Quiz 2 from Group A

Question 1

Foreign exchange exposure:

1) is the risk that future spot rates deviate from actual spot rates
2) can be hedged with financial and operating hedges
3) is equivalent to the slope of the exposure line in binomial settings
4) none of the above

Answer 1

2) can be hedged with financial and operating hedges

3) is equivalent to the slope of the exposure line in binomial settings

Question 2

Local companies who have no foreign currency accounts in their books are not exposed to operating exposure. - true or false?

Answer 2

False

Question 3

Which of the following statements are correct?

1) The relevance of operating exposure is negatively correlated with the intensity of competition in the market.
2) A contractual exposure has a fixed amount in a specified foreign currency and a fixed date of settlement, but no fixed home currency value.
3) The strategic choice of German and Japanese car producers to locate plants in North America can be regarded as a hedge against operating exposure.
4) Firms are more inclined to hedge operating than contractual exposure because the latter is less detrimental to their financial situation.

Answer 3

2) A contractual exposure has a fixed amount in a specified foreign currency and a fixed date of settlement, but no fixed home currency value.
3) The strategic choice of German and Japanese car producers to locate plants in North America can be regarded as a hedge against operating exposure.

Question 4

A French-based firm has recently ordered a machine from China (invoicing price: EUR 350,000) ot be delivered in January 2022. What type of foreign exchange exposure odes this represent?

1) a contractual exposure
2) an operating exposure
3) an accounting exposure
4) none of the above

Answer 4

none of the above

Question 5

Foreign exchange exposure:

1) is the risk that future spot rates deviate from actual spot rates
2) is equivalent to the slope of the exposure line in binomial settings.
3) can be hedged with financial and operating hedges.
4) none of the above.

Answer 5

2) is equivalent to the slope of the exposure line in binomial settings.
3) can be hedged with financial and operating hedges.

Question 6

If an Italian importer has a contract to pay 1 million JPY in6 months and the JPY is expected to appreciate by 5%, his foreign currency exposure is:

Answer 6

1 000 000 JPY

Question 7

Which of the following statements is/are correct?

1) If a put’s price exceeds the spot rate, the put is at-the-money.
2) The buyer of a call option has the right, but not the obligation to sell the underlying asset.
3) The difference between European-style and American-style options is that European-style options can only be exercised at maturity.
4) Currency options are mainly traded via OTC-markets.

Answer 7

3) The difference between European-style and American-style options is that European-style options can only be exercised at maturity.
4) Currency options are mainly traded via OTC-markets.

Question 8

The study presented by Fatemi / Glaum (2002) shows that a majority of interviewed German firms:

1) has already used financial derivatives
2) Favors OTC options to forwards because of their flexibility
3) uses financial derivatives because they allow them to realize profits
4) implements exposure netting (pooling) as a means to hedge against FX risk

Answer 8

1) has already used financial derivatives

4) implements exposure netting (pooling) as a means to hedge against FX risk

Question 9

Depending on the sensitivity of an asset’s value on exchange rate changes, operating exposure can be:

1) negative
2) zero
3) positive

Answer 9

1) negative
2) zero
3) positive