CHAPTER 8 Management of Transaction Exposure.doc

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1、CHAPTER8ManagementofTransactionExposureThreeTypesofExposureForwardMarketHedgeMoneyMarketHedgeOptionsMarketHedgeHedgingForeignCurrencyPayablesForwardContractsMoneyMarketInstrumentsCurrencyOptionsContractsCross-HedgingMinorCurrencyExposureHedgingContingentExposureHedgingRecur

2、rentExposurewithSwapContractsHedgingthroughInvoiceCurrencyHedgingviaLeadandLagExposureNettingInternationalFinanceinPractice:RidingShiftingWavesofCurrencyShouldtheFirmHedge?InternationalFinanceinPractice:ToHedgeorNottoHedgeThreeTypesofExposure1Transactionexposureisdefinedas:

3、a)thesensitivityofrealizeddomesticcurrencyvaluesofthefirm’scontractualcashflowsdenominatedinforeigncurrenciestounexpectedexchangeratechangesb)theextenttowhichthevalueofthefirmwouldbeaffectedbyunanticipatedchangesinexchangeratec)thepotentialthatthefirm’sconsolidatedfinancial

4、statementcanbeaffectedbychangesinexchangeratesd)expostandexantecurrencyexposuresAnswer:a)2Themostdirectandpopularwayofhedgingtransactionexposureisby:a)exchange-tradedfuturesoptionsb)currencyforwardcontractsc)foreigncurrencywarrantsd)borrowingandlendinginthedomesticandforeig

5、nmoneymarketsAnswer:b)3Ifyouhavealongpositioninaforeigncurrency,youcanhedgewith:a)Ashortpositioninanexchange-tradedfuturesoptionb)Ashortpositioninacurrencyforwardcontractc)Ashortpositioninforeigncurrencywarrantsd)borrowing(notlending)inthedomesticandforeignmoneymarketsAnswe

6、r:b)107Eun/Resnick4eIfyouaforeigncurrencydenominateddebt,youcanhedgewith:a)Alongpositioninacurrencyforwardcontractb)Alongpositioninanexchange-tradedfuturesoptionc)Buyingtheforeigncurrencytodayandinvestingitintheforeigncounty.d)Botha)andc)Answer:d)2Thesensitivityof“realized”

7、domesticcurrencyvaluesofthefirm’scontractualcashflowsdenominatedinforeigncurrencytounexpectedchangesintheexchangerateis:a)Transactionexposureb)Translationexposurec)Economicexposured)NoneoftheaboveAnswer:a)3Thesensitivityofthefirm’sconsolidatedfinancialstatementstounexpected

8、changesintheexchangerateis:a)Transactionexposureb)Translationexposurec)Economicexp