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1、Lecture 12 - Management of Transaction Exposure8-1 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a web
2、site, in whole or part.Lecture 13(Chapter 8) Management of Transaction ExposureMultiple Choice Questions1. Transaction exposure is defined as A. the sensitivity of realized domestic currency values of the firms contractual cash flows denominated in foreign currencies to unexpected exchange rate chan
3、ges. B. the extent to which the value of the firm would be affected by unanticipated changes in exchange rate. C. the potential that the firms consolidated financial statement can be affected by changes in exchange rates. D. ex post and ex ante currency exposures.2. The most direct and popular way o
4、f hedging transaction exposure is by A. exchange-traded futures options. B. currency forward contracts. C. foreign currency warrants. D. borrowing and lending in the domestic and foreign money markets.3. If you have a long position in a foreign currency, you can hedge with: A. A short position in an
5、 exchange-traded futures option B. A short position in a currency forward contract C. A short position in foreign currency warrants D. Borrowing (not lending) in the domestic and foreign money markets4. If you owe a foreign currency denominated debt, you can hedge with A. a long position in a curren
6、cy forward contract. B. a long position in an exchange-traded futures option. C. buying the foreign currency today and investing it in the foreign county. D. both a) and c)Lecture 12 - Management of Transaction Exposure8-2 2012 by McGraw-Hill Education. This is proprietary material solely for author
7、ized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.5. If you own a foreign currency denominated bond, you can hedge with A. a long position in a currency fo
8、rward contract. B. a long position in an exchange-traded futures option. C. buying the foreign currency today and investing it in the foreign county. D. a swap contract where pay the cash flows of the bond in exchange for dollars.6. The sensitivity of “realized“ domestic currency values of the firms
9、 contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is A. transaction exposure. B. translation exposure. C. economic exposure. D. none of the above7. The sensitivity of the firms consolidated financial statements to unexpected changes in the exchange ra
10、te is A. transaction exposure. B. translation exposure. C. economic exposure. D. none of the above8. The extent to which the value of the firm would be affected by unexpected changes in the exchange rate is A. transaction exposure. B. translation exposure. C. economic exposure. D. none of the above9
11、. With any hedge A. your losses on one side should about equal your gains on the other side. B. you should try to make money on both sides of the transaction: that way you make money coming and going. C. you should spend at least as much time working the hedge as working the underlying deal itself.
12、D. you should agree to anything your banker puts in front of your face.Lecture 12 - Management of Transaction Exposure8-3 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be
13、copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.10. With any successful hedge A. you are guaranteed to lose money on one side. B. you can avoid the accounting ramifications of a loss on one side by keeping it off the books. C. both a) and b) D. none of t
14、he above11. The choice between a forward market hedge and a money market hedge often comes down to A. interest rate parity. B. option pricing. C. flexibility and availability. D. none of the above12. Since a corporation can hedge exchange rate exposure at low cost A. there is no benefit to the share
15、holders in an efficient market. B. shareholders would benefit from the risk reduction that hedging offers. C. the corporations banker would benefit from the risk reduction that hedging offers. D. none of the above13. A CFO should be least worried about A. transaction exposure. B. translation exposur
16、e. C. economic exposure. D. none of the above14. Exchange rate risk of a foreign currency payable is an example of A. transaction exposure. B. translation exposure. C. economic exposure. D. none of the aboveLecture 12 - Management of Transaction Exposure8-4 2012 by McGraw-Hill Education. This is pro
17、prietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.15. A stock market investor would pay attention to A. anticipated chan
18、ges in exchange rates that have been already discounted and reflected in the firms value. B. unanticipated changes in exchange rates that have not been discounted and reflected in the firms value.16. Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed 10 million payable in
19、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
20、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 A. (i
21、) and (iv) B. (ii) and (iv) C. (ii), (iii), and (iv) D. (i), (ii), and (iii)Lecture 12 - Management of Transaction Exposure8-5 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may no
22、t be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.17. 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
23、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. Suppose that on the maturity date of the forward contract, the spot rate turns out to be $1.40/ (i.e. less than the forward rate of $1.46/). Which of the follo
24、wing is true? A. Boeing would have received only $14.0 million, rather than 14.6 million, had it not entered into the forward contract B. Boeing gained $0.6 million from forward hedging C. a) and b) D. none of the aboveLecture 12 - Management of Transaction Exposure8-6 2012 by McGraw-Hill Education.
25、 This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.18. Your firm is a U.K.-based exporter of British bicycles
26、. You have sold an order to an Italian firm for 1,000,000 worth of bicycles. Payment from the Italian firm (in ) is due in twelve months. Your firm wants to hedge the receivable into pounds. Not dollars. Use the following table for exchange rate data.Detail a strategy using futures contracts that wi
27、ll hedge your exchange rate risk. Have an estimate of how many contracts of what type. A. Borrow 970,873.79 in one year you owe 1m, which will be financed with the receivable. Convert 970,873.79 to dollars at spot, receive $1.165.048,54. Convert dollars to pounds at spot, receive 728.155.34. B. Sell
28、 1m forward using 16 contracts at $1.20 per 1. Buy 750,000 forward using 12 contracts at $1.60 per 1. C. Sell 1m forward using 16 contracts at the forward rate of $1.29 per 1. D. Sell 1m forward using 16 contracts at the forward rate of $1.29 per 1. Buy 750,000 forward using 12 contracts at the forw
29、ard rate of $1.72 per 1.Lecture 12 - Management of Transaction Exposure8-7 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distrib
30、uted, or posted on a website, in whole or part.19. A Japanese EXPORTER has a 1,000,000 receivable due in one year. Spot and forward exchange rate data given in the table:The one-year risk free rates are i$ = 4.03%; i = 6.05%; and i = 1%. Detail a strategy using forward contracts that will hedge exch
31、ange rate risk. A. Borrow 970,873.79 today; in one year you owe 1m, which will be financed with the receivable. Convert 970,873.79 to dollars at spot, receive $1,165,048.54. Convert dollars to yen at spot, receive 116,504,854. B. Sell 1m forward using 16 contracts at the forward rate of $1.20 per 1.
32、 Buy 150,000,000 forward using 11.52 contracts, at the forward rate of $1.00 = 120. C. Sell 1m forward using 16 contracts at the forward rate of $1.25 per 1. Buy 150,000,000 forward using 12 contracts, at the forward rate of $1.00 = 120. D. None of the above20. Your firm has a British customer that
33、is willing to place a $1 million order, but wants to pay in pounds instead of dollars. The spot exchange rate is $1.85 = 1.00 and the one-year forward rate is $1.90 = 1.00. The lead time on the order is such that payment is due in one year. What is the fairest exchange rate to use? A. $1.85 = 1.00 B
34、. $1.8750 = 1.00 C. $1.90 = 1.00 D. none of the aboveLecture 12 - Management of Transaction Exposure8-8 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, d
35、uplicated, forwarded, distributed, or posted on a website, in whole or part.21. Your firm has a British customer that is willing to place a $1 million order (with payment due in 6 months), but insists upon paying in pounds instead of dollars. A. The customer essentially wants you to discount your pr
36、ice by the value of a put option on pounds. B. The customer essentially wants you to discount your price by the value of a call option on pounds. C. None of the aboveLecture 12 - Management of Transaction Exposure8-9 2012 by McGraw-Hill Education. This is proprietary material solely for authorized i
37、nstructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.22. Your firm is a U.K.-based exporter of British bicycles. You have sold an order to an American firm for $1,0
38、00,000 worth of bicycles. Payment from the American firm (in U.S. dollars) is due in six months. Detail a strategy using futures contracts that will hedge your exchange rate risk.A. Go short 12 six-month forward contracts; pay 555,600. B. Go short 16 six-month forward contracts. Pay approximately 53
39、7,600. C. Go long 12 six-month forward contracts. Receive approximately 549,500. D. Go long 16 six-month forward contracts; raise approximately 537,600.23. Your firm is a U.S.-based exporter of bicycles. You have sold an order to a French firm for 1,000,000 worth of bicycles. Payment from the French
40、 firm (in euro) is due in three months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and how much (in $) your firm will have.A. Go short 12 six-month forward contracts; pay $1,290,000. B. Go short 16 six-month
41、forward contracts. Pay $1,230,000. C. Go long 16 six-month forward contracts; raise $1,230,000. D. Go long 12 six-month forward contracts. Receive $1,230,000.Lecture 12 - Management of Transaction Exposure8-10 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instruct
42、or use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.24. Your firm is a U.K.-based exporter of bicycles. You have sold an order to a French firm for 1,000,000 worth of bic
43、ycles. Payment from the French firm (in euro) is due in 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity.A. Go short 100 12-month euro futures contracts; and short 80 12-month pound futures
44、contracts. B. Go long 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. C. Go long 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. D. Go short 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. E. No
45、ne of the aboveLecture 12 - Management of Transaction Exposure8-11 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
46、 posted on a website, in whole or part.25. Your firm is a U.K.-based importer of bicycles. You have placed an order with an Italian firm for 1,000,000 worth of bicycles. Payment (in euro) is due in 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an
47、estimate of how many contracts of what type and maturity.A. Go short 100 12-month euro futures contracts; and short 80 12-month pound futures contracts. B. Go long 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. C. Go long 100 12-month euro futures contracts; and s
48、hort 80 12-month pound futures contracts. D. Go short 100 12-month euro futures contracts; and long 80 12-month pound futures contracts. E. None of the aboveLecture 12 - Management of Transaction Exposure8-12 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructo
49、r use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.26. Your firm is a Swiss exporter of bicycles. You have sold an order to a French firm for 1,000,000 worth of bicycles. Payment from the French firm (in euro) is due in 12 months. Detail a strategy using futures contracts that will hedge