Chap. 8 & 9

Question 1

T/f: An option gives the holder the right, but not the obligation, to buy or sell a given quantity of an asset in the future at prices agreed upon today.

Answer 1

True

Question 2

Exercise of a currency future option results in a ____ future position for the _______ of a call or the writer of a put.

Answer 2

long, holder

Question 3

Exercise of a currency future option results in a ____ future position for the _______ of a call or the buyer of a put.

Answer 3

short, seller

Question 4

World major currencies

Answer 4

US dollar, Canadian dollar, Mexican peso, British pound, wuro, Swiss franc, and Japanese yen

Question 5

_______ ______ involves a position in one asset by taking a position in another asset

Answer 5

Cross- hedging

Question 6

An efficient and cost-effective mechanism for settling interaffiliate foreign exchange transaction and thus determining the firms’s residual exposure

Answer 6

Multilateral Netting

Question 7

Three hedging strategies though invoice currency

Answer 7

Shift, Share, Diversify

Question 8

______ exchange risk by invoicing foreign sale sin home currency

Answer 8

Shift

Question 9

________ exchange risk by pro-rating the currency of the invoice between foreign and home currencies

Answer 9

Share

Question 10

__________ exchange risk by using a market based index

Answer 10

Diversify

Question 11

_____ option give the holder the right, but no the obligation to BUY a given quantity of some asset at some time in the future at prices agreed upon today

Answer 11

Call

Question 12

______ option give the holder the right, but no the obligation to SELL a given quantity of some asset at some time in the future at prices agreed upon today

Answer 12

Put

Question 13

A multinational firm should not consider deals in a isolation, but should focus on hedging the firms as _______ __________ ________

Answer 13

Portfolio of currency positions

Question 14

The sensitivity of realized domestic currency values of the firms contractual cash flow denominated in foreign currencies to unexpected exchange rate changes

Answer 14

Transaction Exposure

Question 15

The most direct and popular way of hedging transaction exposure is by

Answer 15

Currency forward contracts

Question 16

The extent to which the value of the firm would be affected by unexpected changes in the exchange rate is

Answer 16

Economic exposure

Question 17

The choice between a forward market hedge and a money market hedge often comes down to

Answer 17

Interest Rate parity

Question 18

Buy PUT options on the foreign currency with a strike in the domestic currency is what type of hedging

Answer 18

Foreign currency RECEIVABLE

Question 19

When you hedge a foreign currency payable

Answer 19

buy Call options on the foreign currency

Question 20

anything other than the “big six”: U.S. dollar, British pound, Japanese yen, euro, Canadian dollar, and Swiss franc.

Answer 20

Minor Currency

Question 21

The main thing is to find one asset that covaries with another asset in some predictable way.

Answer 21

Cross Hedging

Question 22

Contingent exposure can best be hedged with

Answer 22

Oprions

Question 23

Generally speaking, a firm with recurrent exposure can best hedge using which product?

Answer 23

Swaps

Question 24

An exporter faced with exposure to an appreciating currency can reduce transaction
exposure with a strategy of

Answer 24

Paying early, collecting late

Question 25

The link between the home currency value of a firm’s assets and liabilities and exchange
rate fluctuations is

Answer 25

asset exposure.

Question 26

why a bank may establish a multinational operation?

Answer 26

A. Low marginal and transaction costs
B. Home nation information services, and prestige
C. Growth and risk reduction

Question 27

The link between a firm’s future operating cash flows and exchange rate fluctuations is

Answer 27

Operation Exposure

Question 28

U.S. firms that produce domestically and sell only to domestic customers can be affected if
they compete against import

Answer 28

Exchange Rate Change

Question 29

the extent to which the firm’s operating cash flows will be affected by unexpected changes
in exchange rates.

Answer 29

Operation Exposure

Question 30

the extent to which the value of the firm would be affected by unanticipated changes in exchange rate.

Answer 30

Economic Exposure