International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Which hedging strategy uses an exchange rate agreed to today for future delivery of currency to minimize the financial institution’s risk exposure?
a.
Hedging with forwards.
b.
On balance sheet hedging.
c.
Off balance sheet hedging.
d.
Spot hedging.
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.
Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment.
Would exchange rate changes always increase the risk of foreign investment? Discuss the condition under which exchange rate changes may actually reduce the risk of foreign investment.
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Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot rate 2. ____________ Currency appreciation 3. ____________ Translation risk 4. ____________ Transaction risk 5. ____________ Exchange rate Column B a. The rate at which one currency can be traded for another currency. b. The possibility that future cash transactions will be affected by changing exchange rates. c. A month ago, 1 U.S. was worth 8.5 Mexican pesos. Today, 1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what? d. The degree to which a firms financial statements are exposed to exchange rate fluctuation. e. The exchange rate of one currency for another for immediate delivery (today).
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Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment.
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Short-run exposure to exchange rate risk is best illustrated by which one of the following?
Multiple Choice
Change in book value when the market value of an asset remains constant
Daily fluctuations in the spot rate
Increases in the forward rate as the time to settlement increases
Changes in relative economic conditions between two countries
Unrealized foreign exchange gains
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