. _______ is a technique used by MNEs to deal with currency exposure?
(a) Do nothing
(b) Speculation
(c ) Hedging
(d) All are techniques MNEs could use.
- Assuming no transaction costs (i.e., hedging is “free”), hedging currency exposures
should _______ the variability of expected cash flow to a firm and at the same time, the
expected value of the cash flows should_________.
(a ) increase; not change
(b) decrease; not change
(c ) not change; increase
(d ) not change; not change
- Which of the following is cited as a good reason for NOT hedging currency exposures?
(a) Shareholders are more capable of diversifying risk than management.
(b) Currency risk management through hedging does not increase expected cash flows.
(c) Hedging activities are often of greater benefit to management than to shareholders.
(d ) All of the above are cited as reason NOT to hedge.
- A U.S. firm sells merchandise to a British company for £ 100,000 at a current exchange
rate of $1.43/£. If the exchange rate changes to $1.45/£ the U.S. firm will realize a ______ of _______.
(a) loss; $2000
(b) gain; $2000
(c) Loss; £2000
(d) gain; £2000