strayer university ITB400 QUIZ 4

A U.S.-based MNC with exposure to the Swedish krona could best cross-hedge with

Answer

Suppose that the exchange rate is €1.25 = £1.00.
Options (calls and puts) are available on the Philadelphia exchange in units of €10,000 with strike prices of $1.60/€1.00.
Options (calls and puts) are available on the Philadelphia exchange in units of £10,000 with strike prices of $2.00/£1.00.
For a U.S. firm to hedge a €100,000 receivable,

Answer

If you have a long position in a foreign currency, you can hedge with:

Answer

An exporter can shift exchange rate risk to their customers by

Answer

XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the one year forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. XYZ can also buy a one-year call option on yen at the strike price of $0.0086 per yen for a premium of 0.012 cent per yen. Assume that the forward rate is the best predictor of the future spot rate. The future dollar cost of meeting this obligation using the option hedge is

Answer

XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the one year forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. XYZ can also buy a one-year call option on yen at the strike price of $0.0086 per yen for a premium of 0.012 cent per yen. The future dollar cost of meeting this obligation using the forward hedge is

Answer

Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows:



Assume that Boeing sells a currency forward contract of €10 million for delivery in one year, in exchange for a predetermined amount of U.S. dollar. Which of the following is (or are) true?
On the maturity date of the contract Boeing will:

(i) have to deliver €10 million to the bank (the counterparty of the forward contract)
(ii) take delivery of $14.6 million
(iii) have a zero net pound exposure
(iv) have a profit, or a loss, depending on the future changes in the exchange rate, from this British sale

Answer

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

Answer

ABC Inc., an exporting firm, expects to earn $20 million if the dollar depreciates, but only $10 million if the dollar appreciates. Assume that the dollar has an equal chance of appreciating or depreciating. Step one: calculate the expected tax of ABC if it is operating in a foreign country that has progressive corporate taxes as shown below:
Corporate income tax rate = 15% for the first $7,500,000.
Corporate income tax rate = 30% for earnings exceeding $7,500,000.
Step two: ABC is considering implementing a hedging program that will eliminate their exchange rate risk: they will make a certain $15 million whether or not the dollar appreciates or depreciates. How much will they save in taxes if they implement the program?

Answer

With any hedge

Answer

ABC Inc., an exporting firm, expects to earn $20 million if the dollar depreciates, but only $10 million if the dollar appreciates. Assume that the dollar has an equal chance of appreciating or depreciating. Calculate the expected tax of ABC if it is operating in a foreign country that has progressive corporate taxes as shown below:
Corporate income tax rate = 15% for the first $7,500,000.
Corporate income tax rate = 30% for earnings exceeding $7,500,000.

Answer

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

Answer

In evaluating the pros and cons of corporate risk management, "market imperfections" refer to

Answer

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

Answer

If you own a foreign currency denominated bond, you can hedge with

Answer

Generally speaking, a firm is subject to high degrees of operating exposure

Answer

A U.S. firm holds an asset in Great Britain and faces the following scenario:

Where
P* = Pound sterling price of the asset held by the U.S. firm
The CFO decides to hedge his exposure by selling forward the expected value of the pound denominated cash flow at F₁($/£) = $2/£. As a result

Answer

On the basis of regression Equation we can decompose the variability of the dollar value of the asset, Var(P), into two separate components.

Answer

Operating exposure can be defined as

Answer

A flexible sourcing policy

Answer

Before you can use the hedging strategies such as a forward market hedge, options market hedge, and so on, you should consider running a regression of the form . When reviewing the output, you should initially focus on

Answer

A firm with a highly elastic demand for its products

Answer

The exposure coefficient in the regression informs

Answer

Operating exposuremeasures

Answer

A firm that is committed to keeping manufacturing facilities in only the home country (and not developing multiple production sites in a variety of countries) can

Answer

It is conventional to classify foreign currency exposures into the following types:

Answer

Economic exposurerefers to

Answer

From the perspective of the U.S. firm that owns an asset in Britain, the exposure that can be measured by the coefficient b in regressing the dollar value P of the British asset on the dollar/pound exchange rate S using the regression equation is

Answer

The firm may not be subject to high degrees of operating exposure

Answer

With regard to operational hedging versus financial hedging,

Answer