Chapter 11, Problem 3ST

Which of the following is an exchange risk management technique through which the firmcontracts with a third party to pass exchange risk onto that party, via instruments such as forwardcontracts, futures, and options? a. Risk Transfer b. Risk Avoidance c. Risk Adaptation d. Diversification

Discuss how the concept of pure security, short selling and no arbitrage profit help establish and understand the equilibrium from the capital markets. Discuss different economic determinants security prices. Kindly answer the question as soon as possible.

How can the company use currency futures contracts to hedge against exchange rate risk?

When comparing the forward hedge to the money market hedge, the MNC can easily determine which hedge is more desirable, because the cost of each hedge can be determined with certainty. Group of answer choices True False

In a money-market hedge you either borrow or invest in a foreign currency at foreign interest/deposit rates and then do the opposite in the U.S.  If the theory of interest rate parity (IRP) holds, a money-market hedge and forward rate should yield the same outcomes. Group of answer choices True False

Why is writing deep-in-the-money currency options tantamount to short-term financing?

To hedge payables, the firm will purchase a currency call option on the payable foreign currency. The firm can use the call option to buy foreign currency at a specified price. Why should the company, in this case, purchase a call option than a Forward contract? Maybe to make it easy on me, you can illustrate the answer by highlighting the situations suitable for options and Forward contracts. For example, "when this situation occurs....., then that hedging we should use .... because of XYZ reasons/effects on profitability".

A price-taker in the foreign exchange market is     a hedger who wants to avoid risk.     a speculator who buys a currency at the current exchange rate, hoping that it will appreciate.     a market participant who takes the current exchange rate to be the equilibrium exchange rate.     a market participant who buys and sells currencies at the exchange rates quoted by large commercial banks.

Using Currency Futures:a. How can currency futures be used by corporations? Give appropriate example.b. How can currency futures be used by speculators? Give appropriate example.