Chapter 8 Practice Questions and Answer Keys (updated)

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1、Lecture#7–PracticeQuestions–InternationalFinancialManagement456Chapter8–ManagementofTransactionExposure1.Transactionexposureisdefinedas A. thesensitivityofrealizeddomesticcurrencyvaluesofthefirm'scontractualcashflowsdenominatedinforeigncurrenciestounexpectedexchangeratechanges.B. theextenttowhichthe

2、valueofthefirmwouldbeaffectedbyunanticipatedchangesinexchangerate.C. thepotentialthatthefirm'sconsolidatedfinancialstatementcanbeaffectedbychangesinexchangerates.D. expostandexantecurrencyexposures.2.Themostdirectandpopularwayofhedgingtransactionexposureisby A. exchange-tradedfuturesoptions.B. curre

3、ncyforwardcontracts.C. foreigncurrencywarrants.D. borrowingandlendinginthedomesticandforeignmoneymarkets.3.Ifyouoweaforeigncurrencydenominateddebt,youcanhedgewith A. alongpositioninacurrencyforwardcontract.B. alongpositioninanexchange-tradedfuturesoption.C. buyingtheforeigncurrencytodayandinvestingi

4、tintheforeigncounty.D. botha)andc)4.Withanyhedge A. yourlossesononesideshouldaboutequalyourgainsontheotherside.B. youshouldtrytomakemoneyonbothsidesofthetransaction:thatwayyoumakemoneycomingandgoing.C. youshouldspendatleastasmuchtimeworkingthehedgeasworkingtheunderlyingdealitself.D. youshouldagreeto

5、anythingyourbankerputsinfrontofyourface.5.Thechoicebetweenaforwardmarkethedgeandamoneymarkethedgeoftencomesdownto A. interestrateparity.B. optionpricing.C. flexibilityandavailability.D. noneoftheabove6. SupposethatBoeingCorporationexportedaBoeing747toLufthansaandbilled€10millionpayableinoneyear.Them

6、oneymarketinterestratesandforeignexchangeratesaregivenasfollows:Theeurozoneone-yearinterestrate:9.00%perannum;TheU.S.one-yearinterestrate:6.10%perannum;Thespotexchangerate:1.50dollarpereuro;Theone-yearforwardexchangerate:1.46dollarpereuro. AssumethatBoeingsellsacurrencyforwardcontractof€10millionfor

7、deliveryinoneyear,inexchangeforapredeterminedamountofU.S.dollar.Supposethatonthematuritydateoftheforwardcontract,thespotrateturnsouttobe$1.40/€(i.e.lessthantheforwardrateof$1.46/€).Whichofthefollowing