# Strayer University ITB400 QUIZ 4 34525

Question

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 A U.S.-based MNC with exposure to the Swedish krona could best cross-hedge with Answer

· Question 2

3 out of 3 points

 Suppose that the exchange rate is €1.25 = £1.00. Options (calls and puts) are available on the Philadelphia exchange in units of €10,000 with strike prices of \$1.60/€1.00. Options (calls and puts) are available on the Philadelphia exchange in units of £10,000 with strike prices of \$2.00/£1.00. For a U.S. firm to hedge a €100,000 receivable, Answer

· Question 3

3 out of 3 points

 If you have a long position in a foreign currency, you can hedge with: Answer

· Question 4

3 out of 3 points

 An exporter can shift exchange rate risk to their customers by Answer

· Question 5

3 out of 3 points

 XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. The current spot rate is ¥116/\$1.00 and the one year forward rate is ¥109/\$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. XYZ can also buy a one-year call option on yen at the strike price of \$0.0086 per yen for a premium of 0.012 cent per yen. Assume that the forward rate is the best predictor of the future spot rate. The future dollar cost of meeting this obligation using the option hedge is Answer

· Question 6

3 out of 3 points

 XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. The current spot rate is ¥116/\$1.00 and the one year forward rate is ¥109/\$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. XYZ can also buy a one-year call option on yen at the strike price of \$0.0086 per yen for a premium of 0.012 cent per yen. The future dollar cost of meeting this obligation using the forward hedge is Answer

· Question 7

3 out of 3 points

 Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows: Assume that Boeing sells a currency forward contract of €10 million for delivery in one year, in exchange for a predetermined amount of U.S. dollar. Which of the following is (or are) true? On the maturity date of the contract Boeing will: (i) have to deliver €10 million to the bank (the counterparty of the forward contract) (ii) take delivery of \$14.6 million (iii) have a zero net pound exposure (iv) have a profit, or a loss, depending on the future changes in the exchange rate, from this British sale Answer

· Question 8

3 out of 3 points

 An exporter faced with exposure to a depreciating currency can reduce transaction exposure with a strategy of Answer

· Question 9

3 out of 3 points

 ABC Inc., an exporting firm, expects to earn \$20 million if the dollar depreciates, but only \$10 million if the dollar appreciates. Assume that the dollar has an equal chance of appreciating or depreciating. Step one: calculate the expected tax of ABC if it is operating in a foreign country that has progressive corporate taxes as shown below: Corporate income tax rate = 15% for the first \$7,500,000. Corporate income tax rate = 30% for earnings exceeding \$7,500,000. Step two: ABC is considering implementing a hedging program that will eliminate their exchange rate risk: they will make a certain \$15 million whether or not the dollar appreciates or depreciates. How much will they save in taxes if they implement the program? Answer

· Question 10

3 out of 3 points

· Question 11

3 out of 3 points

 ABC Inc., an exporting firm, expects to earn \$20 million if the dollar depreciates, but only \$10 million if the dollar appreciates. Assume that the dollar has an equal chance of appreciating or depreciating. Calculate the expected tax of ABC if it is operating in a foreign country that has progressive corporate taxes as shown below: Corporate income tax rate = 15% for the first \$7,500,000. Corporate income tax rate = 30% for earnings exceeding \$7,500,000. Answer

· Question 12

3 out of 3 points

 An exporter faced with exposure to an appreciating currency can reduce transaction exposure with a strategy of Answer

· Question 13

3 out of 3 points

In evaluating the pros and cons of corporate risk management, “market imperfections” refer to

 Selected Answer: information asymmetry, differential transaction costs, default costs, and progressive corporate taxes. Correct Answer: information asymmetry, differential transaction costs, default costs, and progressive corporate taxes.

· Question 14

3 out of 3 points

 The most direct and popular way of hedging transaction exposure is by Answer

· Question 15

3 out of 3 points

 If you own a foreign currency denominated bond, you can hedge with Answer

· Question 16

3 out of 3 points

 Generally speaking, a firm is subject to high degrees of operating exposure Answer

· Question 17

3 out of 3 points

 A U.S. firm holds an asset in Great Britain and faces the following scenario: Where P* = Pound sterling price of the asset held by the U.S. firm The CFO decides to hedge his exposure by selling forward the expected value of the pound denominated cash flow at F1(\$/£) = \$2/£. As a result Answer

· Question 18

0 out of 3 points

 On the basis of regression Equation we can decompose the variability of the dollar value of the asset, Var(P), into two separate components. Answer

· Question 19

3 out of 3 points

 Operating exposure can be defined as Answer

· Question 20

3 out of 3 points

· Question 21

3 out of 3 points

 Before you can use the hedging strategies such as a forward market hedge, options market hedge, and so on, you should consider running a regression of the form . When reviewing the output, you should initially focus on Answer

· Question 22

3 out of 3 points

 A firm with a highly elastic demand for its products Answer

· Question 23

3 out of 3 points

 The exposure coefficient in the regression informs Answer

· Question 24

3 out of 3 points

· Question 25

3 out of 3 points

 A firm that is committed to keeping manufacturing facilities in only the home country (and not developing multiple production sites in a variety of countries) can Answer

· Question 26

3 out of 3 points

 It is conventional to classify foreign currency exposures into the following types: Answer

· Question 27

3 out of 3 points

· Question 28

3 out of 3 points

 From the perspective of the U.S. firm that owns an asset in Britain, the exposure that can be measured by the coefficient b in regressing the dollar value P of the British asset on the dollar/pound exchange rate S using the regression equation is Answer

· Question 29

3 out of 3 points

 The firm may not be subject to high degrees of operating exposure Answer

· Question 30

3 out of 3 points

 With regard to operational hedging versus financial hedging, Answer