If a firm is hedging payables with futures contracts, it may end up paying more for the payables than it would have had it remained unhedged if the foreign currency depreciates.

Quiz 7

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Business
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University
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Easy

Dien Dinh
Used 2+ times
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10 questions
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1.
MULTIPLE CHOICE QUESTION
45 sec • 1 pt
True
False
2.
MULTIPLE CHOICE QUESTION
45 sec • 1 pt
To hedge a receivables position with a currency option hedge, an MNC would buy a put option.
True
False
3.
MULTIPLE CHOICE QUESTION
45 sec • 1 pt
If interest rate parity exists and transaction costs are zero, the hedging of payables in euros with a forward hedge will:
have the same result as a call option hedge on payables.
have the same result as a put option hedge on payables.
have the same result as a money market hedge on payables.
require more dollars than a money market hedge.
have the same result as a call option hedge on payables AND require more dollars than a money market hedge.
4.
MULTIPLE CHOICE QUESTION
45 sec • 1 pt
Assume zero transaction costs. If the 90-day forward rate of the euro underestimates the spot rate 90 days from now, then the real cost of hedging payables will be:
positive.
negative.
positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.
zero.
5.
MULTIPLE CHOICE QUESTION
1 min • 1 pt
Samson Inc. needs €1,000,000 in 30 days. Samson can earn 5 percent annualized on a German security. The current spot rate for the euro is $1.00. Samson can borrow funds in the United States at an annualized interest rate of 6 percent. If Samson uses a money market hedge, how much should it borrow in the United States?
$952,381
$995,851
$943,396
$995,025
6.
MULTIPLE CHOICE QUESTION
45 sec • 1 pt
If the Singapore dollar appreciates against the U.S. dollar over this year, the consolidated earnings of a U.S. company with a subsidiary in Singapore will be ____ as a result of the exchange rate movement.
negative
adversely affected
favorably affected
unaffected
7.
MULTIPLE CHOICE QUESTION
45 sec • 1 pt
____ is (are) not a limitation of hedging translation exposure.
Inaccurate stock price forecasts
Inadequate forward contracts for some currencies
Taxation on gains from forward contracts
Increased transaction exposure
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