Corp Finance Exam Essay

940 Words Dec 4th, 2010 4 Pages
Question 1 10 points Save

Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports.

sell yen put options buy yen call options buy futures contracts on yen sell futures contracts on yen Question 2 10 points Save

A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time of maturity is $.85, what is the net amount received by the corporation if it acts rationally?

$74,000. $84,000.
…show more content…
What is the net inflow or outflow as measured in U.S. dollars this year? The exchange rate for the euro is $1.05.

$3,675,000 outflow $525,000 outflow $525,000 inflow $210,000 outflow Question 5 10 points Save

Yomance Co. is a U.S. company that has exposure to Japanese yen and British pounds. It has net inflows of 5,000,000 yen and net outflows of 60,000 pounds. The present exchange rate of the Japanese yen is $.012 while the present exchange rate of the British pound is $1.50. Yomance Co. has not hedged its positions. The yen and pound movements against the dollar are highly and positively correlated. If the dollar strengthens, then Yomance Co. will:

benefit, because the dollar value of its pound position exceeds the dollar value of its yen position. benefit, because the dollar value of its yen position exceeds the dollar value of its pound position. be adversely affected, because the dollar value of its pound position exceeds the dollar value of its yen position. be adversely affected, because the dollar value of its yen position exceeds the dollar value of its pound position. Question 6 10 points Save

Which of the following reflects a hedge of net receivables in British pounds by a U.S. firm?

purchase a currency put option in British pounds. sell pounds forward.

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