Question: Which of the following: O d.A "forward foreign exchange contract" is an agreement to exchange one currency for another on some date in the future at a price set now. O b. "Speculation" is taking an action to increase exposure to exchange rate risk. An international investment is "covered" if it is hedged. A person is exposed to exchange rate risk if the value of his/her income changes if exchange rates in the future change in ways that are not expected. od. O e "Hedging" is taking an action to increase exposure to exchange rate risk.

Question: Which of the following: O d.A "forward foreign exchange contract" is an agreement to exchange one currency for another on some date in the future at a price set now. O b. "Speculation" is taking an action to increase exposure to exchange rate risk. An international investment is "covered" if it is hedged. A person is exposed to exchange rate risk if the value of his/her income changes if exchange rates in the future change in ways that are not expected. od. O e "Hedging" is taking an action to increase exposure to exchange rate risk.

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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To hedge payables, the firm will purchase a currency call option on the payable foreign currency. The firm can use the call option to buy foreign currency at a specified price. Why should the company, in this case, purchase a call option than a Forward contract? Maybe to make it easy on me, you can illustrate the answer by highlighting the situations suitable for options and Forward contracts. For example, "when this situation occurs....., then that hedging we should use .... because of XYZ reasons/effects on profitability".
For an investor who starts with dollars and wants to end up with dollars, which of the following choices is an example of speculating in the FX market? Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy the foreign currency. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy dollars. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and then buy dollars at the future spot rate. Buy a dollar-denominated financial asset.
Why might a company prefer a foreign currency option rather than a forward contract in hedging a foreign currency firm commitment? Why might a company prefer a forward contract over an option in hedging a foreign currency asset or liability?
An agreement to exchange currencies sometime in the future is referred to as which one of the following? Multiple Choice Forward trade Hedge Gilt Forward exchange rate Spot trade
a)explain how to price a currency swap if either set of payments is at a floating rate. b)explain how a currency swap can be used to convert a loan in one currency into a loan in another currency, and provide some reasons for doing so. c)demonstrate that a currency swap contract is equivalent to a series of forward contracts. d)explain how a currency swap can be used to hedge a stream of foreign cash flows. e)define interest rate derivatives, and compare and contrast them against bond derivatives.
A firm that has a sum of money denominated in a foreign currency that plans to later convert it to dollars could hedge by which of the following methods. Explain why A. a call on the foreign currency B. a long futures or forward on the foreign currency C. a short put on the foreign currency futures D. all of the above E. none of the above
For the statements below indicate if it is true or false. If the statement is false, rewrite so that it is a true statement. Use the space available to answer your question. 1. Foreign exchange markets are markets in which people of one country exchange goods with people from another country. TRUE/False: 2. When the actual foreign exchange rate for the dollar is greater than the equilibrium rate, the dollar is undervalued, meaning that it will buy less in international trade than it will buy at home. TRUE/False : 3. For any given interest rate, the shorter the time period before the receipt a dollar, the lower is its present value. TRUE/False :
The bid-ask spread on an exchange rate implies _______. A. the transaction cost of foreign exchange B. the forward premium C. the currency option premium D. how an exchange rate will change
12. The holding of foreign currency in the hope of a future sale is called a/an: A. arbitrage position B. long position C. short position D. selling position

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