabove

8.

Theextenttowhichthevalueofthefirmwouldbeaffectedbyunexpectedchangesintheexchangerateis

A.

transactionexposure.

B.

translationexposure.

C.

economicexposure.

D.

noneoftheabove

9.

Withanyhedge

A.

yourlossesononesideshouldaboutequalyourgainsontheotherside.

B.

youshouldtrytomakemoneyonbothsidesofthetransaction:thatwayyoumakemoneycomingandgoing.

C.

youshouldspendatleastasmuchtimeworkingthehedgeasworkingtheunderlyingdealitself.

D.

youshouldagreetoanythingyourbankerputsinfrontofyourface.

10.

Withanysuccessfulhedge

A.

youareguaranteedtolosemoneyononeside.

B.

youcanavoidtheaccountingramificationsofalossononesidebykeepingitoffthebooks.

C.

botha)andb)

D.

noneoftheabove

11.

Thechoicebetweenaforwardmarkethedgeandamoneymarkethedgeoftencomesdownto

A.

interestrateparity.

B.

optionpricing.

C.

flexibilityandavailability.

D.

noneoftheabove

12.

Sinceacorporationcanhedgeexchangerateexposureatlowcost

A.

thereisnobenefittotheshareholdersinanefficientmarket.

B.

shareholderswouldbenefitfromtheriskreductionthathedgingoffers.

C.

thecorporation'sbankerwouldbenefitfromtheriskreductionthathedgingoffers.

D.

noneoftheabove

13.

ACFOshouldbeleastworriedabout

A.

transactionexposure.

B.

translationexposure.

C.

economicexposure.

D.

noneoftheabove

14.

Exchangerateriskofaforeigncurrencypayableisanexampleof

A.

transactionexposure.

B.

translationexposure.

C.

economicexposure.

D.

noneoftheabove

15.

Astockmarketinvestorwouldpayattentionto

A.

anticipatedchangesinexchangeratesthathavebeenalreadydiscountedandreflectedinthefirm'svalue.

B.

unanticipatedchangesinexchangeratesthathavenotbeendiscountedandreflectedinthefirm'svalue.

16.

SupposethatBoeingCorporationexportedaBoeing747toLufthansaandbilled€10millionpayableinoneyear.Themoneymarketinterestratesandforeignexchangeratesaregivenasfollows:

AssumethatBoeingsellsacurrencyforwardcontractof€10millionfordeliveryinoneyear,inexchangeforapredeterminedamountofU.S.dollar.Whichofthefollowingis(orare)true?

OnthematuritydateofthecontractBoeingwill:

(i)havetodeliver€10milliontothebank(thecounterpartyoftheforwardcontract)

(ii)takedeliveryof$14.6million

(iii)haveazeronetpoundexposure

(iv)haveaprofit,oraloss,dependingonthefuturechangesintheexchangerate,fromthisBritishsale

A.

(i)and(iv)

B.

(ii)and(iv)

C.

(ii),(iii),and(iv)

D.

(i),(ii),and(iii)

17.

SupposethatBoeingCorporationexportedaBoeing747toLufthansaandbilled€10millionpayableinoneyear.Themoneymarketinterestratesandforeignexchangeratesaregivenasfollows:

AssumethatBoeingsellsacurrencyforwardcontractof€10millionfordeliveryinoneyear,inexchangeforapredeterminedamountofU.S.dollar.Supposethatonthematuritydateoftheforwardcontract,thespotrateturnsouttobe$1.40/€(i.e.lessthantheforwardrateof$1.46/€).Whichofthefollowingistrue?

A.

Boeingwouldhavereceivedonly$14.0million,ratherthan€14.6million,haditnotenteredintotheforwardcontract

B.

Boeinggained$0.6millionfromforwardhedging

C.

a)andb)

D.

noneoftheabove

18.

YourfirmisaU.K.-basedexporterofBritishbicycles.YouhavesoldanordertoanItalianfirmfor€1,000,000worthofbicycles.PaymentfromtheItalianfirm(in€)isdueintwelvemonths.Yourfirmwantstohedgethereceivableintopounds.Notdollars.Usethefollowingtableforexchangeratedata.

Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattype.

A.

Borrow€970,873.79inoneyearyouowe€1m,whichwillbefinancedwiththereceivable.Convert€970,873.79todollarsatspot,receive$1.165.048,54.Convertdollarstopoundsatspot,receive£728.155.34.

B.

Sell€1mforwardusing16contractsat$1.20per€1.Buy£750,000forwardusing12contractsat$1.60per£1.

C.

Sell€1mforwardusing16contractsattheforwardrateof$1.29per€1.

D.

Sell€1mforwardusing16contractsattheforwardrateof$1.29per€1.Buy£750,000forwardusing12contractsattheforwardrateof$1.72per£1.

19.

AJapaneseEXPORTERhasa€1,000,000receivabledueinoneyear.Spotandforwardexchangeratedatagiveninthetable:

Theone-yearriskfreeratesarei$=4.03%;i€=6.05%;andi¥=1%.Detailastrategyusingforwardcontractsthatwillhedgeexchangeraterisk.

A.

Borrow€970,873.79today;inoneyearyouowe€1m,whichwillbefinancedwiththereceivable.Convert€970,873.79todollarsatspot,receive$1,165,048.54.Convertdollarstoyenatspot,receive¥116,504,854.

B.

Sell€1mforwardusing16contractsattheforwardrateof$1.20per€1.Buy¥150,000,000forwardusing11.52contracts,attheforwardrateof$1.00=¥120.

C.

Sell€1mforwardusing16contractsattheforwardrateof$1.25per€1.Buy¥150,000,000forwardusing12contracts,attheforwardrateof$1.00=¥120.

D.

Noneoftheabove

20.

YourfirmhasaBritishcustomerthatiswillingtoplacea$1millionorder,butwantstopayinpoundsinsteadofdollars.Thespotexchangerateis$1.85=£1.00andtheone-yearforwardrateis$1.90=£1.00.Theleadtimeontheorderissuchthatpaymentisdueinoneyear.Whatisthefairestexchangeratetouse?

A.

$1.85=£1.00

B.

$1.8750=£1.00

C.

$1.90=£1.00

D.

noneoftheabove

21.

YourfirmhasaBritishcustomerthatiswillingtoplacea$1millionorder(withpaymentduein6months),butinsistsuponpayinginpoundsinsteadofdollars.

A.

Thecustomeressentiallywantsyoutodiscountyourpricebythevalueofaputoptiononpounds.

B.

Thecustomeressentiallywantsyoutodiscountyourpricebythevalueofacalloptiononpounds.

C.

Noneoftheabove

22.

YourfirmisaU.K.-basedexporterofBritishbicycles.YouhavesoldanordertoanAmericanfirmfor$1,000,000worthofbicycles.PaymentfromtheAmericanfirm(inU.S.dollars)isdueinsixmonths.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.

A.

Goshort12six-monthforwardcontracts;pay£555,600.

B.

Goshort16six-monthforwardcontracts.Payapproximately£537,600.

C.

Golong12six-monthforwardcontracts.Receiveapproximately£549,500.

D.

Golong16six-monthforwardcontracts;raiseapproximately£537,600.

23.

YourfirmisaU.S.-basedexporterofbicycles.YouhavesoldanordertoaFrenchfirmfor€1,000,000worthofbicycles.PaymentfromtheFrenchfirm(ineuro)isdueinthreemonths.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandhowmuch(in$)yourfirmwillhave.

A.

Goshort12six-monthforwardcontracts;pay$1,290,000.

B.

Goshort16six-monthforwardcontracts.Pay$1,230,000.

C.

Golong16six-monthforwardcontracts;raise$1,230,000.

D.

Golong12six-monthforwardcontracts.Receive$1,230,000.

24.

YourfirmisaU.K.-basedexporterofbicycles.YouhavesoldanordertoaFrenchfirmfor€1,000,000worthofbicycles.PaymentfromtheFrenchfirm(ineuro)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Goshort10012-montheurofuturescontracts;andshort8012-monthpoundfuturescontracts.

B.

Golong10012-montheurofuturescontracts;andlong8012-monthpoundfuturescontracts.

C.

Golong10012-montheurofuturescontracts;andshort8012-monthpoundfuturescontracts.

D.

Goshort10012-montheurofuturescontracts;andlong8012-monthpoundfuturescontracts.

E.

Noneoftheabove

25.

YourfirmisaU.K.-basedimporterofbicycles.YouhaveplacedanorderwithanItalianfirmfor€1,000,000worthofbicycles.Payment(ineuro)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Goshort10012-montheurofuturescontracts;andshort8012-monthpoundfuturescontracts.

B.

Golong10012-montheurofuturescontracts;andlong8012-monthpoundfuturescontracts.

C.

Golong10012-montheurofuturescontracts;andshort8012-monthpoundfuturescontracts.

D.

Goshort10012-montheurofuturescontracts;andlong8012-monthpoundfuturescontracts.

E.

Noneoftheabove

26.

YourfirmisaSwissexporterofbicycles.YouhavesoldanordertoaFrenchfirmfor€1,000,000worthofbicycles.PaymentfromtheFrenchfirm(ineuro)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Goshort10012-montheurofuturescontracts;andshort16012-monthSFr.futurescontracts.

B.

Golong10012-month€futurescontracts;andlong16012-monthSFr.futurescontracts.

C.

Golong10012-montheurofuturescontracts;andshort16012-monthSwissFrancfuturescontracts.

D.

Goshort10012-montheurofuturescontracts;andlong16012-monthSwissFrancfuturescontracts.

E.

Noneoftheabove

27.

YourfirmisaSwissimporterofbicycles.YouhaveplacedanorderwithanItalianfirmfor€1,000,000worthofbicycles.Payment(ineuro)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Goshort10012-montheurofuturescontracts;andshort16012-monthSFr.futurescontracts.

B.

Golong10012-month€futurescontracts;andlong16012-monthSFrfuturescontracts.

C.

Golong10012-montheurofuturescontracts;andshort16012-monthSwissFrancfuturescontracts.

D.

Goshort10012-montheurofuturescontracts;andlong16012-monthSwissFrancfuturescontracts.

E.

Noneoftheabove

28.

YourfirmisanItalianexporterofbicycles.YouhavesoldanordertoaBritishfirmfor£1,000,000worthofbicycles.Paymentfromthecustomer(inpoundssterling)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Golong10012-monthpoundfuturescontracts;andlong12512-montheurofuturescontracts.

B.

Goshort10012-monthpoundfuturescontracts;andshort12512-montheurofuturescontracts.

C.

Golong10012-monthpoundfuturescontracts;andshort12512-montheurofuturescontracts.

D.

Goshort10012-monthpoundfuturescontracts;andlong12512-montheurofuturescontracts.

E.

Noneoftheabove

29.

YourfirmisanItalianimporterofbicycles.YouhaveplacedanorderwithaBritishfirmfor£1,000,000worthofbicycles.Payment(inpoundssterling)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Golong10012-monthpoundfuturescontracts;andlong12512-montheurofuturescontracts.

B.

Goshort10012-monthpoundfuturescontracts;andshort12512-montheurofuturescontracts.

C.

Golong10012-monthpoundfuturescontracts;andshort12512-montheurofuturescontracts.

D.

Goshort10012-monthpoundfuturescontracts;andlong12512-montheurofuturescontracts.

E.

Noneoftheabove

30.

YourfirmisaU.K.-basedexporterofbicycles.YouhavesoldanordertoaSwissfirmforSFr.1,000,000worthofbicycles.PaymentfromtheSwissfirm(inSwissfrancs)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Goshort10012-monthSwissfrancfuturescontracts;andlong5012-monthpoundfuturescontracts.

B.

Golong10012-monthSwissfrancfuturescontracts;andshort5012-monthpoundfuturescontracts.

C.

Goshort10012-monthSwissfrancfuturescontracts;andshort5012-monthpoundfuturescontracts.

D.

Golong10012-monthSwissfrancfuturescontracts;andlong5012-monthpoundfuturescontracts.

E.

Noneoftheabove

31.

YourfirmisaU.K.-basedimporterofbicycles.YouhaveplacedanorderwithaSwissfirmforSFr.1,000,000worthofbicycles.Payment(inSwissfrancs)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Goshort10012-monthSwissfrancfuturescontracts;andlong5012-monthpoundfuturescontracts.

B.

Golong10012-monthSwissfrancfuturescontracts;andshort5012-monthpoundfuturescontracts.

C.

Goshort10012-monthSwissfrancfuturescontracts;andshort5012-monthpoundfuturescontracts.

D.

Golong10012-monthSwissfrancfuturescontracts;andlong5012-monthpoundfuturescontracts.

E.

Noneoftheabove

32.

YourfirmisaSwissexporterofbicycles.YouhavesoldanordertoaBritishfirmfor£1,000,000worthofbicycles.PaymentfromtheBritishfirm(inpoundssterling)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Goshort10012-monthpoundfuturescontracts;andlong20012-monthSFr.futurescontracts.

B.

Golong10012-monthpoundfuturescontracts;andshort20012-monthSFr.futurescontracts.

C.

Goshort10012-monthpoundfuturescontracts;andshort20012-monthSFr.futurescontracts.

D.

Golong10012-monthpoundfuturescontracts;andlong20012-monthSFr.futurescontracts.

E.

Noneoftheabove

33.

YourfirmisaSwissimporterofbicycles.YouhaveplacedanorderwithaBritishfirmfor£1,000,000worthofbicycles.Payment(inpoundssterling)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Goshort10012-monthpoundfuturescontracts;andlong20012-monthSFr.futurescontracts.

B.

Golong10012-monthpoundfuturescontracts;andshort20012-monthSFr.futurescontracts.

C.

Goshort10012-monthpoundfuturescontracts.

D.

Golong10012-monthpoundfuturescontracts;andlong20012-monthSFr.futurescontracts.

E.

Noneoftheabove

34.

YourfirmisanItalianexporterofbicycles.YouhavesoldanordertoaSwissfirmforSFr.2,000,000worthofbicycles.Paymentfromthecustomer(inSwissfrancs)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Golong20012-monthSwissfrancfuturescontracts;andlong12512-montheurofuturescontracts.

B.

Goshort20012-monthSwissfrancfuturescontracts;andshort12512-montheurofuturescontracts.

C.

Golong20012-monthSwissfrancfuturescontracts;andshort12512-montheurofuturescontracts.

D.

Goshort20012-monthSwissfrancfuturescontracts;andlong12512-montheurofuturescontracts.

E.

Noneoftheabove

35.

YourfirmisanItalianimporterofbicycles.YouhaveplacedanorderwithaSwissfirmforSFr.2,000,000worthofbicycles.Payment(infrancs)isduein12months.Detailastrategyusingfuturescontractsthatwillhedgeyourexchangeraterisk.Haveanestimateofhowmanycontractsofwhattypeandmaturity.

A.

Golong20012-monthSwissfrancfuturescontracts;andlong12512-montheurofuturescontracts.

B.

Goshort20012-monthSwissfrancfuturescontracts;andshort12512-montheurofuturescontracts.

C.

Golong20012-monthSwissfrancfuturescontracts;andshort12512-montheurofuturescontracts.

D.

Goshort20012-monthSwissfrancfuturescontracts;andlong12512-montheurofuturescontracts.

E.

Noneoftheabove

36.

YourfirmisaU.K.-basedexporterofbicycles.YouhavesoldanordertoaFrenchfirmfor€1,000,000worthofbicycles.PaymentfromtheFrenchfirm(ineuro)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoapound-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

£803,721.49

B.

€800,000

C.

£780,312.13

D.

£72,352.94

37.

YourfirmisaU.K.-basedimporterofbicycles.YouhaveplacedanorderwithanItalianfirmfor€1,000,000worthofbicycles.Payment(ineuro)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoapound-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

£803,721.49

B.

€800,000

C.

£780,312.13

D.

£72,352.94

38.

YourfirmisaSwissexporterofbicycles.YouhavesoldanordertoaFrenchfirmfor€1,000,000worthofbicycles.PaymentfromtheFrenchfirm(ineuro)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoaSwissfranc-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

SFr.1,728,900.26

B.

SFr.1,600,000

C.

SFr.1,544,705.88

D.

SFr.800,000

39.

YourfirmisaSwissimporterofbicycles.YouhaveplacedanorderwithanItalianfirmfor€1,000,000worthofbicycles.Payment(ineuro)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoaSwissfranc-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

SFr.1,728,900.26

B.

SFr.1,600,000

C.

SFr.1,544,705.88

D.

SFr.800,000

40.

YourfirmisanItalianexporterofbicycles.YouhavesoldanordertoaBritishfirmfor£1,000,000worthofbicycles.Paymentfromthecustomer(inpoundssterling)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoaeuro-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

€1,225,490.20

B.

€1,244,212.10

C.

€1,250,000

D.

€1,219,815.78

41.

YourfirmisanItalianimporterofBritishbicycles.YouhaveplacedanorderwithaBritishfirmfor£1,000,000worthofbicycles.Payment(inpoundssterling)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoaeuro-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

€1,225,490.20

B.

€1,244,212.10

C.

€1,250,000

D.

€1,219,815.78

42.

YourfirmisaU.K.-basedexporterofbicycles.YouhavesoldanordertoaSwissfirmforSFr.1,000,000worthofbicycles.PaymentfromtheSwissfirm(inSwissfrancs)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoaeuro-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

£500,000

B.

£464,874.41

C.

£446,730.77

D.

£509,900.99

43.

YourfirmisaU.K.-basedimporterofbicycles.YouhaveplacedanorderwithaSwissfirmforSFr.1,000,000worthofbicycles.Payment(inSwissfrancs)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoaeuro-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

£500,000

B.

£464,874.41

C.

£446,730.77

D.

£509,900.99

44.

YourfirmisaSwissexporterofbicycles.YouhavesoldanordertoaBritishfirmfor£1,000,000worthofbicycles.PaymentfromtheBritishfirm(inpoundssterling)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearreceivableintoaeuro-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

SFr.2,000,000

B.

SFr.2,151,118.62

C.

SFr.2,068,383.28

D.

SFr.1,921,941.75

45.

YourfirmisaSwissimporterofbicycles.YouhaveplacedanorderwithaBritishfirmfor£1,000,000worthofbicycles.Payment(inpoundssterling)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearpounddenominatedpayableintoaSwissfranc-denominatedpayablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

SFr.2,000,000

B.

SFr.2,151,118.62

C.

SFr.2,068,383.28

D.

SFr.1,921,941.75

46.

YourfirmisanItalianexporterofbicycles.YouhavesoldanordertoaSwissfirmforSFr.2,000,000worthofbicycles.Paymentfromthecustomer(inSwissfrancs)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearfrancdenominatedreceivableintoaeuro-denominatedreceivablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

€1,116,826.92

B.

€1,250,000

C.

€1,134,122.29

D.

€1,156,804.73

47.

YourfirmisanItalianimporterofbicycles.YouhaveplacedanorderwithaSwissfirmforSFr.2,000,000worthofbicycles.Payment(infrancs)isduein12months.Useamoneymarkethedgetoredenominatethisone-yearfrancdenominatedpayableintoaeuro-denominatedpayablewithaone-yearmaturity.

Thefollowingwerecomputedwithoutrounding.Selecttheanswerclosesttoyours.

A.

€1,116,826.92

B.

€1,250,000

C.

€1,134,122.29

D.

€1,156,804.73

48.

FromtheperspectiveofacorporateCFO,whenhedgingapayableversusareceivable

A.

creditriskconsiderationsaremoregermaneforapayable.

B.

creditriskconsiderationsaremoregermaneforareceivable.

C.

noneoftheabove

49.

YourfirmisaU.K.-basedexporterofBritishbicycles.YouhavesoldanordertoanItalianfirmfor€1,000,000worthofbicycles.PaymentfromtheItalianfirm(in€)isdueintwelvemonths.Yourfirmwantstohedgethereceivableintopounds.Notdollars.Interestratesare3%in€,2%in$and4%in£.

Detailastrategyusingspotexchangeratesandborrowingorlendingthatwillhedgeyourexchangeraterisk.

A.

Borrow€970,873.79inoneyearyouowe€1m,whichwillbefinancedwiththereceivable.Convert€970,873.79todollarsatspot,receive$1,165,048.54.Convertdollarstopoundsatspot,receive£728,155.34.

B.

Sell€1mforwardusing16contractsat$1.20per€1.Buy£750,000forwardusing12contractsat$1.60per£1.

C.

Sell€1mforwardusing16contractsattheforwardrateof$1.29per€1.Buy£750,000forwardusing12contractsattheforwardrateof$1.72per£1.

D.

Noneoftheabove

50.

AJapaneseEXPORTERhasa€1,000,000receivabledueinoneyear.Detailastrategyusingamoneymarkethedgethatwilleliminateanyexchangeraterisk.

A.

Borrow€970,873.79today.Converttheeurotodollarsatthespotexchangerate,receive$1,165,048.54.Convertthesedollarstoyenatthespotrate,receive¥.

B.

Borrow€943,396.22today.Converttheeurotodollarsatthespotexchangerate,convertthesedollarstoyenatthespotrate,receive¥117,924,528.30.

C.

Lend€943,396.22today.Converttheeurotodollarsatthespotexchangerate,convertthesedollarstoyenatthespotrate.

D.

Convert¥117,924,528.30todollarsatthespotrate;convertdollarstoeuroatthespotrate;lend€943,396.22at5.25%.

51.

AU.S.firmhassoldanItalianfirm€1,000,000worthofproduct.InoneyeartheU.S.firmgetspaid.Tohedge,theU.S.firmboughtputoptionsontheeurowithastrikepriceof$1.65.Theypaidanoptionpremium$0.01pereuro.Ifatmaturity,theexchangerateis$1.60,

A.

thefirmwillrealize$1,145,000onthesalenetofthecostofhedging.

B.

thefirmwillrealize$1,150,000onthesalenetofthecostofhedging.

C.

thefirmwillrealize$1,140,000onthesalenetofthecostofhedging.

D.

noneoftheabove

52.

Buyingacurrencyoptionprovides

A.

aflexiblehedgeagainstexchangeexposure.

B.

limitsthedownsideriskwhilepreservingtheupsidepotential.

C.

aright,butnotanobligation,tobuyorsellacurrency.

D.

alloftheabove

53.

Whichofthefollowingoptionsstrategiesareinternallyconsistent?

A.

Sellputsandbuycalls

B.

Buyputsandsellcalls

C.

Buyputsandbuycalls

D.

Botha)andb)

54.

AJapaneseEXPORTERhasa€1,000,000receivabledueinoneyear.

Detailastrategyusingoptionsthatwilleliminateexchangeraterisk.

A.