1) It is possible to have an opportunity loss when using futures to hedge.
2) Hedgers should buy calls if they are hedging an expected outflow of foreign
currency.
3) Assume a regression model in which the dependent variable is the firm’s stock price
percentage change, and the independent variable is percentage change in the foreign
currency. The coefficient is negative. This implies that the company’s stock price
increases if the foreign currency appreciates.
4) An advantage of using options to hedge is that the MNC can let the option expire.
However, a disadvantage of using options is that a premium must be paid for it.
5) When using factoring to finance international trade, a bank will provide a loan to the
exporter secured by an assignment of the account receivable.
6) The interest rate in South Africa is 8%. The interest rate in the U.S. is 5%. The South
African forward rate should exhibit a premium of about 3%.
7) If a U.S.-based MNC focused completely on exporting, then its valuation would
likely be adversely affected if most currencies were expected to appreciate against the
dollar over time.
8) If a U.S. firm plans to frequently purchases goods from Hong Kong over the next
several years, it does not have to worry about exchange rate risk.
9) A balance of trade surplus indicates an excess of imports over exports.
10) Assume locational arbitrage is possible and involves two different banks. The
realignment that would occur due to market forces would increase one bank’s ask rate
and would decrease the other bank’s bid rate.