IFM CHAPTER 11 LATEST QUESTIONS AND VERIFIED ANSWERS
Assume zero transaction costs. 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: - CORRECT
ANSWER✅✅✅zero
Assume zero transaction costs. If the 180-day forward rate overestimates the spot rate 180 days from
now, then the real cost of hedging payables will be: - CORRECT ANSWER✅✅✅positve
an example of cross-hedging is: - CORRECT ANSWER✅✅✅find two currencies that are highly
positively correlated; match the payables of the one currency to the receivables of the other currency.
which of the following reflects a hedge of net receivables in British pounds by a US firm?
a) purchase a currency put option in British pounds
b) sell pounds forward
c) borrow US dollars, convert them to pounds, and invest them in a British pound deposit - CORRECT
ANSWER✅✅✅d) A and B
which of the following reflects a hedge of net payables on British pounds by a US firm?
a) purchase a currency put option in British pounds
b) sell pounds forward
c) sell a currency call option in British pounds
d) borrow US dollars, convert them to pounds, and invest them in a British pound deposit.
e) A and B - CORRECT ANSWER✅✅✅d) borrow US dollars, convert them to pounds, and invest them
in a British pound deposit
If Lazer Co. desired to lock in the maximum it would have to pay for its net payables in euros but wanted
to be able to capitalize if the euro depreciates substantially against the dollar by the time payment is so
be made, the most appropriate hedge would be: - CORRECT ANSWER✅✅✅purchasing euro call
options
Assume zero transaction costs. 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: - CORRECT
ANSWER✅✅✅zero
Assume zero transaction costs. If the 180-day forward rate overestimates the spot rate 180 days from
now, then the real cost of hedging payables will be: - CORRECT ANSWER✅✅✅positve
an example of cross-hedging is: - CORRECT ANSWER✅✅✅find two currencies that are highly
positively correlated; match the payables of the one currency to the receivables of the other currency.
which of the following reflects a hedge of net receivables in British pounds by a US firm?
a) purchase a currency put option in British pounds
b) sell pounds forward
c) borrow US dollars, convert them to pounds, and invest them in a British pound deposit - CORRECT
ANSWER✅✅✅d) A and B
which of the following reflects a hedge of net payables on British pounds by a US firm?
a) purchase a currency put option in British pounds
b) sell pounds forward
c) sell a currency call option in British pounds
d) borrow US dollars, convert them to pounds, and invest them in a British pound deposit.
e) A and B - CORRECT ANSWER✅✅✅d) borrow US dollars, convert them to pounds, and invest them
in a British pound deposit
If Lazer Co. desired to lock in the maximum it would have to pay for its net payables in euros but wanted
to be able to capitalize if the euro depreciates substantially against the dollar by the time payment is so
be made, the most appropriate hedge would be: - CORRECT ANSWER✅✅✅purchasing euro call
options
