Ch008 Management of Transaction Exposure
Eun & Resnick 4e
CHAPTER 8 Management of Transaction Exposure
Three Types of Exposure
Forward Market Hedge
Money Market Hedge
Options Market Hedge
Hedging Foreign Currency Payables Forward Contracts Money Market Instruments Currency Options Contracts
Cross-Hedging Minor Currency Exposure
Hedging Contingent Exposure
Hedging Recurrent Exposure with Swap Contracts
Hedging through Invoice Currency
Hedging via Lead and Lag
Exposure Netting
International Finance in Practice: Riding Shifting Waves of Currency
Should the Firm Hedge?
International Finance in Practice: To Hedge or Not to Hedge
Three Types of Exposure
1. Transaction exposure is defined as: a) the sensitivity of realized domestic currency values of the firm’s contractual cash flows denominated in foreign currencies to unexpected exchange rate changes b) the extent to which the value of the firm would be affected by unanticipated changes in exchange rate c) the potential that the firm’s consolidated financial statement can be affected by changes in exchange rates d) ex post and ex ante currency exposures
Answer: a)
2. The most direct and popular way of hedging transaction exposure is by: a) exchange-traded futures options b) currency forward contracts c) foreign currency warrants d) borrowing and lending in the domestic and foreign money markets
Answer: b)
3. If you have a long position in a foreign currency, you can hedge with: a) A short position in an exchange-traded futures option b) A short position in a currency forward contract c) A short position in foreign currency warrants d) borrowing (not lending) in the domestic and foreign money markets
Answer: b)
4. If you a foreign currency denominated debt, you can hedge with: a) A long position in a currency forward contract b) A long position in an exchange-traded futures option c) Buying the foreign currency today and investing it in the foreign county.
CHAPTER 8 Management of Transaction Exposure
Three Types of Exposure
Forward Market Hedge
Money Market Hedge
Options Market Hedge
Hedging Foreign Currency Payables Forward Contracts Money Market Instruments Currency Options Contracts
Cross-Hedging Minor Currency Exposure
Hedging Contingent Exposure
Hedging Recurrent Exposure with Swap Contracts
Hedging through Invoice Currency
Hedging via Lead and Lag
Exposure Netting
International Finance in Practice: Riding Shifting Waves of Currency
Should the Firm Hedge?
International Finance in Practice: To Hedge or Not to Hedge
Three Types of Exposure
1. Transaction exposure is defined as: a) the sensitivity of realized domestic currency values of the firm’s contractual cash flows denominated in foreign currencies to unexpected exchange rate changes b) the extent to which the value of the firm would be affected by unanticipated changes in exchange rate c) the potential that the firm’s consolidated financial statement can be affected by changes in exchange rates d) ex post and ex ante currency exposures
Answer: a)
2. The most direct and popular way of hedging transaction exposure is by: a) exchange-traded futures options b) currency forward contracts c) foreign currency warrants d) borrowing and lending in the domestic and foreign money markets
Answer: b)
3. If you have a long position in a foreign currency, you can hedge with: a) A short position in an exchange-traded futures option b) A short position in a currency forward contract c) A short position in foreign currency warrants d) borrowing (not lending) in the domestic and foreign money markets
Answer: b)
4. If you a foreign currency denominated debt, you can hedge with: a) A long position in a currency forward contract b) A long position in an exchange-traded futures option c) Buying the foreign currency today and investing it in the foreign county.