Deck 17: Foreign Exchange: Risk Identification and Management

Question 1

Which of the following does NOT relate to an operating exposure for a company with a large foreign subsidiary in Japan?

A) Payment of its Japanese employees
B) Borrowing yen from a Japanese bank
C) The incorporation of a Japanese subsidiary onto the Australian parent company balance sheet
D) Payment of its day-to-day operations in Japan

Answer 1

C

Question 2

An Australian tourist,who is planning a trip to Germany and anticipates a change in exchange rates,faces what kind of FX risk?

A) Economic exposure
B) Foreign exposure
C) Translation exposure
D) Transaction exposure

Answer 2

D

Question 3

When a company has entered into a contract denominated in yen to buy cars from Japan,it faces:

A) accounting exposure.
B) economic exposure.
C) operating exposure.
D) transaction exposure.

Answer 3

D

Question 4

_______ is the risk that arises from the effects of foreign exchange rates on the translated value of a corporation's accounts,denominated in a given foreign currency.

A) Accounting exposure
B) Economic exposure
C) Macro-political risk
D) Micro-political risk

Question 5

Transaction exposure measures the changes in the value of contractually binding outstanding foreign-currency obligations:

A) acquired after exchange rate changes.
B) acquired before exchange rate changes.
C) realised before the outstanding obligation is settled.
D) that must be settled before economic exposure is established.

Question 6

_______ is the risk that arises from the effects of unexpected fluctuations in foreign exchange rates on the net present value of a corporation's future cash flows.

A) Accounting exposure
B) Economic exposure
C) Macro-political risk
D) Micro-political risk

Question 7

Which of the following represents a source of foreign exchange risk exposure?

A) Economic exposure
B) Transaction exposure
C) Translation exposure
D) All of the given choices

Question 8

Which of the following describes the difference between transaction exposure and translation exposure?

A) Translation exposure derives from a company's foreign-currency-denominated cash flows, and transaction exposure derives from the foreign assets and liabilities being consolidated onto the parent company's financial statements.
B) Transaction exposure derives from a company's foreign-currency-denominated cash flows, and translation exposure derives from the foreign assets and liabilities being consolidated onto the parent company's financial statements.
C) Translation exposure derives from a company's forward exchange contracts, and transaction exposure derives from the foreign assets and liabilities being consolidated onto the parent company's financial statements.
D) Translation exposure derives from a company's foreign-currency-denominated cash flows, and transaction exposure derives from the company's forward exchange contracts.

Question 9

If a company has overseas assets and at a future date must represent these assets on its balance sheet,it faces ______ when doing so.

A) transaction exposure
B) economic exposure
C) operating exposure
D) translation exposure

Question 10

_______ is the risk that arises from the effects of foreign exchange rates on the foreign cash flows of a corporation's financial accounts,denominated in a given foreign currency.

A) Economic exposure
B) Competitive exposure
C) Macro-political risk
D) Transaction exposure

Question 11

When a foreign subsidiary's assets are _______ than its liabilities,if the foreign currency value depreciates for the country in which the foreign subsidiary operates,_______ will occur.

A) greater; currency exchange gains
B) greater; currency exchange losses
C) less; nothing
D) greater; nothing

Question 12

The risk for a company that future foreign currency denominated cash flows will vary owing to exchange rate movements is:

A) accounting exposure.
B) economic exposure.
C) transaction exposure.
D) translation exposure.

Question 13

When a foreign subsidiary's assets are _______ than its liabilities,if the foreign currency value appreciates for the country in which the foreign subsidiary operates,_______ will occur.

A) greater; currency exchange gains
B) greater; currency exchange losses
C) less; nothing
D) greater; nothing

Question 14

Operating exposure:

A) measures the extent to which foreign exchange volatility may affect a firm's future ongoing revenues and costs.
B) measures the effects of FX changes on the balance sheet of the firm.
C) refers to the extent to which the value of the firm's cash flows may be affected by changes in the exchange rate.
D) tries to measure the impact of unexpected exchange rate fluctuations on the net present value of the firm's future cash flows.

Question 15

Which of the following does NOT relate to a transaction exposure being undertaken by a company?

A) A contract denominated in US dollars to purchase US goods
B) Borrowing yen from a Japanese bank
C) The incorporation of a New Zealand subsidiary onto the Australian parent company balance sheet
D) Selling Australian goods to Germany

Question 16

Foreign exchange risk refers to the risk that arises from:

A) the fixed exchange rate between two currencies.
B) the variable exchange rate between two currencies.
C) tax changes in a foreign country where a multinational corporation operates.
D) the potential nationalisation of a multinational corporation's operations by a foreign government.

Question 17

Companies that compete in an international marketplace may be faced with three types of risk owing to foreign exchange.These are:

A) specific, translation and transaction risk.
B) translation, transaction and economic risk.
C) accounting, transaction and translation risk.
D) accounting, specific and transaction risk.

Question 18

_______ is the risk that changes in the foreign exchange rate will affect future ongoing revenues and costs for a company.

A) Accounting exposure
B) Economic exposure
C) Operating exposure
D) Translation exposure

Question 19

Transaction exposure:

A) measures the extent to which foreign exchange volatility may affect a firm's future ongoing revenues and costs.
B) measures the effects of FX changes on the balance sheet of the firm.
C) refers to the extent to which the value of the firm's cash flows may be affected by changes in the exchange rate.
D) tries to measure the impact of unexpected exchange rate fluctuations on the net present value of the firm's future cash flows.

Question 20

When a company with a foreign subsidiary needs to arrange funding in a foreign currency to pay its foreign employees,it faces:

A) accounting exposure.
B) economic exposure.
C) operating exposure.
D) translation exposure.

Question 21

In order to have specific policies in relation to FX management which part of the company needs to establish FX policies?

A) Accounting and reporting division
B) Management and audit division
C) The manager of the treasury division
D) The board of directors

Question 22

In examining its need to cover its exposures to foreign exchange risk,a company obtains current data on the correlation between various currencies to which it is exposed.The company determines that its main currency exposures are to the USD and the JPY.These currencies have a correlation coefficient of +0.96.Based on the spot rate for each of the currencies,the company expects USD cash inflows equivalent to AUD 500 000,and JPY cash inflows equivalent to AUD 495 000.Which of the following statements is most correct?

A) High positive correlation between USD and JPY (hedge risk exposure)
B) High positive correlation between USD and JPY (little need to hedge risk) exposure
C) High positive correlation between USD and AUD (hedge risk exposure)
D) Low negative correlation between USD and AUD (no need to hedge risk exposure)

Question 23

In relation to potential FX exposures,historical data suggests to manage FX exposures:

A) all importers, exporters, lenders and borrowers in capital markets tend to use currency futures contracts and cross-currency swaps.
B) in commercial trade transactions importers and exporters use currency futures contracts and in capital market transactions lenders and borrowers use forward exchange contracts.
C) in commercial trade transactions importers and exporters typically use forward exchange contracts and currency options while in capital markets transactions lenders and borrowers tend to use currency futures contracts and cross-currency swaps.
D) All importers and exporters in trade as well as lenders and borrowers in capital market transactions tend to use forward exchange contracts and currency options.

Question 24

Which of the following about foreign exchange objectives for a large company is incorrect?

A) An FX strategy that requires a company to hedge a defined percentage of its identified FX exposures at all times is called a defensive strategy.
B) A company document should state whether it will have a centralised or decentralised FX operation.
C) A firms' FX function is part of the organisation's treasury division.
D) Strategies that require a company to analyse and forecast movements in FX markets and then apply based on its forecasts are called hedging strategies.

Question 25

When a company has an open FX position,this means:

A) it has a large amount of FX accounts.
B) it has just received a large FX account payable.
C) it has a USD account receivable and a USD account payable.
D) the net value of FX buys and sell transactions is yet to be settled.

Question 26

According to the text,which person(s)in the company is responsible to ensure that operational procedures concerned with FX management are developed?

A) Manager of accounting and reporting division
B) Manager of management and audit division
C) Manager of treasury division
D) The chief executive

Question 27

When a company analyses and forecasts foreign exchange movements and then applies strategies based on this,this strategy is called:

A) active.
B) defensive.
C) forward.
D) protective.

Question 28

A US-based company that is exporting car components into Australia is about to complete an export order and expects to receive payment of AUD 500 000 in three months' time.The spot exchange rate is USD/AUD 1.5380.In conducting an analysis of its foreign exchange risk exposure,the company considers the impact of the following exchange rate changes:
I)USD/AUD 1.5180
Ii)USD/AUD 1.5280
Iii)USD/AUD 1.5480
Which of the exchange rate scenarios represents foreign exchange risk to the company?

A) i
B) ii
C) iii
D) All of the given answers are correct

Question 29

An Australian company with subsidiary operations in a number of international markets has an audit into its financial risk exposures that reveals it has a potential exposure to translation risk.Which of the following statements relates to its translation risk exposure?

A) The company has export contracts written in USD receipts over the next twelve months.
B) Interest repayments on euromarket funding are payable in DEM.
C) Assets and liabilities of its subsidiary companies are denominated in foreign currencies.
D) All of the given answers are correct.

Question 30

The part of a company that is responsible for balance sheet funding,managing cash flows and financial risk management is the:

A) accounting and reporting division.
B) management and audit division.
C) treasury division.
D) tax management division.

Question 31

A decentralised FX operation is where:

A) the control of Treasury policy development and FX trading is spread equally between the directors of the company.
B) Treasury policy and FX trading is spread between the divisions of the company.
C) Treasury policy development and FX trading is associated with several regional offices.
D) Treasury policy development is associated with the head office of the company, and FX trading is spread between several regional offices.

Question 32

Transaction exposure and operating exposure differ in that transaction exposure:

A) derives from a company's foreign-currency-denominated cash flows, and operating exposure applies to the impact of exchange rate volatility on the value of the assets and liabilities of a company's foreign operations.
B) derives from a company's foreign-currency-denominated cash flows, and operating exposure applies to the impact of exchange rate volatility on future cash flows.
C) derives from a company's foreign-currency-denominated cash flows, and operating exposure applies to the impact of exchange rate volatility on foreign operations.
D) applies to the impact of exchange rate volatility on future cash flows, and operating exposure applies to the impact of exchange rate volatility on foreign operations.

Question 33

A centralised FX operation is where:

A) the control of Treasury policy development and FX trading is spread equally between the directors of the company.
B) Treasury policy and FX trading is spread between the divisions of the company.
C) Treasury policy development and FX trading is associated with several regional offices.
D) for a company all FX transactions occur in one single location.

Question 34

A company is about to implement its new foreign exchange risk management strategy.Which of the following controls should the company have in place before it actually implements the strategy?

A) Daily and other periodic foreign currency exposure reports
B) Foreign exchange exposure limits by currency and country
C) Foreign exchange strategy reporting and review process
D) All of the given answers

Question 35

An Australian company is preparing to export beer into the lucrative German market in direct competition with the established local brewers.There is some concern within the company that it is exposed to foreign exchange risk.To which type of foreign exchange risk is the company initially exposed?

A) Transaction risk exposure
B) Sovereign risk exposure
C) Translation risk exposure
D) Economic risk exposure

Question 36

A company that is preparing a report on its current net cash-flow exposures to foreign exchange risk is only concerned with its net foreign currency cash exposure.Which of the following items are necessary for the report?
I)Timing of each transaction
Ii)Amount of each receivable and payable
Iii)Country of origin of foreign cash flow
Iv)Currency of each transaction

A) i, ii, iii
B) i, ii, iv
C) i, iii, iv
D) ii, iii, iv

Question 37

A company is reviewing the function of foreign exchange within its treasury division.Which one of the following is NOT one of the 'controls' the company should have in place for the FX function?

A) There should be specified monetary limits for single transactions.
B) Authorisations should be required for FX products.
C) The tasks of dealing, back office, technology support, administration and audit should be segregated.
D) The net value of outstanding FX buys and sell transactions yet to be settled is called an exception report.

Question 38

A company is reviewing the function of foreign exchange within its treasury division.Which one of the following is NOT one of the 'controls' the company should have in place for the FX function?

A) There should be specified monetary limits for single transactions.
B) Authorisations should be required for FX products.
C) Only nominated FX dealers can carry out the tasks of confirmation, settlement and reconciliation.
D) Periodic reports should be forwarded to a nominated manager.

Question 39

For a large multinational company the FX dealers:

A) are generally located in the FX dealing room.
B) must not be allowed to carry out back office tasks of confirmation, settlements or reconciliation.
C) must take into account the foreign currency limit that they are authorised to trade in.
D) all the given choices are correct.

Question 40

Consider the following statements:
I)'Transaction exposure' refers to the risk that in the long run a company's net present value may be affected by future changes in the foreign exchange rate.
Ii)Foreign exchange 'economic' risk exposure is a measure of the effect that a change in the exchange rate will have on the value of a company's worth.
Iii)Foreign exchange risk implies that every change in the exchange rate will have detrimental effects on the home currency value of a company's foreign currency assets,liabilities and transactions.
Iv)A company's board of directors is responsible for establishing policy in relation to the measurement and management of FX risk exposures within the company.
V)If an Australian-based company has a USD 1 million payable and a USD 1 million receivable,both due on 1 July next year,it is not exposed to FX risk.
How many of these statements are true and how many are false?

A) 1 statement is true and 4 are false
B) 2 statements are true and 3 are false
C) 3 statements are true and 2 are false
D) 4 statements are true and 1 is false

Question 41

The currency risk of an exporter can be reduced by:

A) hedging, using the foreign exchange futures.
B) transacting only in the currency of the exporter's own country.
C) buying a forward contract for the exporter's currency.
D) all of the given choices.

Question 42

If a company takes out a forward exchange contract,which of the following is correct?

A) At the maturity date, the company can pay either the forward rate that was contracted or the then-current rate.
B) Taking out a forward exchange contract is always cheaper than waiting to pay spot rates.
C) Paying the spot price is safer than taking out a forward exchange cover.
D) The company's cost is locked in from the beginning of the contract, regardless of market changes.

Question 43

A board of directors is concerned about the variability of the company's various foreign currency exposures.The company treasurer prepares a report showing the standard deviations for a range of currencies over the past decade.Which of the following statements is correct?

A) Standard deviation does not provide an accurate measure of the future probability of percentage exchange rate changes.
B) Use of ten-year data smooths out periodic fluctuations, to give a more reliable future indication of exposure.
C) Exposures in currencies that have a low standard deviation against the AUD involve greater foreign exchange risk.
D) Different patterns of future currency movements are reflected in the historical data used in calculating standard deviations.

Question 44

An Australian company that is exposed to FX risk as the result of having a USD foreign currency payable due in 3 months can enter into:

A) a 3 month forward exchange contract to sell USD forward.
B) a 3 month forward exchange contract to sell AUD forward.
C) a 3 month futures contract to sell USD.
D) a 3 month currency swap to sell USD and buy AUD.

Question 45

All of the following are market-based hedging techniques for FX,except:

A) futures contracts.
B) options on foreign currency.
C) forward exchange contracts.
D) currency swaps.

Question 46

A company decides to hedge a foreign exchange risk associated with a USD 1 000 000 receivable by carrying out a money market hedge.Which of the following statements in relation to the USD receivable money market hedge is correct?

A) Interest rate calculations will need to recognise US convention differences.
B) The company will borrow sufficient AUD today and spot convert into USD.
C) USD will be invested in the US money markets for the period of cover.
D) All of the given choices.

Question 47

Market-based hedging techniques for FX include:

A) futures contracts.
B) options on foreign currency.
C) currency swaps.
D) all of the given choices.

Question 48

A US company has an AUD 1 million receivable in two months.How can the US company hedge the foreign currency receivable? It could:

A) buy AUD in the spot market.
B) sell AUD in the forward market.
C) sell USD in the spot market.
D) buy USD in the forward market.

Question 49

Consider these five statements:
I)If an Australian-based company has a USD 1 million payable on 1 July next year and a USD 1 million receivable due on 1 August,the company has a perfect natural hedge.
Ii)An Australian exporter with a transaction denominated in Singapore dollars (SGD)is exposed to downside risk if the AUD appreciates.
Iii)An exposure in a currency with a high standard deviation against the AUD entails a greater degree of risk than does a similarly sized exposure in a currency that has a relatively low standard deviation.
Iv)If an Australian-based company has net exposures in a range of currencies,each exposure should be not hedged because each of them involves the same degree of risk.
V)If an Australian company imports components from Italy,and at the same time exports goods to Germany,with both contracts under a euro-denominated contract and dated 31 July next year,the company has no FX exposure.
How many of these statements are true and how many are false?

A) 4 statements are true and 1 is false
B) 3 statements are true and 2 are false
C) 2 statements are true and 3 are false
D) 1 statement is true and 4 are false

Question 50

An Australian exporter has despatched a consignment to the USA and expects to receive payment of USD 250 000 in three months' time.The company wishes to hedge part of its exposure to the USD,and enters into a forward exchange contract with its bank,based on the amount USD 125 000.Based on today's data (below),what amount in AUD will the company receive in three months' time?
Spot rate:
AUD/USD 0.7345-50
Three-month forward rate:
AUD/USD 0.7430-35

A) AUD 340 136.05
B) AUD 340 367.60
C) AUD 336 473.76
D) AUD 336 247.48

Question 51

A British company has a USD 1 million payable in two months.How can the British company hedge the foreign currency payable?

A) Buy pounds in the forward market
B) Sell pounds in the spot market
C) Sell US dollars in the spot market
D) Buy US dollars in the forward market

Question 52

Consider the following statements:
I)'Transaction exposure' refers to the risk that in the long run a company's net present value may be affected by future changes in the foreign exchange rate.
Ii)Foreign exchange 'economic' risk exposure is a measure of the effect that a change in the exchange rate will have on the value of a company's worth.
Iii)Foreign exchange risk implies that every change in the exchange rate will have detrimental effects on the home currency value of a company's foreign currency assets,liabilities and transactions.
Iv)A company's board of directors is responsible for establishing policy in relation to the measurement and management of FX risk exposures within the company.
V)If an Australian-based company has a USD 1 million payable and a USD 1 million receivable,both due on 1 July next year,it is not exposed to FX risk.
Which of the following are correct?

A) i, ii, iii and iv are true
B) i, ii, iv and v are true
C) i, iii, and iv are true
D) only ii and v are true

Question 53

An Australian company that is exposed to FX risk as the result of having a USD foreign currency receivable due in 3 months can enter into:

A) a 3 month forward exchange contract to sell USD forward.
B) a forward exchange contract to sell AUD forward.
C) a 3 month futures contract to sell USD.
D) a 3 month currency swap to sell USD and buy AUD.

Question 54

A system of transactions involving borrowing in one currency and lending in another in order to construct a pair of future transactions in the two currencies similar to a forward exchange is a/an:

A) balance sheet hedge.
B) internal hedge.
C) money market hedge.
D) All of the given choices.

Question 55

The over-the-counter market-based FX instrument that locks in an exchange rate on a currency pair that will apply at specified future date is:

A) futures contracts.
B) options on foreign currency.
C) forward exchange contracts.
D) currency swaps.

Question 56

The purpose of hedging by a company is to:

A) maximise cash flows and profits.
B) minimise the variability of expected cash flows.
C) decrease the uncertainty of reported cash flows.
D) increase the expected cash flows.

Question 57

An Australian company that imports goods from a German supplier on credit can protect itself against transaction exposure risk by:

A) entering into a contract in the forward exchange market.
B) borrowing Australian dollars and investing in the German money market.
C) borrowing euros and investing in the Australian money market.
D) entering into a contract in the forward exchange market AND/OR borrowing Australian dollars and investing in the German money market.

Question 58

The use of hedging by a company should:

A) increase the variability of reported cash flows.
B) increase the variability of expected cash flows.
C) decrease the variability of reported cash flows.
D) decrease the variability of expected cash flows.

Question 59

The general principle of exchange-rate hedging is to:

A) deposit the foreign funds in the local money market until needed.
B) transact in the foreign money market where the obligation arises.
C) enter into an offsetting obligation in the same foreign currency.
D) enter into offsetting obligations in the futures and forwards markets.

Question 60

Consider these five statements:
I)If an Australian-based company has a USD 1 million payable on 1 July next year and a USD 1 million receivable due on 1 August,the company has a perfect natural hedge.
Ii)An Australian exporter with a transaction denominated in Singapore dollars (SGD)is exposed to downside risk if the AUD appreciates.
Iii)An exposure in a currency with a high standard deviation against the AUD entails a greater degree of risk than does a similarly sized exposure in a currency that has a relatively low standard deviation.
Iv)If an Australian-based company has net exposures in a range of currencies,each exposure should be not hedged because each of them involves the same degree of risk.
V)If an Australian company imports components from Italy,and at the same time exports goods to Germany,with both contracts under a euro-denominated contract and dated 31 July next year,the company has no FX exposure.
Which of the following are correct?

A) i, ii, iii and iv are true
B) i, ii, iv and v are true
C) ii, iii, and iv are true
D) ii, iii and v are true

Question 61

When a company receives a USD 10 million payment for export goods on the same day as it pays USD 10 million for imports,this is called a/an:

A) dynamic hedge.
B) passive hedge.
C) natural hedge.
D) inherent hedge.

Question 62

After assessing the risk of the various exposures,a company decides to take a money market hedge.The general principle of a money market hedge is to:

A) transact in the money market of the country whose currency you are exposed to.
B) borrow the home currency and deposit it in the foreign money market until the future date of the exposed transaction.
C) take a position in the home money market today that establishes a future obligation that is the opposite of the exposed underlying transaction.
D) none of the given choices are correct.

Question 63

Companies that operate in an international market place are faced with different FX risk exposures.These are accounting,translation and transaction risk.

Question 64

Which of the following are commonly used by companies to manage foreign exchange risk?

A) Money market hedges
B) Foreign currency hedges
C) Internal hedges
D) All of the given choices

Question 65

When a company uses the internal foreign exchange hedging technique and changes the timing of a cash flow so it occurs earlier than the original agreed date,this is called:

A) currency diversification.
B) lagging.
C) leading.
D) advancing.

Question 66

Consider these five statements:
I)If an Australian business decides to hedge a USD receivable at time t + 3,it would hedge through a forward contract in which it sells the AUD forward for t + 3.
Ii)An Australian exporter with a USD receivable would be hedging through a money market hedge if it borrows USD today and repays the loan on the day on which the USDs are received from the payments of the export account receivable.
Iii)If an Australian company borrows through an offshore sale of AUD-denominated bonds in the eurobond market,it is not exposed to FX risk.
Iv)'Internal' hedging techniques may save a company the costs incurred in using 'market-based' hedging techniques,but they have recognisable costs as well.
V)A net payable in one currency and a net payable in another currency is a relatively low-risk set of exposures if the amounts and timing are identical,and the correlation coefficient between the two currencies is -0.99.
Which of the following are correct?

A) i, ii, iii and iv are true
B) ii, iii, iv and v are true
C) ii, iii, and iv are true
D) ii, iii and v are true

Question 67

An Australian company has contracted to buy a piece of machinery produced in Japan,with delivery in six months and payment to be made in Japanese yen.How can this company reduce its foreign exchange risk?

A) Go short yen in the futures market
B) Purchase a put option on yen
C) Sell goods in Japan to be paid in six months
D) All of the given choices

Question 68

If a company has a YEN 1 000 000 account receivable in three months and it expects the AUD to depreciate by the time of payment,a reasonable strategy would be to:

A) lead the payment cash flow.
B) borrow the present value of YEN 1 000 000 and do a money market hedge in the Australian market.
C) enter into a forward exchange contract to sell YEN in three months' time.
D) lag the payment cash flow.

Question 69

An Australian company borrowing Japanese yen will benefit in which of the following situations?

A) If the AUD depreciates or the Japanese yen appreciates
B) If the AUD appreciates or the Japanese yen depreciates
C) If the AUD and the Japanese yen both appreciate
D) If the AUD and the Japanese yen both depreciate

Question 70

An exporter increasing its prices by 5% as a result of examining the risk of the foreign exchange rate dropping 5% is called:

A) lagging.
B) leading.
C) counter-trade.
D) mark-up.

Question 71

Operating FX exposure measures the extent to which exchange rate volatility will affect future ongoing revenues and costs.

Question 72

Consider these five statements:
I)If an Australian business decides to hedge a USD receivable at time t + 3,it would hedge through a forward contract in which it sells the AUD forward for t + 3.
Ii)An Australian exporter with a USD receivable would be hedging through a money market hedge if it borrows USD today and repays the loan on the day on which the USDs are received from the payments of the export account receivable.
Iii)If an Australian company borrows through an offshore sale of AUD-denominated bonds in the eurobond market,it is not exposed to FX risk.
Iv)'Internal' hedging techniques may save a company the costs incurred in using 'market-based' hedging techniques,but they have recognisable costs as well.
V)A net payable in one currency and a net payable in another currency is a relatively low-risk set of exposures if the amounts and timing are identical,and the correlation coefficient between the two currencies is -0.99.
How many of these statements are true and how many are false?

A) 1 statement is true and 4 are false
B) 2 statements are true and 3 are false
C) 3 statements are true and 2 are false
D) 4 statements are true and 1 is false

Question 73

One of the main risk management techniques to manage accounting exposure is a:

A) forward market hedge.
B) futures contract hedge.
C) foreign currency options hedge.
D) balance sheet hedge.

Question 74

Which of the following are strategies used to manage transaction exposure?

A) Leading and lagging foreign exchange transactions
B) Buying or selling foreign exchange in the forward market
C) Borrowing in foreign currency markets, using foreign currency receivables as collateral
D) All of the given answers

Question 75

All of the following are internal hedging techniques for foreign exchange exposure,except:

A) creating a natural hedge.
B) using leads and lags in FX transactions.
C) invoicing in the home currency.
D) using a swap.

Question 76

Which of the following about transaction exposure is NOT correct?

A) An Australian company that exports to Japan faces transaction exposure for its accounts receivable.
B) If an Australian company exports to the USA but imports other USA goods for the same value, then it has a natural hedge if the two payment dates are the same.
C) If an Australian company has exposures in two currencies with correlation coefficient of 0.96 then the company has a natural hedge.
D) A firm needs to calculate the net amount of cash inflows and outflows denominated in different currencies, based on the timing of cashflows.

Question 77

A company wishes to obtain a loan denominated in yen but considers the US market to offer better terms.How can the company accomplish this?

A) Borrow yen in Japan, exchange for US dollars, and arrange a currency swap
B) Borrow yen in Japan, exchange for US dollars, and arrange an interest rate swap
C) Borrow dollars in the US, exchange for yen, and arrange a currency swap
D) Borrow dollars in US, exchange for yen, and arrange an interest rate swap

Question 78

Which of the following statements is correct?

A) The majority of trade transactions and international finance transactions are conducted in hard currencies, such as the USD, euro and sterling.
B) The advantage of diversifying the currency spread of a company's transactions is enhanced if the foreign currencies have a highly positive correlation.
C) Leading refers to changing the timing of a cash flow so it takes place prior to the originally agreed date.
D) Counter-trade refers to an arrangement in which two companies, each exposed to FX risk, enter into an arrangement whereby they exchange one product for another.

Question 79

If a company has a EUR 100 000 account payable in three months and it expects the AUD to appreciate by the time of payment,a reasonable strategy would be to:

A) lag the payment cash flow.
B) borrow the present value of EUR 100 000 and do a money market hedge in the Australian market.
C) enter into a forward exchange contract to sell euros in three months' time.
D) lead the payment cash flow.

Question 80

A Singapore-based manufacturing company that exports to a number of overseas countries,often through its subsidiary companies,is investigating alternative 'internal' hedging techniques to manage its foreign exchange risk exposures.All of the following risk management techniques are 'internal' hedging techniques,except:

A) creating a natural hedge.
B) invoicing in foreign currencies.
C) diversification of currencies.
D) leading and lagging cash flows.