Transaction exposure gives rise to foreign exchange gains and losses that are ultimately realized in cash True False Hedging does not protect companies from exchange rate fluctuations True False Assets and liabilities translated at the historical exchange rate are not exposed to a translation adjustment True False Spot rate is the today's (current) price for purchasing or selling a foreign currency True False Foreign currency option a right to buy or sell foreign currency True False

Transaction exposure gives rise to foreign exchange gains and losses that are ultimately realized in cash True False Hedging does not protect companies from exchange rate fluctuations True False Assets and liabilities translated at the historical exchange rate are not exposed to a translation adjustment True False Spot rate is the today's (current) price for purchasing or selling a foreign currency True False Foreign currency option a right to buy or sell foreign currency True False

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Leads are deliberate early payments of amounts due to be paid in foreign currency to overseassuppliers, or other foreign currency payments. Leads can avoid the risk that the sterling cost of these payments may rise if the amountsof the payments are quoted in foreign currency and the foreign currencyincreases in value. Under what circumstances can how an international company can use ‘leads and lags’ to protect itself againstforeign exchange risk?
Question 4 Which of the following statements relating to foreign currency hedging is false? Instead of hedging with foreign currency derivatives, some companies use natural hedging by diversifying across currency zones , through operational matching of revenues and expenses, or through the use of non-derivative financial instruments. Generally, hedge accounting for foreign currency risk requires that the hedged transaction be denominated in a currency other than the hedging entity's functional currency. In the context of hedge accounting considerations, a key distinction between a forecasted transaction and a firm commitment is the certainty and enforceability of the terms of the transaction. Forward contracts are normally standardized and exchange-traded instruments, and therefore valued based on quoted market prices.
Transaction exposure is the risk that a company's equities, assets, liabilities, or income will change in value as a result of exchange rate changes. Select one: True False
A major risk faced by a swap dealer is exchange rate risk. This is a)the probability exchange rates will move against the dealer. b)the probability that a foreign counterparty will default in a currency swap. c)none of the options d)the probability that either counterparty defaults in a currency swap.
Multinational corporations prefer that the currency borrowed -------------- over time against the currency they are receiving from sales. a. appreciation and depreciate b. stay the same c. appreciation d. depreciate
Which of the following is negative affects the currency exchange rate bid/ask spread? A. order costs B. currency risk C. volume D. inventory costs
Short-run exposure to exchange rate risk is best illustrated by which one of the following? Multiple Choice Change in book value when the market value of an asset remains constant Daily fluctuations in the spot rate Increases in the forward rate as the time to settlement increases Changes in relative economic conditions between two countries Unrealized foreign exchange gains
Investors and MNCs exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk,which can have severe financial consequences on firms profitability,cash flows,and their market value,if not managed appropriately. MNC's use a number of external techniques of risk(exposure)management and resort to contractual relationships outside thier companies in order to reduce (or redistribute)the risk of foreign exchange losses.What are the determinants of hedging currency risk or foreign exchange exposures which pose risks to MNC's cashflows,competitiveness,marker value and financial reporting.
Explain why the following statement is true or false: “The smaller and less liquid markets and currency markets frequently demonstrate behaviors that follow the principles outlined by the different schools of thought on exchange rate determination (parity conditions, balance of payments approach, and asset approach) relatively well in the medium to long term.”
Statement I - Exchange rate risk is a factor that contributes to the difficulty of the company to manage its international creditStatement II - A relaxation in collection policy that lengthens the firm collection period ultimately lengthens the firms operating cycle and cash conversion cycle a. False; False b. True; False c. True; True d. False; True
Which of the following statements are true about exchange rate risk? Check all that apply: A Canadian investor with an investment in U.S Treasury bills faces exchange rate risk. Exchange rate risk arises from the uncertainty in asset returns due to changes in the exchange rate between the currency of the investor and the foreign currency. Exchange rate risk can't be perfectly hedged, even if the return earned in the foreign currency is known beforehand. Exchange rate risk can be hedged using a futures or forward contract in foreign exchange. Submit
Corporates have lost huge monies in currency operating exposures because of O a. Hedged exposures O b. Unhedged exposures O c. Foreign exposure O d. Translation exposure

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