A U.S.-based MNC has 10 million yen receivables due in 60 days. It is certain th

Question

A U.S.-based MNC has 10 million yen receivables due in 60 days. It is certain that the yen will appreciate substantially over time and the expected appreciation is already priced into the forward market. If the firm is correct, it should:
sell yen forward.
purchase yen currency put options.
purchase yen currency call options.
purchase yen forward.
remain unhedged.

A U.S. MNC should increase in value when its cash flows from subsidiaries in China and Vietnam increase, and when the:
Chinese yuan and Vietnamese dong appreciate
Chinese yuan and Vietnamese dong depreciate
the yuan appreciates and the dong depreciates
the dong appreciates and the yuan depreciates
none of the above

A U.S. company focuses on local sales, but buys inventory, denominated in yen, from Japanese companies. The company has almost no foreign competition. The company will probably benefit most by:
depreciation of the local currency
appreciation of the local currency
appreciation of the yen
a stable yen
none of the above

Explanation / Answer

1. Purchase currency forward and remain unhedged are both correct. But taking currency forward would be a better option since remain unhedged leads to currency exposure risk.

2. Chinese yuan and Vietnamese dong appreciate

3. The company will probably benefit most by the appreciation of the local currency since this will reduce the value of yen and thus import cost as well.

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