PAGE1
,PAGE2
,Economic exposure measures _____________________.
A. the extent to which the value of the firm would be affected by unanticipated changes in exchange rate
B. the effect of changes in exchange rates will have on the consolidated financial reports of an MNC
C. the exposure of an MNC's contractual transactions to exchange rate movements.
D. the effect of unanticipated changes in exchange rates on the dollar value of contractual obligations
denominated in a foreign currency
E. the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in
foreign currencies to unexpected exchange rate changes
the extent to which the value of the firm would be affected by unanticipated changes in exchange rate
Currency forward contract is the most direct and popular way of hedging transaction exposure
because _______________________.
A. Forwards can be tailored made in terms of contract size and delivery date to meet the clients' needs
B. Forwards are marked to market daily
C. Forwards are standardized contracts and guaranteed by the clearing house
D. Forwards are traded competitively on organized exchanges
Forwards can be tailored made in terms of contract size and delivery date to meet the clients’ needs
The other choices are incorrect; they are the characteristics of future contracts.
Which of the following statements make the best argument for why firms
should NOT hedge exchange rate risks?
A. Exchange rate risk is irrelevant because stakeholders do not care about the financial distress
risk that adverse effects of exchange rate movements may cause.
B. Exchange rate risk is irrelevant because many multinational companies are similarly affected
by exchange rate movements.
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, C. Exchange rate risk is irrelevant for multinational companies (MNCs) because an MNC
generates cash flows in numerous currencies. The exchange rate movements of many currencies
can easily, exactly offset each other.
D. Exchange rate risk is irrelevant because it is extremely difficult to hedge exchange risks
profitably.
E. Exchange rate risk is irrelevant because investors can hedge exchange rate risk on their own.
Exchange rate risk is irrelevant because investors can hedge exchange rate risk on their own.
Which of the following statement is FALSE?
A. The choice between a forward market hedge and a money market hedge often comes down to
interest rate parity.
B. If you owe a foreign currency denominated debt, you can hedge with buying the foreign
currency today and investing it in the foreign county.
C. If you own a foreign currency denominated bond, you can hedge with a swap contract where
pay the cash flows of the bond in exchange for dollars.
D. The most direct and popular way of hedging transaction exposure is by currency future
contracts.
The most direct and popular way of hedging transaction exposure is by currency future contracts.
The most direct and popular way of hedging transaction exposure is by currency forward
contracts.
Which of the following statement is FALSE?
A. If you owe a foreign currency denominated debt, you can hedge with buying the foreign
currency today and investing it in the foreign county.
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,PAGE2
,Economic exposure measures _____________________.
A. the extent to which the value of the firm would be affected by unanticipated changes in exchange rate
B. the effect of changes in exchange rates will have on the consolidated financial reports of an MNC
C. the exposure of an MNC's contractual transactions to exchange rate movements.
D. the effect of unanticipated changes in exchange rates on the dollar value of contractual obligations
denominated in a foreign currency
E. the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in
foreign currencies to unexpected exchange rate changes
the extent to which the value of the firm would be affected by unanticipated changes in exchange rate
Currency forward contract is the most direct and popular way of hedging transaction exposure
because _______________________.
A. Forwards can be tailored made in terms of contract size and delivery date to meet the clients' needs
B. Forwards are marked to market daily
C. Forwards are standardized contracts and guaranteed by the clearing house
D. Forwards are traded competitively on organized exchanges
Forwards can be tailored made in terms of contract size and delivery date to meet the clients’ needs
The other choices are incorrect; they are the characteristics of future contracts.
Which of the following statements make the best argument for why firms
should NOT hedge exchange rate risks?
A. Exchange rate risk is irrelevant because stakeholders do not care about the financial distress
risk that adverse effects of exchange rate movements may cause.
B. Exchange rate risk is irrelevant because many multinational companies are similarly affected
by exchange rate movements.
PAGE3
, C. Exchange rate risk is irrelevant for multinational companies (MNCs) because an MNC
generates cash flows in numerous currencies. The exchange rate movements of many currencies
can easily, exactly offset each other.
D. Exchange rate risk is irrelevant because it is extremely difficult to hedge exchange risks
profitably.
E. Exchange rate risk is irrelevant because investors can hedge exchange rate risk on their own.
Exchange rate risk is irrelevant because investors can hedge exchange rate risk on their own.
Which of the following statement is FALSE?
A. The choice between a forward market hedge and a money market hedge often comes down to
interest rate parity.
B. If you owe a foreign currency denominated debt, you can hedge with buying the foreign
currency today and investing it in the foreign county.
C. If you own a foreign currency denominated bond, you can hedge with a swap contract where
pay the cash flows of the bond in exchange for dollars.
D. The most direct and popular way of hedging transaction exposure is by currency future
contracts.
The most direct and popular way of hedging transaction exposure is by currency future contracts.
The most direct and popular way of hedging transaction exposure is by currency forward
contracts.
Which of the following statement is FALSE?
A. If you owe a foreign currency denominated debt, you can hedge with buying the foreign
currency today and investing it in the foreign county.
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