1. __________ a position exposed to rate risk is the act of reducing or eliminating a net asset or net liability position in the foreign currency.
a. Hedging
b. Speculating
c. Investing in
d. Buying
2. __________ is the act of taking a net asset position or a net liability position in some asset class.
a. Hedging
b. Speculating
c. Investing
d. Buying
3. A __________ exchange contract is an agreement to exchange one currency for another on some date in the future at a price set now.
a. Spot domestic
b. Forward domestic
c. Spot foreign
d. Forward foreign
4. __________ means committing oneself to an uncertain future value of one’s net worth in terms of home currency.
a. Selling
b. Hedging
c. Speculating
d. Importing
5. Assume you are a Chinese exporter and expect to receive $250,000 at the end of 60 days. You can remove the risk of loss due to a devaluation of the dollar by:
a. Selling dollars in the forward market for 60-day delivery.
b. Buying dollars now and selling it at the end of 60 days.
c. Selling the yuan equivalent in the forward market for 60-day delivery.
d. Keeping the dollars in the United States after they are delivered to you.
6. Assume you are an American importer who must pay 500,000 euros at the end of 90 days when you receive 1,000 cases of French wine at your warehouse in New York. If you do not cover this transaction in the forward market, you face a risk of loss if the euro:
a. Depreciates against the dollar.
b. Appreciates against the dollar.
c. Either appreciates or depreciates against the dollar.
d. Is fixed.
7. Assume you are an American importer who must pay 500,000 euros at the end of 90 days when you receive 1,000 cases of French wine at your warehouse in New York. If you do not hedge this transaction, you face exchange rate risk. The best way to remove the risk of loss due to currency fluctuations is to:
a. Buy 500,000 euros in the forward market for delivery in 60 days.
b. Buy 500,000 euros now, hold them for 60 days, and then sell them at the current spot rate.
c. Sell 500,000 euros in the forward market for delivery after 60 days.
d. Sell 500,000 euros now in the spot market.
8. An import-export business that finds itself in ashort foreign-currency position risks a financial loss if:
a. Exports fall.
b. Domestic currency appreciates.
c. Domestic currency depreciates.
d. Foreign currency depreciates.
9. In a __________ contract you can effectively lock in the price at which you buy or sell a foreign currency at a set date in the future.
a. Securities spot
b. Securities futures
c. Currency futures
d. Spot foreign exchange
10. An investment exposed to exchange rate risk is a(n) __________ international investment.
a. Covered
b. Uncovered
c. Hedged
d. Contracted