Multiple choice questions 4 through 6 (4 points each). 4. ExxonMobil has used futures markets to hedge the spot price it will receive for fuel over the next 3 years. If the company decides to commit itself to this hedge for the entire 3 year period, which of the following is true? a. It is likely to experience margin calls if the futures price of fuel falls dramatically over the next 3 years b. It is likely to experience margin calls if the futures price of fuel increases dramatically over the next 3 years e. It is likely to experience margin calls if the futures price of fuel stays about the same over the next 3 years a Hedging using futures protects the company from margin calls irrespective of fuel price movements Price volatility in the spot market protects the company from margin calls. 5. Suppose that an investor has access to Yen spot, Yen forward exchange markets and that the investor can lend or borrow in Yen. To create synthetic US$ liability the investor should, a. Borrow Yen, sell Yen spot, buy Yen forward b. Buy Yen spot, lend Yen and sell Yen forward c. Borrow US dollars, Buy Yen spot and sell Yen forward d. Borrow Yen, sell Yen spot and Lend US dollars e. Lend US dollars, sell Yen forward and Borrow Yen 6. Froot, Sharfstein and Stein's case study states that a. "Risk management enables companies to become better at aligning the demand for funds with the internal supply of funds." b. "Risk-averse managers, whose poorly-diversified human capital and private portfolios may be closely tied to the fortunes of their employer, may have strong incentives to manage risk." C. c. "A potentially more significant basis risk comes from a situation where an investor must use futures contract on a different asset to hedge another asset." d. Both b and c c. None of the above