32. The structure of a money market hedge is similar to a forward hedge. is dete

Question

32. The structure of a money market hedge is similar to a forward hedge. is determined by the differential interest rates, while the for atesa The difference is the cost of the money rates quotation rates, while the forward hedge is a function of the forward A. TRUE B. FALSE an option when dealing with foreign exchange transaction exposure. A. TRUE B. FALSE a put or call option contract and a source of funds to fulfill that contract A. TRUE B. FALSE 35. Hedging transaction exposure with option contracts allows the firm to benefit if exchange rates are favourable but protects the firm if exchange rates turn unfavourable. A. TRUE B. FALSE 36. It is possible to use different exchange rates for different line items on a financial statement A. TRUE B. FALSE 37. Evchange rate imbalances that are passed through the balance sheetaffect a firm's reported income, but imbalances transferred to the income statement do not. A. TRUE B. FALSE 38. Expected changes in foreign exchange rates should already be factored into anticipated operating results by management and investors. A. TRUE B. FALSE 39. Because international capital budgeting is so difficult, time consuming, expensive, and uncertain, firms generally forego any type of additional sensitivity analysis after completing a base-case scenario. A. TRUE B. FALSE 40. The primary advantage of a letter of credit is that it reduces risk. A. TRUE B. FALSE

Explanation / Answer

32 TRUE It is the main difference between money market hedge and forward hedge. 33 FALSE Dealing with foreign exchange transaction exposure remaining unhedged is also an option. 34 FALSE The money market hedge involves a contract and a sources of funds to fulfil that contract. 35 TRUE Absolutely, the hedging transaction exposure is bendfitial and protecting. 36 TRUE Yes, it is possible to use the different exchange rates for the different items. 37 FALSE Exchange rates also affect the income statement. 38 TRUE Yes, the foreign rates should be factored already. 39 FALSE International capital budgeting is not the reason for firms forego after completing a base-case scenario. 40 TRUE A letter of credit provides certainty to the amount an timing of the exporter's cash flows and also he can forcaste his financial needs well in advance which reduces his risk.

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