Hedgers should buy puts if they are hedging an

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International Financial Management
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Chapter 7 / Exercise 21
International Financial Management
Madura
Expert Verified
92. Hedgers should buy puts if they are hedging an expected inflow of
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International Financial Management
The document you are viewing contains questions related to this textbook.
Chapter 7 / Exercise 21
International Financial Management
Madura
Expert Verified
foreign currency. PTS: 1
93. Forward contracts are the best technique for managing exposure arising from project bidding.
ANS:F PTS: 1 94. The currency futures markets are regulated by the International Monetary Fund.
ANS:F PTS: 1 95. It is possible to have an opportunity loss when using futures to hedge. a. True b. False ANS:T PTS: 1
96. Margin is used in the forward market to mitigate default risk.
ANS:F PTS: 1 97. There are no transactions costs associated with trading futures or options. PTS: 1
98. Futures and options are available for crossrates. PTS: 1
99. Options can be traded on an exchange or over the counter. a. True b. False ANS:T PTS: 1
100. The writer of an uncovered call can experience a loss limited to the option premium.
ANS:F PTS: 1 101. American style options can be exercised any time up to maturity. PTS: 1
102. If a currency put option is out of the money, then the present exchange rate is less than the strike price.
ANS:F PTS: 1 103. As mentioned in the text, the most common maturities for forward rates are: a . one, three, six, and twelve months. b . one, three, six, and twelve years. c two, three, and five years.
. d . two, three, and five weeks. ANS:A PTS: 1 104. Managers of MNCs are typically expected to use currency derivatives for speculation in order to improve profits.
ANS:F PTS: 1 105. The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?
PTS: 1 106. The annualized forward premium on the euro is 7%. What is the 90-day forward rate on the euro if the spot rate today is $1.25?
. c . $1.16 d . $1.23 ANS:A SOLUTIO N: $1.25 [1 + 7%/(360/90)] = $1.27 PTS: 1 107. The one-year forward rate of the Japanese yen is quoted at $.013, and the spot rate of Japanese yen is quoted at $.011. The forward ____ is ____ percent. a . discount; 18.18 b . premium; 18.18 c . discount; 15.38 d . premium; 15.38 ANS:B SOLUTIO N: (F/S) 1 = ($.013/$.011) 1 = 18.18%
PTS: 1 108. The spot rate of British pound is quoted at $1.49. The 90-day forward rate exhibits a 2% discount. What is the 90-day forward rate of the pound?
b . $1.61 c . $1.37 d . $1.46 ANS:D SOLUTIO N: $1.49 (1 .02) = $1.46 PTS: 1

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