Exam 9: Managing Transaction Exposure to Currency Risk

To avoid influencing divisional hedging decisions, the corporate treasury should charge operating divisions the same price for a currency hedge (such as a forward contract) regardless of when the hedge is executed.

Financial market hedges work best for _______ exposures to currency risk.

Transaction exposure to currency risk is easy to hedge with currency forwards.

Financial market hedges include each of a) through d) EXCEPT

The multinational corporation's economic exposure to currency risk is made up of transaction exposure and operating exposure.

A currency swap is an exchange of one currency for another in the spot market.

The preferred way to hedge transaction exposure to currency risk is ______. *

The option premium compensates the seller for the expected loss should the option be exercised by the buyer.

Geographically diversified operations provide a natural hedge of transaction exposure to currency risk because ______.

Currency options are the most popular currency hedge.

An option premium is paid by the buyer to the seller at the time the option is purchased.

A currency call option gives the buyer the right to buy an underlying currency at an exchange rate and on an expiration date that is determined by the option contract.

Internal hedges of currency risk are most likely to be found in ______.

Transaction exposure is defined as change in the value of monetary (contractual) cash flows due to an unexpected change in exchange rates.

A "disaster hedge" against adverse currency movements can be obtained with a ______.

The most popular instrument for hedging currency risk is a ______.

Exposures to currency risk that are periodic, long-term, and recurring in nature are usually best hedged with ______.

Transaction exposure to currency risk is defined as change in financial accounting statements arising from unexpected changes in currency values.

The corporate treasury should charge ______ for hedging the currency risk exposures of individual business units within the firm.

Transaction exposure to currency risk can be effectively hedged with which of the following hedging instruments or strategies?