MC pretest - F494 Pretest Multiple Choice Identify the...

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F494 Pretest Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Assume zero transaction costs. If the 90-day forward rate of the euro is an accurate estimate of the spot rate 90 days from now, then the real cost of hedging payables will be: a. positive. b. negative. c. positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount. d. zero. ____ 2. An example of cross-hedging is: a. find two currencies that are highly positively correlated; match the payables of the one currency to the receivables of the other currency. b. use the forward market to sell forward whatever currencies you will receive. c. use the forward market to buy forward whatever currencies you will receive. d. B and C. ____ 3. Which of the following reflects a hedge of net receivables in British pounds by a U.S. firm? a. purchase a currency put option in British pounds. b. sell pounds forward. c. borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit. d. A and B. ____ 4. Use the following information to calculate the dollar cost of using a money market hedge to hedge 200,000 pounds of payables due in 180 days. Assume the firm has no excess cash. Assume the spot rate of the pound is $2.02, the 180-day forward rate is $2.00. The British interest rate is 5%, and the U.S. interest rate is 4% over the 180-day period. a. $391,210. b. $396,190. c. $388,210. d. $384,761. e. none of the above. ____ 5. If interest rate parity exists and transactions costs are zero, the hedging of payables in euros with a forward hedge will _______. a.
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MC pretest - F494 Pretest Multiple Choice Identify the...

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