Please answer both subparts. 1. Why would an Australian gold-mining company decide to use USD as its functional currency and why? (a) It matches the functional currency of all its competitors and accordingly is not disadvantaged. (b) USD is less volatile than AUD and
Please answer both subparts. 1. Why would an Australian gold-mining company decide to use USD as its functional currency and why? (a) It matches the functional currency of all its competitors and accordingly is not disadvantaged. (b) USD is less volatile than AUD and
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please answer both subparts.
1. Why would an Australian gold-mining company decide to use USD as its functional currency and why?
(a) It matches the functional currency of all its competitors and accordingly is not disadvantaged.
(b) USD is less volatile than AUD and therefore reduces the foreign exchange risk to the company.
(c) Gold is considered a USD-based commodity so shareholders may want a "pure" exposure to world gold prices.
(d) This would mean the company has no foreign exchange exposure as its foreign exchange risk came from the sale of gold, which was in USD.
2. You are the corporate treasurer of XYZ and you have just purchased an AUD put /USD call
currency option from Thebank. Which one of the following statements is most correct and WHY?
(a) The option gives XYZ the right, but not the obligation to buy AUD and sell USD.
(b) The option gives XYZ the right, but not the obligation to buy USD and sell AUD.
(c) The option requires TheBank to buy USD and sell AUD if XYZ exercises the option
(d) The option gives TheBank the right, but not the obligation to buy AUD and sell USD.
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