Create an Account

Already have account?

Forgot Your Password ?

Home / Questions / You are importing TV sets worth ¥10,000,000 from a Japanese manufacturer and this amount

You are importing TV sets worth ¥10,000,000 from a Japanese manufacturer and this amount

You are importing TV sets worth ¥10,000,000 from a Japanese manufacturer, and this amount is payable after 6 months. You can hedge your exchange risk by: 
A. buying Japanese yen in the forward market.
B. selling Japanese yen in the forward market.
C. borrowing Japanese yen.
D. doing nothing.

88. Buckingham, Inc., a British corporation, owes Yank Inc., a U.S. corporation, $1 million due in 2 months. How can Buckingham hedge the exchange risk? 
A. Sell pounds in the spot market
B. Buy pounds in the forward market
C. Sell dollars in the spot market
D. Buy dollars in the forward market

89. A firm intends to hedge against exchange loss, a large future payment that must be made in a foreign currency. Which of the following identifies the cost of such a hedge? 
A. Difference between expected and current spot rates
B. Difference between expected and current forward rates
C. Difference between the forward premium and the forward discount
D. Difference between the forward rate and the expected future spot rate

90. Arbitrageurs are said to look for riskless profits by: 
A. contracting in the forward exchange markets.
B. buying at the spot rate and selling at the forward rate.
C. buying in one market and selling in another to take advantage of different prices for the same good.
D. buying short-term bonds and converting them to long-term bonds.

91. On average, empirical evidence suggests that those who cover foreign exchange commitments in the forward market pay a premium of approximately _____ to avoid exchange rate risk. 
A. 0.0%
B. 3.1%
C. 5.0%
D. 7.3%

92. One of the drawbacks of using forward contracts to hedge foreign exchange risk from payables is that the: 
A. transaction costs in the forward market are high.
B. forward rates are always lower than spot rates.
C. hedged currency could appreciate during the period.
D. hedged currency could depreciate during the period.

93. Your firm, which operates in the United States, has a contractual payment of £1 million due in 3 months. Which of the following methods would be considered speculative regarding your exchange rate risk? 
A. Buy 1 million pounds now at the current spot rate.
B. Buy 1 million pounds in 3 months at the current spot rate.
C. Contract forward to buy 1 million pounds in 3 months.
D. Borrow dollars, convert to pounds at spot, and invest for 3 months.

94. You're hoarse from explaining to your supervisor that the cost, if any, of hedging exchange rate risk can be thought of as an insurance premium to avoid surprises. What is the cost of hedging a 2 million euro commitment if the spot rate is €1.6/$, the forward rate is €1.55/$, and the expected spot rate at the end of the hedge is €1.6/$? 
A. $0
B. $25,000
C. $40,323
D. $68,966

Jan 09 2020 View more View Less

Answer (UnSolved)

question Get Solution

Related Questions