FIN 440 Exam 2

If a U.S. firm's expenses are more sensitive to exchange rate movements than revenue, the firm will benefit if the dollar weakens. True False

False

Springfield Co. is a U.S. company with sales to Canada amounting to C$8 million. Its cost of materials attributable to the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Given these exact figures above, the dollar value of Springfield's cash flows would increase if the Canadian dollar appreciates. True False

False

To hedge a payable position with a currency option hedge, an MNC would write a call option. True False

False

To hedge translation exposure, MNCs could purchase the currency forward that their foreign subsidiaries receive as earnings to create a cash outflow in the currency to offset the earnings received in that currency. True False

False

Assume that the forward rate is used to forecast the spot rate. The forward rate of the Canadian dollar contains a 6% discount. Today's spot rate of the Canadian dollar is $.80. The spot rate forecasted for one year ahead is: a. $0.752 b. $0.743 c. $0.848 d. $0.861

a. $0.752

Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $0.55. What is the net inflow or outflow as measured in U.S. dollars? a. $275,000 outflow b. $275,000 inflow c. $500,000 inflow d. $500,000 outflow

a. $275,000 outflow

You purchase a call option on pounds for a premium of $0.03 per unit, with an exercise price of $1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $1.65, your net profit per unit is: a. -$0.02 b. -$0.03 c. -$0.01 d. $0.02

a. -$0.02

Silicon Co. has forecasted the Canadian dollar for the most recent period to be $0.73. The realized value of the Canadian dollar in the most recent period was $0.80. Thus, the absolute forecast error as a percentage of the realized value was ____%. a. 8.8 b. 9.6 c. -8.8 d. -9.6

a. 8.8

Which of the following is an example of economic exposure but not an example of transaction exposure? a. An increase in the dollar's value hurts a U.S. firm's domestic sales because foreign competitors are able to increase their sales to U.S. customers. b. A decrease in the peso's value decreases a U.S. firm's dollar value of peso receivables. c. An increase in the pound's value increases the U.S. firm's cost of British pound payables. d. A decrease in the Swiss franc's value decreases the dollar value of interest payments on a Swiss deposit sent to a U.S. firm by a Swiss bank.

a. An increase in the dollar's value hurts a U.S. firm's domestic sales because foreign competitors are able to increase their sales to U.S. customers.

Inflation and interest rate differentials between the U.S. and foreign countries are examples of variables that could be used in fundamental forecasting. a. True b. False

a. True

Assume that U.S. annual inflation equals 8%, while Japanese annual inflation equals 5%. If purchasing power parity (PPP) is used to forecast the future spot rate, the forecast would reflect an expectation of: a. appreciation of yen's value over the next year. b. information about interest rates is needed to answer this question. c. no change in yen's value over the next year. d. depreciation of yen's value over the next year.

a. appreciation of yen's value over the next year.

Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances? a. purchase Canadian dollar put options b. purchase Canadian dollar call options c. purchase Canadian dollar futures contracts d. purchase Canadian dollars forward

a. purchase Canadian dollar put options

If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes. a. sell a euro call and buy a euro put b. buy a euro call and sell a euro put c. buy a euro call and buy a euro put d. sell a euro call and sell a euro put

a. sell a euro call and buy a euro put

To weaken the dollar using sterilized intervention, the Fed would ____ dollars and simultaneously ____ Treasury securities. a. sell; sell b. buy; sell c. buy; buy d. sell; buy

a. sell; sell

Which of the following forecasting techniques would best represent the sole use of the pattern of historical currency values of the euro to predict the euro's future currency value? a. technical forecasting b. market-based forecasting c. fundamental forecasting d. mixed forecasting

a. technical forecasting

Use the following information to calculate the dollar cost of using a money market hedge to hedge 200,000 pounds of payables due in 180 days. Assume the firm has no excess cash. Assume the spot rate of the pound is $2.02, the 180-day forward rate is $2.00. The British interest rate is 5%, and the U.S. interest rate is 4% over the 180-day period. a. $396,190 b. $400,152 c. $391,210 d. $384,761

b. $400,152

A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $0.01 and the exercise price of the option is $0.75. If the spot rate at the time of maturity is $0.85, what is the net amount received by the corporation if it acts rationally? a. $74,000 b. $84,000 c. $85,000 d. $75,000

b. $84,000

Assume that Parker Company will receive SF200,000 in 360 days. Assume the following interest rates: the 360-day borrowing rate in U.S. is 7% while the 360-day borrowing rate in Switzerland is 5%. The 360-day deposit rate in U.S. is 6% while the 360-day deposit rate in Switzerland is 4%. Assume the forward rate of the Swiss franc is $0.50 and the spot rate of the Swiss franc is $0.48. If Parker Company uses a money market hedge, it will receive ____ in 360 days. a. $101,923 b. $96,914 c. $98,769 d. $101,904

b. $96,914

Cerra Co. expects to receive 5 million euros tomorrow as a result of selling goods to the Netherlands. Cerra estimates the standard deviation of daily percentage changes of the euro to be 1 percent over the last 100 days. Assume that these percentage changes are normally distributed. What is the maximum one-day loss if the expected percentage change of the euro tomorrow is 0.5%? Use the value-at-risk (VAR) method based on a 95% confidence level. a. - 1.5% b. - 1.15% c. - 2.2% d. - 0.5%

b. - 1.15%

Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $0.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is: a. -$625.00 b. -$1,562.50 c. -$1,250.00 d. $1,562.50

b. -$1,562.50

Jenco, Inc. exports computers to Australia invoiced in U.S. dollars. Its main competitor is located in Japan. Jenco, Inc. is subject to: a. Transaction exposure b. Economic exposure c. Economic and transaction exposure d. Translation exposure

b. Economic exposure

If you have bought a right to buy foreign currency, you are: a. a call writer. b. a call buyer. c. a put buyer. d. a put writer.

b. a call buyer.

Which of the following reflects a hedge of net payables on British pounds by a U.S. firm? a. sell a currency call option in British pounds. b. borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit. c. purchase a currency put option in British pounds. d. sell pounds forward.

b. borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit.

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, low inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale. a. downward; reduce b. downward; increase c. upward; increase d. upward; reduce

b. downward; increase

If the Fed desires to weaken the dollar without affecting the dollar money supply, it should: a. exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. b. exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars. c. exchange foreign currencies for dollars, and buy existing Treasury securities with dollars. d. exchange dollars for foreign currencies, and buy existing Treasury securities with dollars.

b. exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars.

If speculators expect the spot rate of the yen in 60 days to be ____ than the 60-day forward rate on the yen, they will ____ the yen forward and put ____ pressure on the yen's forward rate. a. higher; sell; downward b. higher; buy; upward c. higher; sell; upward d. lower; buy; upward

b. higher; buy; upward

Monson Co., based in the U.S., exports products to Japan denominated in yen. If the forecasted value of the yen is substantially ____ than the forward rate, Monson Co. will likely decide a. higher; to hedge b. higher; not to hedge c. lower; not to hedge

b. higher; not to hedge

Which of the following is not one of the major reasons for MNCs to forecast exchange rates? a. to decide in which foreign market to invest the excess cash. b. to speculate on the exchange rate movements. c. to determine whether to require the subsidiary to remit the funds or invest them locally. d. to decide where to borrow at the lowest cost.

b. to speculate on the exchange rate movements.

If today's exchange rate reflects any historical trends in Canadian dollar exchange rate movements, but not all relevant public information, then the Canadian dollar market is: a. semistrong-form efficient. b. weak-form efficient. c. strong-form efficient.

b. weak-form efficient.

Assume zero transaction costs. If the 90-day forward rate of the euro is an accurate estimate of the spot rate 90 days from now, then the real cost of hedging payables will be: a. negative b. zero c. positive

b. zero

A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $0.03. The exercise price is $0.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)? a. $7,250,000 b. $7,000,000 c. $6,500,000 d. $6,875,000

c. $6,500,000

Money Corp. frequently uses a forward hedge to hedge its Malaysian ringgit (MYR) receivables. For the next month, Money has identified its net exposure to the ringgit as being MYR1,500,000. The 30-day forward rate is $0.23. Furthermore, Money's financial center has indicated that the possible values of the Malaysian ringgit at the end of next month are $0.20 and $0.25, with probabilities of 0.30 and 0.70, respectively. Based on this information, what is the expected real cost of hedging receivables? a. -$15,000 b. $30,000 c. $7,500 d. -$45,000

c. $7,500

Hanson Corp. frequently uses a forward hedge to hedge its British pound (£) payables. For the next quarter, Hanson has identified its net exposure to the pound as being £1,000,000. The 90-day forward rate is $1.50. Furthermore, Hanson's financial center has indicated that the possible values of the British pound at the end of next quarter are $1.57 and $1.59, with probabilities of 0.50 and 0.50, respectively. Based on this information, what is the expected real cost of hedging payables? a. $1,570,000 b. -$90,000 c. -$80,000 d. $1,580,000

c. -$80,000

The one-year forward rate of the British pound is $1.55, while the current spot rate is $1.60. Based on the forward rate, what is the expected percentage change in the British pound over the next year? a. 3.1 percent b. -5.1 percent c. -3.1 percent d. 5.1 percent

c. -3.1 percent

Consider an MNC that is exposed to the Taiwan dollar (TWD) and the Egyptian pound (EGP). 25% of the MNC's funds are Taiwan dollars and 75% are pounds. The standard deviation of exchange movements is 7% for Taiwan dollars and 5% for pounds. The correlation coefficient between movements in the value of the Taiwan dollar and the pound is .7. Based on this information, the standard deviation of this two-currency portfolio is approximately: a. 4.33% b. 2.63% c. 5.12% d. 11.50%

c. 5.12%

Diz Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly correlated in their movements against the dollar. Yanta Co. is a U.S.-based MNC that has the same level of net cash flows in these currencies as Diz Co. except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk? a. The firms have about the same level of exposure b. Yanta Co. c. Diz Co. d. Neither firm has any exposure

c. Diz Co.

Miami Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of British pounds. These two currencies are highly correlated in their movements against the dollar. Kriner Co. is a U.S.-based MNC that has the same level of net cash flows in these currencies as Miami Co. except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk? a. the firms have about the same level of exposure b. Kriner Co. c. Miami Co. d. neither firm has any exposure

c. Miami Co.

Treck Co. expects to pay €200,000 in one month for its imports from Greece. It also expects to receive €250,000 for its exports to Italy in one month. Treck Co. estimates the standard deviation of monthly percentage changes of the euro to be 3 percent over the last 40 months. Assume that these percentage changes are normally distributed. Using the value-at-risk (VAR) method based on a 95% confidence level, what is the maximum one-month loss in dollars if the expected percentage change of the euro during next month is −2%? Assume that the current spot rate of the euro (before considering the maximum one-month loss) is $1.23. a. −$21,371 b. −$38,468 c. −$4,274 d. −$17,097

c. −$4,274

The U.S. inflation rate is expected to be 4 percent over the next year, while the European inflation rate is expected to be 3 percent. The current spot rate of the euro is $1.03. Using purchasing power parity, the expected spot rate at the end of one year is $____. a. $1.17 b. $1.22 c. $1.71 d. $1.04

d. $1.04

The premium on a pound put option is $0.03 per unit. The exercise price is $1.60. The break-even point is ____ for the buyer of the put, and ____ for the seller of the put. (Assume zero transactions costs and that the buyer and seller of the put option are speculators.) a. $1.63; $1.60 b. $1.63; $1.63 c. $1.63; $1.57 d. $1.57; $1.57

d. $1.57; $1.57

Which of the following is not true regarding options? a. The writer of a call option has the obligation to sell the currency to the buyer if the option if exercised. b. The buyer of a put option has the right to sell the currency at the strike price. c. The buyer of a call option has the right to buy the currency at the strike price. d. The writer of a put option has the obligation to sell the currency to the buyer if the option is exercised.

d. The writer of a put option has the obligation to sell the currency to the buyer if the option is exercised.

Assume that U.S. interest rates are 6%, while British interest rates are 7%. If the international Fisher effect (IFE) holds and is used to determine the future spot rate, the forecast would reflect an expectation of: a. not enough information to answer this question. b. appreciation of pound's value over the next year. c. no change in pound's value over the next year. d. depreciation of pound's value over the next year.

d. depreciation of pound's value over the next year.

The greater the variability of a currency, the ____ will be the premium of a call option on this currency, and the ____ will be the premium of a put option on this currency, other things equal. a. lower; greater b. greater; lower c. lower; lower d. greater; greater

d. greater; greater

When the existing spot rate exceeds the exercise price, a call option is ____, and a put option is ____. a. out of the money; out of the money b. in the money; in the money c. out of the money; in the money d. in the money; out of the money

d. in the money; out of the money

Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A's currency floats against Country B's currency, and that Country C's currency is pegged to B's. If A's currency depreciates against B, then A's exports to C should ____, and A's imports from C should ____. a. increase; increase b. decrease; decrease c. decrease; increase d. increase; decrease

d. increase; decrease

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros. a. inward shift in demand for; outward shift in supply of b. inward shift in demand for; inward shift in supply of c. outward shift in supply of; inward shift in demand for d. outward shift in supply of; outward shift in demand for

d. outward shift in supply of; outward shift in demand for

If you expect the British pound to appreciate, you could speculate by ____ pound call options or ____ pound put options. a. selling; purchasing b. selling; selling c. purchasing; purchasing d. purchasing; selling

d. purchasing; selling

To force the value of the pound to appreciate against the dollar, the Federal Reserve should: a. sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market. b. sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should not intervene. c. sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell pounds for dollars in the foreign exchange market. d. sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market.

d. sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market.

When the dollar strengthens, the reported consolidated earnings of U.S.-based MNCs are ____ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are ____ affected. a. favorably; unfavorably b. favorably; favorably affected but by a smaller degree c. favorably; favorably affected but by a higher degree d. unfavorably; favorably

d. unfavorably; favorably

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale. a. downward; increase b. upward; increase c. downward; reduce d. upward; reduce

d. upward; reduce

Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by ____ the dollar. Such an adjustment in the dollar's value should ____ the U.S. demand for products produced by major foreign countries. a. strengthening; increase b. weakening; increase c. strengthening; decrease d. weakening; decrease

d. weakening; decrease

A strong dollar is normally expected to cause high unemployment and low inflation in the United States. True False

True

The greater the percentage of an MNC's business conducted by its foreign subsidiaries, the larger the percentage of a given financial statement item that is susceptible to translation exposure. True False

True

Thornton Corporation has extensive liabilities denominated in Cyprus pounds resulting from imports from Cyprus. However, Thornton's revenues are denominated solely in U.S. dollars. Therefore, Thornton Corporation does not have translation exposure. True False

True

Thornton Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could sell futures contracts on yen to hedge the exchange rate risk on those exports. True False

True

Dubas Co. is a U.S. company that has exposure to the Swiss francs (SF) and Danish kroner (DK). It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $0.40 while the present exchange rate of the DK is $0.10. Dubas Co. has not hedged these positions. The SF and DK are highly correlated in their movements against the dollar. If the dollar weakens, then Dubas Co. will: a. benefit, because the dollar value of its SF position exceeds the dollar value of its DK position. b. benefit, because the dollar value of its DK position exceeds the dollar value of its SF position. c. be adversely affected, because the dollar value of its SF position exceeds the dollar value of its DK position. d. be adversely affected, because the dollar value of its DK position exceeds the dollar value of its SF position.

a. benefit, because the dollar value of its SF position exceeds the dollar value of its DK position.

To strengthen the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____ Treasury securities. a. buy; buy b. buy; sell c. sell; buy d. sell; sell

a. buy; buy

Which of the following is an example of direct intervention in foreign exchange markets? a. exchanging dollars for foreign currency b. imposing barriers on international trade c. lowering interest rates d. increasing the inflation rate

a. exchanging dollars for foreign currency

Assume that the Japanese yen is expected to depreciate substantially over the next year. The U.S.-based MNC has a subsidiary in Japan, where its costs exceed revenues. The overall value of MNC will ____ because of the yen's depreciation. a. increase b. decrease c. remain unchanged

a. increase

The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from Country Z. a. less; more b. less; less c. more; less d. more; more

a. less; more

From the perspective of Detroit Co., which has payables in Mexican pesos and receivables in Canadian dollars, hedging the payables would be most desirable if the expected real cost of hedging payables is ____, and hedging the receivables would be most desirable if the expected real cost of hedging receivables is ____. a. negative; negative b. positive; negative c. negative; positive d. zero; zero

a. negative; negative

To hedge a ____ in a foreign currency, a firm may ____ a currency futures contract for that currency. a. payable; purchase b. payable; sell c. receivable; purchase

a. payable; purchase

A weak dollar is normally expected to cause: a. high unemployment and low inflation in the U.S. b. low unemployment and high inflation in the U.S. c. high unemployment and high inflation in the U.S. d. low unemployment and low inflation in the U.S.

b. low unemployment and high inflation in the U.S.

Which of the following reflects a hedge of net receivables in Australian dollars by a U.S. firm? a. purchase Australian dollars forward. b. purchase a currency put option in Australian dollars. c. borrow U.S. dollars, convert them to Australian dollars, and invest them in an Australian dollar deposit.

b. purchase a currency put option in Australian dollars.

Which of the following reflects a hedge of net receivables in British pounds by a U.S. firm? a. borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit. b. purchase a currency put option in British pounds and sell pounds forward. c. purchase a currency put option in British pounds. d. sell pounds forward.

b. purchase a currency put option in British pounds and sell pounds forward.

A call option exists on British pounds with an exercise price of $1.60, a 90-day expiration date, and a premium of $0.03 per unit. A put option exists on British pounds with an exercise price of $1.60, a 90-day expiration date, and a premium of $0.02 per unit. You plan to purchase options to cover your future receivables of 700,000 pounds in 90 days. You will exercise the option in 90 days (if at all). You expect the spot rate of the pound to be $1.57 in 90 days. Determine the amount of dollars to be received, after deducting payment for the option premium. a. $1,169,000 b. $1,099,000 c. $1,106,000 d. $1,143,100

c. $1,106,000

Assume that Smith Corporation will need to purchase 200,000 British pounds in 90 days. A call option exists on British pounds with an exercise price of $1.68, a 90-day expiration date, and a premium of $0.04. A put option exists on British pounds, with an exercise price of $1.69, a 90-day expiration date, and a premium of $0.03. Smith Corporation plans to purchase options to cover its future payables. It will exercise the option in 90 days (if at all). It expects the spot rate of the pound to be $1.76 in 90 days. Determine the amount of dollars it will pay for the payables, including the amount paid for the option premium. a. $360,000 b. $332,000 c. $344,000 d. $338,000

c. $344,000

Sarakose Co. is a U.S. company with sales to Canada amounting to C$5 million. Its cost of materials attributable to the purchase of Canadian goods is C$7 million. Its interest expense on Canadian loans is C$5 million. The dollar value of Sarakose's "earnings before interest and taxes" would ____ if the Canadian dollar appreciates; the dollar value of its cash flows would ____ if the Canadian dollar appreciates. a. increase; increase b. decrease; increase c. decrease; decrease d. increase; decrease

c. decrease; decrease

The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward ____ is ____ percent. a. premium; 1.9 b. premium; 1.8 c. discount; 1.8 d. discount; 1.9

c. discount; 1.8

Assume that Atlanta Co. is producing motorcycles and selling them to U.S. customers. Atlanta Co. obtains all of its supplies from American firms and has no competition in the U.S. It has one major competitor in Japan. Now assume that Phoenix Co. is producing office furniture and obtains its supplies from a Canadian firm. Based on this information, Atlanta Co. has ____ exposure and Phoenix Co. has ____ exposure. a. translation; transaction b. economic; translation c. economic; transaction d. transaction; translation

c. economic; transaction

An MNC is attempting to reduce its economic exposure by financing a portion of its business with loans in the foreign currency. If the foreign currency weakens, the MNC will need ____ dollars to cover the loan payment, while the MNC's foreign currency revenues will convert to ____ dollars. a. less; more b. more; more c. less; fewer d. more; fewer

c. less; fewer

If speculators expect the spot rate of the Canadian dollar in 30 days to be ____ than the 30-day forward rate on Canadian dollars, they will ____ Canadian dollars forward and put ____ pressure on the Canadian dollar forward rate. a. lower; sell; upward b. higher; sell; upward c. lower; sell; downward d. higher; sell; downward

c. lower; sell; downward

The absolute forecast error of a currency is ____, on average, in periods when the currency is more ____. a. lower; volatile b. higher; stable c. lower; stable

c. lower; stable

Assume a central bank exchanges its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of: a. indirect intervention b. pegged intervention c. nonsterilized intervention d. sterilized intervention

c. nonsterilized intervention

A put option on British pounds has a strike (exercise) price of $1.48. The present exchange rate is $1.55. This put option can be referred to as: a. in the money. b. at the money. c. out of the money.

c. out of the money.

Assume that the Fed intervenes by exchanging pesos for dollars in the foreign exchange market. This will cause an ____ pesos and an ____ U.S. dollars. a. inward shift in demand for; inward shift in supply of b. outward shift in supply of; inward shift in demand for c. outward shift in supply of; outward shift in demand for d. inward shift in demand for; outward shift in supply of

c. outward shift in supply of; outward shift in demand for

If a U.S. firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a ____ overall impact of the Swiss franc's depreciation against the dollar on ____. a. negative; interest expenses b. positive; interest expenses c. positive; gross profit d. negative; gross profit

c. positive; gross profit

If Salerno Co. desired to lock in the maximum it would have to pay for its net payables in euros but wanted to be able to capitalize if the euro depreciates substantially against the dollar by the time payment is to be made, the most appropriate hedge would be: a. a forward purchase of euros b. purchasing euro put options c. purchasing euro call options d. a money market hedge

c. purchasing euro call options

Speers Co. has 1,000,000 euros as receivables due in 30 days and is certain that the euro will depreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to: a. purchase euro currency call options. b. remain unhedged. c. purchase euro currency put options. d. purchase euros forward. e. sell euros forward

e. sell euros forward