# The extent to which the value of the firm would be

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7The extent to which the value of the firm would be affected by unexpected changes inthe exchange rate is:a)Transaction exposureb)Translation exposurec)Economic exposured)None of the aboveAnswer: c)
8With any hedge
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Forward Market Hedge9Suppose that Boeing Corporation exported a Boeing 747 to British Airways andbilled £10 million payable in one year. The money market interest rates and foreignexchange rates are given as follows:The U.S. one-year interest rate: 6.10% per annumThe U.K. one-year interest rate: 9.00% per annumThe spot exchange rate: \$1.50/£The one-year forward exchange rate\$1.46/£ Assume that Boeing sells a currency forward contract of £10 million for delivery in oneyear, in exchange for a predetermined amount of U.S. dollar. Which of the following is(or are) true? On the maturity date of the contract Boeing will:(i)have to deliver £10 million to the bank (the counterparty of the contract)(ii)take delivery of \$14.6 million(iii)have a zero net pound exposure(iv)have a profit, or a loss, depending on the future changes in the exchange ratefrom this British sale,
10 Suppose that Boeing Corporation exported a Boeing 747 to British Airways andbilled £10 million payable in one year. The money market interest rates and foreignexchange rates are given as follows:The U.S. one-year interest rate: 6.10% per annumThe U.K. one-year interest rate: 9.00% per annumThe spot exchange rate: \$1.50/£The one-year forward exchange rate\$1.46/£ Assume that Boeing sells a currency forward contract of £10 million for delivery in oneyear, in exchange for a predetermined amount of U.S. dollar. Suppose that on thematurity date of the forward contract, the spot rate turns out to be \$1.40/£ (i.e. less thanthe forward rate of \$1.46/£). Which of the following is true?
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