Author: Anonymous

FAB Corporation will need 200,000 Canadian dollars (C$) in 90 days to cover a payable position. Currently, a 90-day call option with an exercise price of $.75 and a premium of $.03 is available. Also, a 90-day put option with an exercise price of $.73 and a premium of $.01 is available. FAB plans to purchase options to hedge its payable position. Assuming that the spot rate in 90 days is $.71, what is the net amount paid, assuming FAB wishes to minimize its cost?

You are the treasurer of Arizona Corporation and must decide how to hedge (if at all) future receivables of 350,000 Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise price of $.47 per Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is:  Future Spot Rate Probability $.46 20% $.48 30% $.52 50% The 90-day forward rate of the Australian dollar is $.50. What is the probability that the put option will be exercised (assuming Arizona purchased it)?

What is the primary function of nervous tissue?

A high negative correlation between two currencies would be desirable for achieving low exchange rate risk if both currencies are either inflows or outflows.

Assume a U.S. firm uses a forward contract to hedge all of its translation exposure. Also assume that the firm underestimated what its foreign earnings would be. Assume that the foreign currency depreciated over the year. The firm would generate a translation ____, which would be ____ than the gain generated by the forward contract.

Which of the following reflects a hedge of net payables on British pounds by a U.S. firm? (Select all that apply.)

Laketown Co. has some expenses and revenue in euros. If its expenses are more sensitive to exchange rate movements than revenue, it could reduce economic exposure by ____. If its revenues are more sensitive than expenses, it could reduce economic exposure by ____.

Because exchange rate movements may cause earnings to be more volatile, creditors may prefer that firms maintain low exposure to exchange rate risk, and because investors may prefer corporations to perform hedging for them, exchange rate risk is probably relevant.

If interest rate parity exists and transactions costs are zero, the hedging of payables in euros with a forward hedge will ____.

An electrochemical gradient is a gradient of electrochemical potential, usually for an ion that can move across a membrane. The gradient consists of two parts, the chemical gradient, or difference in solute concentration across a membrane, and the electrical gradient, or difference in charge across a membrane.  What are the solute(s) ions involved in the chemical gradient and what is the relative charge difference?