5. Answer the following multiple choice question. (Choose the correct answer only ). 1 mark each question.

1. Which of the following is true of options?

1 point

1. The buyer decides whether the option will be exercised.
2. The seller decides whether the option will be exercised.
3. The seller pays the buyer the option premium.

2. Economic exposure is any exposure of an MNCs cash flows (direct or indirect) to exchange rate movements.

1 point

1. true
2. false

3. If a UK parent is setting up a French subsidiary, and funds from the subsidiary will be periodically sent to the parent, the ideal situation from the parent's perspective is a ____ after the subsidiary is established.

1 point

(a) weak euro

(b) stable euro

(c) strengthening euro

(d) a & b are both ideal

4. Assume that the forward rate is used to forecast the spot rate. The one-year forward rate of the Canadian dollar contains a 6% discount. Today's spot rate of the Canadian dollar is 0.47. The spot rate forecasted for one year ahead is:

1 point

1. 0.2032
2. 0.4982
3. 0.5982
4. 0.4418
5. 0.5467