Blog

Assume you are the a financial analyst of a firm tasked with managing the firm’s exposure to exchange rate fluctuations. Briefly and individually, address the relevance of each of the following issues as they relate to the firm’s level of transaction, operating, and/or translation exposure. a. The degree to which the currency of a particularly country in which the firm has considerable operations is correlated with the local currency.   b. The degree to which the portfolio of currencies in which the firm has operations are correlated with one another.   c. The location of the firm’s competition.   d. The currency of denomination (or location) in which the firm has its input costs and revenues.  

Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current level of $.18 to $.21. Currently, kroner call options are available with an exercise price of $.17 and a premium of $.03. Should Frank attempt to buy this option? If the future spot rate of the Danish kroner is indeed $.21, what is his profit or loss per unit?

When comparing the forward hedge to the money market hedge, the MNC can easily determine which hedge is more desirable, because the cost of each hedge can be determined at the time of the hedge.

If Lazer Co. desired to lock in a minimum rate at which it could sell its net receivables in Japanese yen but wanted to be able to capitalize if the yen appreciates substantially against the dollar by the time payment arrives, the most appropriate hedge would be:

To hedge payables with futures, an MNC would buy futures; to hedge receivables with futures, an MNC would sell futures.

Identify the stage of cell division seen in the cell marked with the red dot.

“To persuade my audience that Marilyn Monroe was murdered and did not commit suicide” is an example of what type of policy speech?

Translation losses are ____, while gains on forward contracts used to hedge translation exposure are ____.

Assume that Patton Co. will receive 100,000 New Zealand dollars (NZ$) in 180 days. Today’s spot rate of the NZ$ is $.50, and the 180-day forward rate is $.51. A call option on NZ$ exists, with an exercise price of $.52, a premium of $.02, and a 180-day expiration date. A put option on NZ$ exists with an exercise price of $.51, a premium of $.02, and a 180-day expiration date. Patton Co. has developed the following probability distribution for the spot rate in 180 days:  Possible Spot Rate   in 180 Days Probability $.50 10% $.54 60% $.55 30% The probability that the forward hedge will result in more U.S. dollars received than the options hedge is ____ (deduct the amount paid for the premium when estimating the U.S. dollars received on the options hedge).

Macomb Corporation is a U.S. firm that is invoiced on some of its imports in Japanese yen. If it expects the yen to strengthen, it could ____ to hedge the exchange rate risk on those imports.