A3. Answer the following multimple choice question No explanation is needed. Only choose the correct answer. 1 mark each. Total Mark 3

1. Which of the following is the most likely strategy for a UK firm that will be receiving Australian dollars (AUD) in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in AUD)?

1 point

1. purchase a put option on AUD.
2. purchase a call option on AUD.
3. obtain a forward contract to purchase AUD forward.
4. all of the above are appropriate strategies for the scenario described.

2. A UK-based MNC has a contract to export products in which it agreed to accept yens. The UK-based MNCs pound cash flows are adversely affected if the

1 point

(a) Yen appreciates

(b) Yen depreciates

(c) Pound depreciates

(d) both a & c

3. The realized dollar return for a U.S. resident investing in a foreign market

1 point

1. will depend only on the return in the foreign market
2. will depend not only on the return in the foreign market but also on the change in the exchange rate between the U.S. dollar and the foreign currency.
3. will be unaffected by exchange rate movements