Couple Multiple Choice Questions on Options and Hedging

(1)(TRUE OR FALSE) An exporter faced with exposure to a depreciating currency can reduce transaction exposure with a lead strategy?

(2)If you have a foreign currency denominated recievable, you can hedge with:

(A)Long position in a currency forward contract

(B)Long position in a put option

(C)Borrow the home currency today and investing it in the foreign currency

(D) None of the above

(3)(TRUE OR FALSE) For a call option with 3 months till expiration, the premium should be zero if its intrinsic value is zero

(4)IF a compnay has Euro 7 million receivable and Euro 15 million payable both maturing in 1 year, dtermine net exposure in the foreign exchange market:

(A)Company A has no exposure bc the exchange rate between Euro and dollar is fixed

(B)Company A has a net exposure of Euro 8 million payable

(C)Company has anet exposure of Euro 8 million receivable

(D)Company A has net exposrue of Euro 22 million

(5)American call option on euro with 6-months until maturity at $.66 per Euro (the premium). The exercise price is $1.6212 and sport price $1.6253. Determing the intrinsic value and time value of the option:

(A)Intrinsic value is 0 and time value $.66

(B)Intrinsic value is $.41 and time value is 0

(C)Intrinsic value is $.66 and no time value

(D)Inrtinsic value is $.41 and time value is $.25