Authoritative literature provides guidance for hedges of the following sources of foreign exchange risk.. 1. Recognized foreign currency-denominated assets and liabilities II. Unrecognized foreign currency firm commitments. III. Forecasted foreign currency-denominated transactions Multiple Choice I only I and II ll only
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- Write Notes on the Following A: Off Balance Sheet Assets and Liabilities B: Interest Rate Risk Management C: Sterilized Intervention in Foreign Exchange D: Unsterilized Intervention in Foreign Exchange E: Balance of PaymentWhich foreign exchange risk relates to the value of assets held in foreign currency on the statement of financial position of financial institutions which trades? a. Economic risk b. Transaction type risk c. Currency risk d. Translation riskA foreign currency loan is a typical example for O a. Currency Risk O b. Interest rate risk O c. Translation Exposure O d. Transaction Exposure
- How does the timing of hedges of (a) foreign currency denominated assets and liabilities, (b) foreign currency firm commitments, and (c) forecasted foreign currency transactions differ?Which hedging strategy uses an exchange rate agreed to today for future delivery of currency to minimize the financial institution’s risk exposure? a. Hedging with forwards. b. On balance sheet hedging. c. Off balance sheet hedging. d. Spot hedging.Foreign exchange risks a. Occur when cash flows are affected by currency exchange rates b. May be managed with forwards contracts c. May be managed with futures contracts d. Both a) and b) e. Both a) and c)
- Define each following terms: p. American depository receipts (ADRs); repatriation of earnings q. Country risk; exchange rate risk; political risk; business climateWhat term is used to describe the process of reducing foreign exchange risk? Choose the correct. A)international accounting B)exposure C)hedging D)harmonizationWhich statement is correct regarding fair value hedges and cash flow hedges of a foreign currency asset or liability. a. revaluation of a cash flow hedge is reported in the income statement b. under a cash flow hedge the difference between the revaluation gain and loss on the hedge and the revaluation gain or loss on the item being hedged is reported in Other Comprehensive Income c. under a cash flow hedge the difference between the revaluation gain or loss on the hedge and the revaluation gain or loss on the item being hedged is reported in the income statement d. a. revaluation of a fair value hedge is reported in Other Comprehensive Income e. under a fair value hedge the difference between the revaluation gain or loss on the hedge and the revaluation gain or loss on the item being hedged is reported in Other Comprehensive Income
- What are the differences in accounting for a forward contract used as a cash flow hedge of (a) a foreign currency denominated asset or liability and (b) a forecasted foreign currency transaction?State the different types of foreign exchange risk that can be hedged and how foreign currency forward contracts and foreign currency options can be used to hedge those risks.What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure?