IBUS 401 CHAPTER 11 CORRECT
100%
To hedge future payables, a firm may ______________ a currency futures contract for
the currency that it will be needing. - ANSWER purchase
To hedge future receivables, a firm may ______________ a currency futures contract
for the currency that it will be needing. - ANSWER sell
T/F: Forward contracts are often valued at $1M or more, and are not normally used by
consumers or small firms. - ANSWER true
MM Hedge of payables - ANSWER 1. determine amount to be invested using deposit
rate (borrow in the home currency)
2. convert
3. determine the loan repayment using the interest rate (invest in the foreign currency)
MM Hedge of receivables - ANSWER 1. borrow in the foreign currency
2. convert
3. invest in the home currency
Futures hedge of payables - ANSWER purchase a currency futures contract
Futures hedge of receivables - ANSWER sell a currency futures contract
Currency options Hedge of payables - ANSWER purchase currency call option
Currency options Hedge of receivables - ANSWER purchase currency put option
If IRP exists, and transaction costs do not exist, the MM hedge will yield the same result
as the _____________ hedge. - ANSWER forward
T/F: A MM hedge involves taking a money market position to cover a future payables or
receivables position. - ANSWER true
If the 90 day forward rate of the euro is an accurate estimate of the spot rate 90 days
from now, then the real cost of hedging payables will be ____________. - ANSWER
zero
alternative hedging techniques - ANSWER leading and lagging, cross-hedging,
currency diversification
Real cost of hedging payables - ANSWER cost of payables with hedging - cost of
payables without hedging
100%
To hedge future payables, a firm may ______________ a currency futures contract for
the currency that it will be needing. - ANSWER purchase
To hedge future receivables, a firm may ______________ a currency futures contract
for the currency that it will be needing. - ANSWER sell
T/F: Forward contracts are often valued at $1M or more, and are not normally used by
consumers or small firms. - ANSWER true
MM Hedge of payables - ANSWER 1. determine amount to be invested using deposit
rate (borrow in the home currency)
2. convert
3. determine the loan repayment using the interest rate (invest in the foreign currency)
MM Hedge of receivables - ANSWER 1. borrow in the foreign currency
2. convert
3. invest in the home currency
Futures hedge of payables - ANSWER purchase a currency futures contract
Futures hedge of receivables - ANSWER sell a currency futures contract
Currency options Hedge of payables - ANSWER purchase currency call option
Currency options Hedge of receivables - ANSWER purchase currency put option
If IRP exists, and transaction costs do not exist, the MM hedge will yield the same result
as the _____________ hedge. - ANSWER forward
T/F: A MM hedge involves taking a money market position to cover a future payables or
receivables position. - ANSWER true
If the 90 day forward rate of the euro is an accurate estimate of the spot rate 90 days
from now, then the real cost of hedging payables will be ____________. - ANSWER
zero
alternative hedging techniques - ANSWER leading and lagging, cross-hedging,
currency diversification
Real cost of hedging payables - ANSWER cost of payables with hedging - cost of
payables without hedging
