1. Define the three types of foreign exchange exposure. 2. Which of the three currency exposures relate...
Question:
1. Define the three types of foreign exchange exposure.
2. Which of the three currency exposures relate to cash flows already contracted for, and which of the exposures do not?
3. Define currency risk
4. What is a hedge? How does that differ from speculation?
5. How does currency hedging theoretically change the expected cash flows of the firm?
6. Describe four arguments in favor of a firm pursuing an active currency risk management program.
7. Describe six arguments against a firm pursuing an active currency risk management program.
8. What are the four main types of transactions from which transaction exposure arises?
9. Which contract is more likely not to be performed, a payment due from a customer in foreign currency (a currency exposure), or a forward contract with a bank to exchange the foreign currency for the firm's domestic currency at a contracted rate (the currency hedge)?
10. Why do foreign currency cash balances not cause transaction exposure?
11. How does a money market hedge differ for an account receivable versus that of an account payable? Is it really a meaningful difference?
12. What is the difference between a balance sheet hedge, a financing hedge, and a money market hedge?
Expert Answer:
Three Types of Foreign Exchange Exposure a Transaction Exposure This refers to the risk of changes in the value of outstanding financial obligations due to exchange rate movements before the transacti... View the full answer
