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- Question: 1 . Which of the following is not correct? Choices: Premium arises when the spot rate is higher than that of the forward rate Indirect quotation shows the number of units of a domestic currency corresponding to one unit of foreign currency Financial effects of possible stock market crashes can be mitigated through purchasing and holding golds Exchange rates is one of the vital factors in considering whether or not to invest in a security issued by entities from the other countries 2 . Which is not true with regards to risk management? Choices: Bankruptcy that arises from volatility of cash inflows can be mitigated through proper risk forecast and management Securities may be subjected to security price risk One of the ways to mitigate relevant risk is to increase the probability of occurrence of an adverse event Identifying the risk that the firm faces is the first step in risk managementStatement I - Exchange rate risk is a factor that contributes to the difficulty of the company to manage its international creditStatement II - A relaxation in collection policy that lengthens the firm collection period ultimately lengthens the firms operating cycle and cash conversion cycle a. False; False b. True; False c. True; True d. False; TrueFor the statements below indicate if it is true or false. If the statement is false, rewrite so that it is a true statement. Use the space available to answer your question. 2. When the actual foreign exchange rate for the dollar is greater than the equilibrium rate, the dollar is undervalued, meaning that it will buy less in international trade than it will buy at home. TRUE/False:
- Explain, why appreciation of exchange rate (E) today results in the increase of expected return from foreign currency deposits (investments), assuming expected exchange rate does not change?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.PQ 3 In which of the following relationships between the expected future spot rate (E(e)) of a foreign currency and the current forward rate (e fwd) of a foreign currency would a speculator have an incentive to sell foreign currency in the forward market? a. E (e) = e fwd bb. E(e) greater than e fwd c. E(e) less than e fwd d. E (e) = (1/d fwd)
- 1. Explain the differences and similarities between Forward, Futures, andOptions. Then why can there be a Long Term Funding Deficit related to a company's cash flows? and Explain the meaning of international parity conditions, and why it can be used to predict exchange rates. and what is the meaning of foreign exchange exposure and types of foreign exchange exposure faced by multinational companies.22. A firm may seek to avoid exchange-rate risk bya. Maintaining a net monetary debtor position in countries with strengthening currencies.b. Maintaining a net monetary creditor position in countries with weakening currencies.c. Avoiding diversification of foreign-currency transactions.d. Buying forward exchange contracts to cover liabilities denominated in a foreign currencyIf a country experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should ____, the outflow of its funds to purchase U.S. securities should ____, and there is ____ pressure on its currency's equilibrium value. * A) increase; decrease; downward. B) decrease; increase; upward. C) increase; decrease; upward. D) decrease; increase; downward.
- What does the term "carry trade" mean? Group of answer choices Borrow in the domestic currency to earn only the higher yield of the dollar implied by the failure of uncovered interest rate parity (UIRP). Borrow in foreign currency to earn only the expected capital appreciation of the dollar implied by the failure of UIRP. Borrow in the domestic currency to earn both the higher yield and the expected capital appreciation of the dollar implied by the failure of UIRP. Borrow in the foreign currency to earn both the higher yield and the expected capital appreciation of the dollar implied by the failure of UIRP.Q1-16 In which of the following relationships between the expected future spot rate [E(e)] of a foreign currency and the current forward rate (efwd) of a foreign currency would a speculator have an incentive to sell foreign currency in the forward market? a. E(e) < efwd b. E(e) > efwd c. E(e) = efwd d. E(e) = (1/efwd)a) Why is financial leverage understood to be a fair-weather friend? b) When the value of a currency rises due to demand and supply factors, is it correct to say that the currency has undergone revaluation? Explain briefly. c) In a FOREX arbitrage, why is it important to complete a round-trip?