Contingent exposure can best be hedged with a options

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Fundamentals of Financial Management
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Chapter 18 / Exercise 01
Fundamentals of Financial Management
Brigham
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81. Contingent exposure can best be hedged with A. Options. B. Money market hedging. C. Futures. D. All of the above Topic: Hedging Contingent Exposure 82. A 5-year swap contract can be viewed as a portfolio of 5 forward contracts with maturities of 1, 2, 3, 4 and 5 years. One important exception is that A. the forward price is the same for the swap contract but not for the forward contracts. B. the swap contract will have daily resettlement. C. the forward contracts will have resettlement risk. D. none of the above. Topic: Hedging Recurrent Exposure with Swap Contracts 83. To find the swap rate for a 3-year swap, you would A. take the arithmetic average of the 1-, 2-, and 3-year forward rates. B. take the geometric average of the 1-, 2-, and 3-year forward rates. C. bootstrap the LIBOR yield curve. D. none of the above Topic: Hedging Recurrent Exposure with Swap Contracts 8-96
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Fundamentals of Financial Management
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Chapter 18 / Exercise 01
Fundamentals of Financial Management
Brigham
Expert Verified
Chapter 08 - Management of Transaction Exposure 84. Generally speaking, a firm with recurrent exposure can best hedge using which product? A. Options B. Swaps C. Futures D. All of the above Topic: Hedging Recurrent Exposure with Swap Contracts 85. The current exchange rate is €1.25 = £1.00 and a British firm offers a French customer the choice of paying a £10,000 bill due in 90 days with either £10,000 or €12,500. A. The seller has given the buyer an at-the-money put option. B. The seller has given the buyer an at-the-money call option. C. Both a) and b) are correct D. None of the above Topic: Hedging through Invoice Currency 86. The current exchange rate is €1.25 = £1.00 and a British firm offers a French customer the choice of paying a £10,000 bill due in 90 days with either £10,000 or €12,500. A. The seller has given the buyer an at-the-money put option on euro with a strike in pounds. B. The seller has given the buyer an at-the-money put option on pounds with a strike in euro. C. The seller has given the buyer an at-the-money call option on euro with a strike in pounds. D. None of the above Topic: Hedging through Invoice Currency 87. An exporter can shift exchange rate risk to their customers by A. invoicing in their home currency. B. invoicing in their customer's local currency. C. splitting the difference, and invoicing half of sales in local currency and half of sales in home currency. D. invoicing sales in a currency basket such as the SDR as the invoice currency. Topic: Hedging through Invoice Currency 8-97
Chapter 08 - Management of Transaction Exposure 88. An exporter can share exchange rate risk with their customers by A. invoicing in their customer's local currency. B. splitting the difference, and invoicing half of sales in local currency and half of sales in home currency. C. invoicing sales in a currency basket such as the SDR as the invoice currency. D. both b) and c) Topic: Hedging through Invoice Currency

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