25) Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is 129.87/$ and the 6-month forward rate is 128.53/$. Andrea thinks the yen will move to 128.00/$ in the next six months. Andrea should _______ to profit from changing currency values.

(a) do nothing

(b) buy dollar

(c) sell yen

(d) selldollar

(e) sell dollar forward

29) A U.S. firm sells merchandise to a British company for 100,000 at a current exchange rate of $1.75/. If the exchange rate changes to $1.77/ the U.S. firm will realize a ________ of ________.

(a) loss; $2,000

(b) gain; $2,000

(c) loss; 2,000

(d) gain; 2,000

(e) no gain or loss

30) What following statements are correct?

I. accounting exposure, also called translation exposure, is the potential for accounting-derived changes in owner's equity to occur because of the need to "translate" foreign currency financial statements of foreign subsidiaries into a single reporting currency to prepare worldwide consolidated financial statements.

II. From a broader perspective, operating exposure is not just the sensitivity of a firm's future cash flows to unexpected changes in foreign exchange rates, but also to its sensitivity to other key macroeconomic variables.

III. While hedging can protect the owner of an asset from a loss, it also eliminates any gain from an increase in the value of the asset hedged against.

IV. Money market hedges almost always return more than forward hedges because of the greater risk involved.

(a) I only

(b) I and II

(c) I, II and III

(d) I, II, III and IV

(e) None

Answer rating: 100% (QA)

The detailed answer for the above question is provided below 25 Andrea should c sell yen to prof... View the full answer