Essay on International Finance

5595 Words Jan 4th, 2013 23 Pages
Chapter 5

Currency Derivatives

1. Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances? A) purchase Canadian dollars forward. B) purchase Canadian dollar futures contracts. C) purchase Canadian dollar put options. D) purchase Canadian dollar call options.

ANSWER: C

2. Graylon, Inc., based in Washington, exports products to a German firm and will receive payment of €200,000 in three months. On June 1, the spot rate of the euro was $1.12, and
…show more content…
B) contain a commitment to the owner, and can be tailored to the desire of the owner. C) contain a right but not a commitment to the owner, and can be tailored to the desire of the owner. D) contain a right but not a commitment to the owner, and are standardized.

ANSWER: B

11. Which of the following is the most likely strategy for a U.S. firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)? A) purchase a call option on francs. B) sell a futures contract on francs. C) obtain a forward contract to purchase francs forward. D) all of these are appropriate strategies for the scenario described.

ANSWER: B

12. Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)? A) purchase a call option on francs. B) obtain a forward contract to purchase francs forward. C) sell a futures contract on francs. D) all of these are appropriate strategies for the scenario described.

ANSWER: C

13. If your firm expects the euro to substantially depreciate, it could speculate by _______ euro call options or _______ euros forward in the forward exchange market. A) selling; selling B) selling; purchasing C) purchasing; purchasing D)

Related Documents