4211 International Quiz 2 practice |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
exam with correct answers |||\\\ |||\\\ |||\\\
Assume that Suffolk Co. negotiated a forward contract to purchase 170,000 British pounds in
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90 days. The 90-day forward rate was $1.36 per British pound. The pounds to be purchased
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
were to be used to purchase British supplies. On the day the pounds were delivered in
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accordance with the forward contract, the spot rate of the British pound was $1.37. What was |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
the real cost of hedging the payables for this U.S. firm? Use a minus sign to enter a negative
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value, if any. Round your answer to the nearest dollar. - correct answer✔✔The U.S. dollars
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paid when hedging = $1.36 × 170,000 = $231,200.
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The dollars paid if unhedged = $1.37 × 170,000 = $232,900.
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The real cost of hedging payables = $231,200 - $232,900 = -$1,700.
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Explain how a U.S. corporation could hedge net receivables in euros with futures contracts.
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The U.S. corporation could agree to a futures contract to_______ euros at a specified date in
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
the future and at a specified price.
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Explain how a U.S. corporation could hedge net payables in Japanese yen with futures
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contracts.
The U.S. corporation could _________ yen futures contracts that provide for yen to be received
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
in exchange for dollars at a specified future date and at a specified price. - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔sell
purchase
Explain how a U.S. corporation could hedge net receivables in Malaysian ringgit with a forward
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
contract.
, The U.S. corporation could *sell* ringgit forward using a forward contract. This is accomplished
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
by negotiating with a bank to provide the bank *ringgit* in exchange for *dollars* at a
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
specified exchange rate (the forward rate) for a specified future date. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Explain how a U.S. corporation could hedge payables in Canadian dollars with a forward
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
contract.
The U.S. corporation could *purchase* Canadian dollars forward using a forward contract. This
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
is accomplished by negotiating with a bank to provide the bank *U.S
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
* dollars in exchange for *Canadian* dollars at a specified exchange rate (the forward rate) for
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
a specified future date. - correct answer✔✔sell
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
ringgit
dollars
purchase
U.S.
Canadian
Economic Exposure |||\\\
Carlton Co. and Palmer, Inc., are U.S.-based MNCs with subsidiaries in Mexico that distribute
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
medical supplies (produced in the United States) to customers throughout Latin America. Both
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
subsidiaries purchase the products at cost and sell the products at 90 percent markup. The |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
other operating costs of the subsidiaries are very low. Carlton Co. has a research and
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
development center in the United States that focuses on improving its medical technology. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Palmer, Inc., has a similar center based in Mexico. Each firm subsidizes its respective research
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
and development center on an annual basis. Which firm is subject to a higher degree of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
economic exposure? Explain. |||\\\ |||\\\
_________________ is subject to a higher degree of economic exposure because it |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
________________ much costs in Mexico. - correct answer✔✔Carlton Co. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
does not incur |||\\\ |||\\\
exam with correct answers |||\\\ |||\\\ |||\\\
Assume that Suffolk Co. negotiated a forward contract to purchase 170,000 British pounds in
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
90 days. The 90-day forward rate was $1.36 per British pound. The pounds to be purchased
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
were to be used to purchase British supplies. On the day the pounds were delivered in
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
accordance with the forward contract, the spot rate of the British pound was $1.37. What was |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
the real cost of hedging the payables for this U.S. firm? Use a minus sign to enter a negative
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
value, if any. Round your answer to the nearest dollar. - correct answer✔✔The U.S. dollars
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
paid when hedging = $1.36 × 170,000 = $231,200.
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The dollars paid if unhedged = $1.37 × 170,000 = $232,900.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The real cost of hedging payables = $231,200 - $232,900 = -$1,700.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Explain how a U.S. corporation could hedge net receivables in euros with futures contracts.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The U.S. corporation could agree to a futures contract to_______ euros at a specified date in
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
the future and at a specified price.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Explain how a U.S. corporation could hedge net payables in Japanese yen with futures
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
contracts.
The U.S. corporation could _________ yen futures contracts that provide for yen to be received
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
in exchange for dollars at a specified future date and at a specified price. - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔sell
purchase
Explain how a U.S. corporation could hedge net receivables in Malaysian ringgit with a forward
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
contract.
, The U.S. corporation could *sell* ringgit forward using a forward contract. This is accomplished
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
by negotiating with a bank to provide the bank *ringgit* in exchange for *dollars* at a
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
specified exchange rate (the forward rate) for a specified future date. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Explain how a U.S. corporation could hedge payables in Canadian dollars with a forward
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
contract.
The U.S. corporation could *purchase* Canadian dollars forward using a forward contract. This
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
is accomplished by negotiating with a bank to provide the bank *U.S
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
* dollars in exchange for *Canadian* dollars at a specified exchange rate (the forward rate) for
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
a specified future date. - correct answer✔✔sell
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
ringgit
dollars
purchase
U.S.
Canadian
Economic Exposure |||\\\
Carlton Co. and Palmer, Inc., are U.S.-based MNCs with subsidiaries in Mexico that distribute
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
medical supplies (produced in the United States) to customers throughout Latin America. Both
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
subsidiaries purchase the products at cost and sell the products at 90 percent markup. The |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
other operating costs of the subsidiaries are very low. Carlton Co. has a research and
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
development center in the United States that focuses on improving its medical technology. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Palmer, Inc., has a similar center based in Mexico. Each firm subsidizes its respective research
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
and development center on an annual basis. Which firm is subject to a higher degree of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
economic exposure? Explain. |||\\\ |||\\\
_________________ is subject to a higher degree of economic exposure because it |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
________________ much costs in Mexico. - correct answer✔✔Carlton Co. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
does not incur |||\\\ |||\\\
