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)

a)explain the structure of a pay-fixed, receive-fixed currency swap, and describe the cash flows at its initiation date, settlement dates, and termination date.     b)explain how to determine the notional amounts in two currencies in a currency swap.       c)explain the equivalency between a currency swap and a pair of bond transactions in different currencies.       d)describe the four types of currency swaps.       e)describe the relationship between currency swaps and interest rate swaps.

h) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity.      i) discuss the boundary conditions on the prices of American and European call option contracts on futures.       j) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures.      k) describe how spot prices are determined using the cost-of-carry model.

Under what conditions can companies use hedge accounting to account for a foreign currency option used to hedge a forecasted foreign currency transaction?

Question 12 True or False?  The foreign currency hedge accounting guidance allows for the use of nonderivative instruments as the hedging instrument for hedges of net investments and foreign currency cash flows hedges, but not for foreign currency fair value hedges of firm commitments  True  False

a)explain how to price a currency swap if either set of payments is at a floating rate.       b)explain how a currency swap can be used to convert a loan in one currency into a loan in another currency, and provide some reasons for doing so.      c)demonstrate that a currency swap contract is equivalent to a series of forward contracts.       d)explain how a currency swap can be used to hedge a stream of foreign cash flows.     e)define interest rate derivatives, and compare and contrast them against bond derivatives.

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

D3) Finance Use covered interest rate parity (CIP) to show that a fixed exchange rate and free capital flows imply that a central bank cannot set the interest rate independently from the interest rate set by the reference currency's central bank.

The risks below faced the financial institutions:  Off-Balance-Sheet Risk  Market Risk Foreign Exchange Risk What causes these risks, and How to mitigate them? I understand these risks are interdependent on each other.

F2