INTERNATIONAL FINANCIAL MANAGEMENT
13TH EDITION COMPREHENSIVE EXAM
SCRIPT SOLVED QUESTIONS GRADED A+
◉ How do firms use currency call options?
Answer: 1) to hedge payables
2) to hedge project bidding to lock in the dollar cost of potential
expenses
3) to hedge target bidding of a possible acquisition.
◉ What do MNCs usually use for hedging?
Answer: currency futures derivatives, not speculation.
◉ What is a currency put option?
Answer: grants the right to sell a currency at a specified strike price
or exercise price within a specified period of time.
◉ currency put options: when are you *in the money*?
Answer: when the spot exchange rate is lower than the strike price.
◉ currency put options: when are you *out of the money*?
, Answer: When the spot exchange rate is higher than the strike price.
◉ What does it mean to *straddle* when speculating with put and
call options?
Answer: means you use both a put option and a call option at the
same exercise price. Good when speculators expect strong
movement in one direction or another.
◉ What different ways do MNCs hedge receivables?
Answer: 1) MNCs buy *currency put options* to hedge receivables in
a currency that is expected to *depreciate*.
2) MNCs sell futures contracts
◉ What different ways do MNCs hedge payables?
Answer: 1)MNCs buy *currency call options* that have payables in a
currency that is expected to *appreciate*.
2) MNCs buy futures contracts
◉ Definition of *Arbitrage*?
Answer: can be loosely defined as capitalizing on a discrepancy in
quoted prices by making a risk-less profit.
◉ Definition of *Locational Arbitrage*?
13TH EDITION COMPREHENSIVE EXAM
SCRIPT SOLVED QUESTIONS GRADED A+
◉ How do firms use currency call options?
Answer: 1) to hedge payables
2) to hedge project bidding to lock in the dollar cost of potential
expenses
3) to hedge target bidding of a possible acquisition.
◉ What do MNCs usually use for hedging?
Answer: currency futures derivatives, not speculation.
◉ What is a currency put option?
Answer: grants the right to sell a currency at a specified strike price
or exercise price within a specified period of time.
◉ currency put options: when are you *in the money*?
Answer: when the spot exchange rate is lower than the strike price.
◉ currency put options: when are you *out of the money*?
, Answer: When the spot exchange rate is higher than the strike price.
◉ What does it mean to *straddle* when speculating with put and
call options?
Answer: means you use both a put option and a call option at the
same exercise price. Good when speculators expect strong
movement in one direction or another.
◉ What different ways do MNCs hedge receivables?
Answer: 1) MNCs buy *currency put options* to hedge receivables in
a currency that is expected to *depreciate*.
2) MNCs sell futures contracts
◉ What different ways do MNCs hedge payables?
Answer: 1)MNCs buy *currency call options* that have payables in a
currency that is expected to *appreciate*.
2) MNCs buy futures contracts
◉ Definition of *Arbitrage*?
Answer: can be loosely defined as capitalizing on a discrepancy in
quoted prices by making a risk-less profit.
◉ Definition of *Locational Arbitrage*?
