7. The choice between a forward market hedge and a money market hedge comes down to: a. Purchase price parity b. Flexibility and availability c. Forward cash parity d. Interest rate parity

8. When cross-hedging: a. Try to find an asset that has a negative correlation with the asset you are trying to hedge. b. Try to find an asset that has a positive correlation with the asset you are trying to hedge. c. Try to find an asset that co-varies in a predictable way with the asset you are trying to hedge. d. Try to find an asset with contingent exposure to the asset you are trying to hedge.

9. An exporter can shift the full exchange rate exposure to their customers by: a. Invoicing in the exporters home currency. b. Invoicing in the customers local currency. c. Splitting the difference, and invoicing half of the sales in local currency and half of the sales in home currency. d. Invoicing sales in a currency basket such as the SDR for the invoice currency.

10. Buying a currency option: a. Provides a flexible hedge against exchange exposure b. Limits the downside risk while preserving the upside potential c. Provides a right, but not an obligation, to buy or sell a currency. d. All of the above.

11. A purely domestic firm that sources and sells only domestically a. faces exchange rate risk to the extent that it has international competitors in the domestic market b. faces no exchange rate risk. c. should never hedge since this could actually increase its currency exposure. d. both b & c.

12. Generally speaking, when both a firms product costs and price are sensitive to exchange rate changes a. the firm is not subject to a high degree of operating exposure. b. the firm is subject to a high degree of operating exposure. c. the firm should hedge. d. none of the above.

13. Firms facing uncertainty in exchange rates may not need to hedge due to natural hedging that occurs when firms are managed using operational methods. Additionally, if this parity holds, then the nominal exchange rate changes do not affect a firms competitive position. Which parity is it? a. Natural hedge parity b. Purchasing power parity c. Interest rate parity d. Uncovered interest rate parity