1A CME contract on €125,000 with September delivery
is an example of a futures contract
2If you own a foreign currency denominated bond, you can hedge with
a swap contract where pay the cash flows of the bond in exchange for dollars
3Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate
can have significant economic consequences for both U.S. and Japanese firms
4The link between a firm's future operating cash flows and exchange rate fluctuations is
operating exposure
5When exchange rates change,
U.S. firms that produce domestically and sell only to domestic customers can be affected if they compete against imports
6Two studies found a link between exchange rates and the stock prices of U.S. firms;
this suggests that exchange rate changes can systematically affect the value of the firm by influencing its operating cash flows, as well influencing the domestic currency calues of its assets and liabilities
7Exposure to currency risk can be measured by the sensitivities of
the future home currency values of the firm's assets and liabilities, as well as the firm's operating ash flows to random changes in exchange rates
8Translation exposure refers to
-accounting exposure,
-the effect that an unanticipated change in exchange rates will have on the consolidated financial reports of an MNC
-the change in the value of a foreign subsidiaries assets and liabilities denominated in a foreign currency, as a result of exchange rate change fluctuations, when viewed from the perspective of the parent firm
9How many methods of foreign currency translation have been used in recent years? (U.S. GAAP.)
four
10When exchange rates change, the value of a foreign subsidiary's assets and liabilities that are denominated in a foreign currency change
when they are viewed from the perspective of the parent firm
11The management of translation exposure is best described as
selecting a mechanical means for handling the consolidation process for MNCs that logically deals with exchange rate changes
12Which of the following does describe a forward contract?
traded by bank dealers via a network of telephones and computerized dealing systems
13The extent to which the value of the firm would be affected by unexpected changes in the exchange rate is
economic exposure
14Domestic bonds account for the largest share of outstanding bonds, equaling approximately what percent of the total?
78%
15The four currencies in which the majority of domestic and international bonds are denominated are
U.S. dollar, the euro, the pound sterling, and the yen
16In any given year, 80 percent of new international bonds are likely to be
Eurobonds
17"Samurai" bonds are
yen-denomincated foreign bonds orignially sold in Japan
18"Bulldog" bonds are
pound sterling-denominated foreign bonds originally sold in the U.K.
19In reference to the futures market, a "speculator"
attempts to profit from a change in the futures price
20Comparing "forward" and "futures" exchange contracts, we can say that
delivery of the underlying asset is seldom made in futures contracts and delivery of the underlying asset is usually made in forward contracts
21A limit as to how much the settlement price an increase or decrease from the previous day’s settlement describes a?
daily price limit
22Transaction exposure is defined as
the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes
23__________ type of exposure is defined as the extent to which the value of the firm would be affected by unanticipated changes in exchange rates.
economic exposure
24Which of the following is not a type of operational technique?
swap strategy
25If you have a long position in a foreign currency, you can hedge with
a short position in a currency forward contract