20. Which of the following hedg ing strategies result in certain receipts of cas
ID: 2805652 • Letter: 2
Question
20. Which of the following hedg ing strategies result in certain receipts of cash flows? a) unhedged position; forward hedge b) forward hedge; money market hedge c) money market hedge; call option d) forward hedge; put option e) None of the above 21. A U.S. firm sells merchandise to France and receives payment in euro. To hedge the transaction risk, the US firm should a) buy euro call option b) sell euro call option c) buy euro put option d) sell euro put option e) sell dollar put option 22. The writer of a currency option has a) higher initial costs than the buyer of the option. b) unlimited profit potential and limited loss potential c) unlimited loss potential and limited profit potential d) unlimited profit potential and unlimited loss potential. e) None of the above 23. At all spot rates above the strike price, the purchase of the CALL option would choose to? a) do nothing b) not exercise the option c) to exercise or not-no difference d) exercise the option e not enough information to answer this question 24. Which one of the following management techniques is likely to best offset the risk of long-run exposure to payables denominated in a particular foreign currency? a) Borrow money in the foreign currency in question. b) Lend money in the foreign currency in question. c) Rely on the Federal Reserve Board to enact monetary policy favorable to your exposure risk. d) All of the above e) None of the aboveExplanation / Answer
Answer:
20.b.Forward hedge , money market hedge
21.c.buy euro put option
22.c.Unlimited loss potential and limited profit potential
23.d.exercise the option
24.a.Borrow money in the foreign currency in question
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