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PracticeProblemsSet203

PracticeProblemsSet203 - Moore School of Business...

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1 Moore School of Business Spring 2012 University of South Carolina IBUS 401 – INTERNATIONAL FINANCIAL MANAGEMENT PRACTICE PROBLEMS SET 3 CHAPTER 11 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. Assume the following information: U.S. deposit rate for 1 year = 11% U.S. borrowing rate for 1 year = 12% Swiss deposit rate for 1 year = 8% Swiss borrowing rate for 1 year = 10% Swiss forward rate for 1 year = $.40 Swiss franc spot rate = $.39 Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF600,000 in 1 year. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a forward hedge? ____ 3. Which of the following reflects a hedge of net receivables in British pounds by a U.S. firm? ____ 4. Which of the following reflects a hedge of net payables on British pounds by a U.S. firm?
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2 ____ 5. If Lazer Co. desired to lock in the maximum it would have to pay for its net payables in euros but wanted to be able to capitalize if the euro depreciates substantially against the dollar by the time payment is to be made, the most appropriate hedge would be: a. a money market hedge. b. purchasing euro put options. c. a forward purchase of euros. d. purchasing euro call options. e. selling euro call options. ____
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