In hedging foreign currency receivables, the outcome from a forward position will be identical to th

/in /by

In hedging foreign currency receivables, the outcome from a forward position will be identical to the outcome from a money market hedge (also known as a spot transaction hedge) if

a) purchasing power parity holds

b) interest rate parity holds

c)either purchasing power parity or interest rate parity holds

d)both purchasing power parity and interest rate parity hold

An American multinational wants to hedge a euro receivable Which of the following strategies doesNOT provide a hedge for the euro receivable?

  • a)buy put options on the euro with strike prices in dollars
  • b) buy put options on the euro with strike prices in pounds
  • c) buy call options on the euro with strike prices in pounds
  • d) buy call options on the euro with strike prices in dollars

In the spot market in New York, $080 may be exchanged for one Canadian dollar and $160 may be exchanged for one pound sterling You may assume that bid and ask quotes are the same If you can only exchange currency in New York, how many Canadian dollars would you receive in exchange for 1 pound sterling?

  • a)05
  • b) 10
  • c) 16
  • d) 20

Observe the following dealer quotes for the euro in the New York spot market: The bid is $130 and the ask is $131 The dealer quotes for the euro in the Frankfurt spot market are the following: The bid is $128 and the ask is $129 Given these quotes, which of the following strategies would you employ to profit from an arbitrage opportunity?

  • a) Simultaneously buy euro in New York and sell euro in Frankfurt
  • b) Simultaneously buy euro in Frankfurt and sell euro in New York
  • c) Buy euro in Frankfurt and wait for euro to appreciate in Frankfurt before selling euro
  • d) Sell euro in New York and wait for euro to depreciate in New York before buying euro
 
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