In relation to hedging currency risk, which of the following statements is correct?
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1 .A US importer expects to pay a European supplier €500,000 in three months.Which of the following hedges could be appropriate for the US importer?
A Buying call options on the euro B Buying put options on the euro C Selling put options on the euro D Selling call options on the euro
2 .Platinum Co is US-based and has a receivable due in 30 days for 30,000 euros. The treasurer is concerned that the value of the euro relative to the dollar will drop before the payment is received.What should Platinum do to reduce this risk?
A Deposit 30,000 euros today B Enter into an interest rate swap contract for 30 days C Enter into a forward contract to sell 30,000 euros in 30 days D Platinum cannot effectively reduce this risk
3 .In evaluating the impact of relative inflation rates on the demand for a foreign currency,which of the following is true?
A Inflation is irrelevant to currency demand. B As inflation associated with a foreign economy increases in relation to a domesticeconomy, demand for the foreign currency falls. C As inflation associated with a foreign economy increases in relation to a domesticeconomy, demand for the foreign curren...
4 .A company has several long-term floating rate bonds outstanding and is considering hedging interest rate risk.Which of the following derivative instruments is recommended for this purpose?
A Money market hedge B Forward currency contract C Fixed rate bank loans D Interest rate swap
5 .Which of the following statements about the term structure of interest rates is/are true?(1) An “inverted” yield curve is where long-term interest rates are higher than shortterm interest rates.(2) A rising yield curve is caused when investors prefer to buy for long-dated bonds
A 1 only B 2 only C Both 1 and 2 D Neither 1 nor 2
7 .
A 91·36 rupees per ￡ B 86·46 rupees per ￡ C 70·05 rupees per ￡ D 76·96 rupees per ￡
8 .What is the impact of an appreciation in the value of a country’s currency?(1) Exports will be given a stimulus(2) The rate of domestic inflation will rise
A 1 only B 2 only C Both 1 and 2 D Neither 1 nor 2
9 .“There is a risk that the value of our export earnings will fall over the next few years due to an appreciating domestic currency.”To which risk does the above statement refer?
A Translation risk B Economic risk C Transaction risk D Financial risk
10 .In relation to the term structure of interest rates what is a “normal” yield curve?
A Upward sloping B Downward sloping C U-shaped D Horizontal
