IBUS 401 CHAPTER 11 CORRECT 100%

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