CHAPTER 8 Management of Transaction Exposure - CHAPTER 8...

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CHAPTER 8 Management of Transaction ExposureThree Types of ExposureForward Market HedgeMoney Market HedgeOptions Market HedgeHedging Foreign Currency PayablesForward ContractsMoney Market InstrumentsCurrency Options ContractsCross-Hedging Minor Currency ExposureHedging Contingent ExposureHedging Recurrent Exposure with Swap ContractsHedging through Invoice CurrencyHedging via Lead and LagExposure NettingInternational Finance in Practice:Riding Shifting Waves of CurrencyShould the Firm Hedge?International Finance in Practice:To Hedge or Not to HedgeThree Types of Exposure1Transaction exposure is defined as:a)the sensitivity of realized domestic currency values of the firm’s contractual cashflows denominated in foreign currencies to unexpected exchange rate changesb)the extent to which the value of the firm would be affected by unanticipatedchanges in exchange ratec)the potential that the firm’s consolidated financial statement can be affected bychanges in exchange ratesd)ex post and ex ante currency exposuresAnswer: a)
2The most direct and popular way of hedging transaction exposure is by:
3If you have a long position in a foreign currency, you can hedge with:
Eun/Resnick 4e90
4If you a foreign currency denominated debt, you can hedge with:
5The sensitivity of “realized” domestic currency values of the firm’s contractual cashflows denominatedin foreign currency to unexpected changes in the exchange rate is:a)Transaction exposureb)Translation exposurec)Economic exposured)None of the aboveAnswer: a)
6The sensitivity of the firm’s consolidated financial statements to unexpected changesin the exchange rate is:

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