CQIB – Certificate in Qualifying in Banking: Complete Banking Fundamentals, Ethics, and
Financial Systems Study Guide
Transaction exposure - correct answer ✔✔1. Purchasing or selling on credit goods or services
priced in foreign currencies.
2. Borrowing or lending funds when repayment is in a foreign currency.
3. Being a party to an outstanding forward contract.
4. Acquiring assets or incurring liabilities denominated in foreign currencies.
Forward or futures hedge for FC accounts receivable - correct answer ✔✔Want to sell FC in the
future.
Enter into a forward contract to sell FC.
Fix the price today at which the FC will be sold at when the receivable is paid.
No uncertainty.
MNC knows exactly how much HC will be received from the FC payment.
Money market hedge for FC accounts receivable - correct answer ✔✔AR is a FC asset, so create
a FC currency liability to offset the exchange risk.
Borrow present value of FC AR.
Convert to HC.
Use cash today for business operation.
Payback FC liability with FC receivable payment at maturity.
No uncertainty.
Option hedge for FC accounts receivable - correct answer ✔✔Want to sell FC when received but
not sure what the exchange rate will be in the future.
Buy a put option on FC - have the right to sell FC at the exercise price (if FC goes down).
Limited downside risk, unlimited upside potential.
, Forward or futures hedge for FC accounts payable - correct answer ✔✔Want to buy FC in the
future.
Enter into a forward or futures contract to buy FC.
Fix the price today at which the FC will be bought at when the payable is due.
No uncertainty.
MNC know exactly how much HC will be needed to make the FC payment.
Money market hedge for FC account payable - correct answer ✔✔AP is a currency liability, so
create a FC current asset to offset the exchange risk.
Invest present value of FC AP at the FC investment rate.
Calculate amount of HC to buy present value of FC AP.
Use HC cash to purchase FC.
Pay FC AP wiht FC investment at maturity.
No uncertainty.
Option hedge for FC account payable - correct answer ✔✔Want to buy FC to pay AP when due
but not sure what the exchange rate will be in the future.
Buy a call option on FC - have the right to buy FC at the exercise price (if FC goes up).
Limited downside risk, unlimited upside potential.
What are the alternative hedging techniques? - correct answer ✔✔1. Leading and lagging.
2. Cross-hedging
3. Currency diversification.
Leading and lagging - correct answer ✔✔Change the timing on a payment or receivable request
to reflect expectations about future currency movements. MNC's use these strategies when
governments allow them to.
Financial Systems Study Guide
Transaction exposure - correct answer ✔✔1. Purchasing or selling on credit goods or services
priced in foreign currencies.
2. Borrowing or lending funds when repayment is in a foreign currency.
3. Being a party to an outstanding forward contract.
4. Acquiring assets or incurring liabilities denominated in foreign currencies.
Forward or futures hedge for FC accounts receivable - correct answer ✔✔Want to sell FC in the
future.
Enter into a forward contract to sell FC.
Fix the price today at which the FC will be sold at when the receivable is paid.
No uncertainty.
MNC knows exactly how much HC will be received from the FC payment.
Money market hedge for FC accounts receivable - correct answer ✔✔AR is a FC asset, so create
a FC currency liability to offset the exchange risk.
Borrow present value of FC AR.
Convert to HC.
Use cash today for business operation.
Payback FC liability with FC receivable payment at maturity.
No uncertainty.
Option hedge for FC accounts receivable - correct answer ✔✔Want to sell FC when received but
not sure what the exchange rate will be in the future.
Buy a put option on FC - have the right to sell FC at the exercise price (if FC goes down).
Limited downside risk, unlimited upside potential.
, Forward or futures hedge for FC accounts payable - correct answer ✔✔Want to buy FC in the
future.
Enter into a forward or futures contract to buy FC.
Fix the price today at which the FC will be bought at when the payable is due.
No uncertainty.
MNC know exactly how much HC will be needed to make the FC payment.
Money market hedge for FC account payable - correct answer ✔✔AP is a currency liability, so
create a FC current asset to offset the exchange risk.
Invest present value of FC AP at the FC investment rate.
Calculate amount of HC to buy present value of FC AP.
Use HC cash to purchase FC.
Pay FC AP wiht FC investment at maturity.
No uncertainty.
Option hedge for FC account payable - correct answer ✔✔Want to buy FC to pay AP when due
but not sure what the exchange rate will be in the future.
Buy a call option on FC - have the right to buy FC at the exercise price (if FC goes up).
Limited downside risk, unlimited upside potential.
What are the alternative hedging techniques? - correct answer ✔✔1. Leading and lagging.
2. Cross-hedging
3. Currency diversification.
Leading and lagging - correct answer ✔✔Change the timing on a payment or receivable request
to reflect expectations about future currency movements. MNC's use these strategies when
governments allow them to.
