International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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An increase in which of these factors increases the premium of a currency call option? Check all that apply: Spot exchange rate Volatility of the currency Strike price Time to expiration
Which of the following best describes the terms 'long forward position' and 'short forward position' in foreign exchange trading?
A short forward position is holding a currency for a short duration, while a long forward position is holding it for a longer period.
A short forward position means you have agreed to sell a currency in the future, while a long forward position means you have agreed to buy it in the future.
A long forward position is when you expect the currency's future spot rate to decrease, and a short forward position is when you expect it to increase.
A long forward position means you have agreed to sell a currency in the future, and a short forward position means you have agreed to buy it in the future.
A U.S. exporting firm may use foreign exchange futures to hedge its exposure to exchange rate risk. Its position in futures will depend in part on anticipated payments from its customers denominated in foreign currency.a. In general, however, should its position in futures be more or less than the number of contracts necessary to hedge these anticipated cash flows? (Hint: Think about the firm's stream of cash flows extending out over many years.)b. What other considerations might enter into the hedging strategy?
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Similar questions
Assume you can exchange $1 for either £1.0 or €0.50 in the U.S. In the London market, you can exchange £1 for €0.52. This situation creates an opportunity to profit immediately from which one of the following?
A.
Futures arbitrage
B.
Currency hedge
C.
Interest rate swap
D.
Absolute purchasing power parity
E.
Triangle arbitrage
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Indian interest rates are normally substantially higher than U.S. interest rates. Assuming that interest rate parity exists, do you think hedging with a forward rate will be beneficial if the spot rate of the Indian rupee is expected to decline slightly over time?
Will hedging with a money market hedge be beneficial if the spot rate of the Indian rupee is expected to decline slightly over time (assume zero transaction costs)?
What are some limitations on using currency futures or options that may make it difficult for you to perfectly hedge against exchange rate risk over the next year or so?
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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?
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