Each question is worth 10 marks. 1. Discuss economic exposure and translation exposure facing by many American MNCs due to the strengthening of the USD in recent months. Explain in detail one approach these MNCs can use to lessen translation exposure. 2. The graph below provides a comparison of alternative techniques a US multinational company can use to hedge a payable of A$100,000 in a year's time. The horizontal axis shows the amount of USD the company needs to have in one year to meet its AS payment, and the vertical axis represents the probability of any USD amount to be realized. Do you agree with the following observations? All things being considered, i. Forward hedge is better than Money market hedge ii. Currency call option hedge shouldn't be used as it may cost the MNC US\$78,000 to purchase A\$100,000. iii. No hedge could be good if the MNC believed that the USD would appreciate significantly against the AS. Each question is worth 10 marks. 1. Discuss economic exposure and translation exposure facing by many American MNCs due to the strengthening of the USD in recent months. Explain in detail one approach these MNCs can use to lessen translation exposure. 2. The graph below provides a comparison of alternative techniques a US multinational company can use to hedge a payable of A$100,000 in a year's time. The horizontal axis shows the amount of USD the company needs to have in one year to meet its AS payment, and the vertical axis represents the probability of any USD amount to be realized. Do you agree with the following observations? All things being considered, i. Forward hedge is better than Money market hedge ii. Currency call option hedge shouldn't be used as it may cost the MNC US\$78,000 to purchase A\$100,000. iii. No hedge could be good if the MNC believed that the USD would appreciate significantly against the AS