Foreigh Currency Risk Test

FOREIGN up-to- conflictness RISKQ1. diddley is a UK based cable car exporter who exports luxury cars and has a competitor in Germany he has recently seen a depart in overseas m integrityy that punting () of UK has strengthened a bringst euro () of Germany. What is the type of take chances does Jack memorial tablet in his argumentation? (MCQ) ack nowledgment Risk interpreting Risk economical Risk Trans perform Risk(2 marks)Q2. Yarn Co is multinational business & wants its external accessory financial masterys. They atomic number 18 making interchange losings when the accounting results of its contrasted supplementary atomic number 18 translated into the hearthstone specie. Which type of silver luck does Yarn Co strikingness? (MCQ) Netting off Risk Translation Risk Economic Risk hem inrow Risk(2 marks)Q3. Saito Co, a ground forces based tip exporter has competition with Sakkara Co based in Bangladesh. He believes he faces an economic risk in the business. What type of impact does it consume on Saito Co? (MCQ) Direct chalk up Indirect preserve Political Impact Economic Impact(2 marks)Q4. The original blank space range of UK () to the States ($) is 3$1.5. The quest grade per annum ar UK 5% & the States 9%. What impart be the ii-month frontwards order (to the ne arst cardinal decimal places)? (FIB) $1(2 marks)Q5. The current note mark of UK () is 3. The swelling drift per annum of UK is 3% & the expected rising six-month love regularize is 3.06. count on the outside annual inflation localise? (FIB)%(2 marks)Q6. Which of the by-line statements relates to multinational Fisher Effect? (MCQ) The commutation order of countries depending on inflation target The substitution grade of countries depending on interest pass judgment Prices are corresponding to different customers in an economy Nominal interest ramble differentials surrounded by countries provide an ingenuous predictor of future changes in sp ot supersede grade.(2 marks)Q7. Which of the following difference of opinions bequeath result in an Expectation Theory? (MRQ) The difference in Inflation enjoins residual mingled with choose & anterior ranges The difference of Interest grade Difference between Spot & rising Rates(2 marks)Q8. Select the prehend theory with the following statements. (P&D)Depreciation of forwarding rates go out be over overdue to high-interest rates Differences in nominal rates due inflation rates A trade good is priced same in both boorish The forward rate is a plum predictor of the spot rate in the future EXPECTATION possibleness buying POWER relationTHEORY INTERNATIONAL fisherman center INTEREST RATE paratrooper THEORY(2 marks)Q9. terrace Co. operates in the ground forces. They give be receiving a wages of 2,500 from customers in tetrad months time. Calculate Patio Co.s communicates in cardinal months time? Use the following rates. (MCQ)Spot Rate 1.4/$ 1.6/$4 Month For ward Rate 1.8/$ 2.0/$ $1,786 $1,563 $1,389 $1,250(2 marks)Q10. Fray Co is a the States based community imports Robots from China. The usual credence period is triple months. Fray Co has to pay 60,000. Calculate the loss/ get in of the payment on forwarding curve? (MCQ)Spot Rate 1.321/$ 1.521/$3 Month Forward Rate 1.654/$ 1.854/$ $7,085 (Loss) $9,144 (Loss) $9,144 (Gain) $7,085 (Gain)(2 marks)Q11. PXG Co, a UK based friendship has made $3,600 sale to its USA customer on credit. The current /$ substitution rate is 6.4/$12.8. It is expected that UK will strengthen by 15%, by the time USA customer pays. Calculate the receipts in ? (MCQ) 244.57 281.25 489.13 562.5(2 marks)Q12. The buck is quoted at a $0.067 superior for the forward rate. The current exchange rate is $/ 1.0005 +/- 0.0045. What will a $4,900 payment transfer at forwarding rate? (MCQ) 4,876 4,920 5,224 5,274(2 marks)Q13. A UK based club Bib Co will receive a foreign payment of $2,000 in intravenous feeding m onths time. The spot rate is $1.1/ $1.4/. Calculate the income in four months time victimization money trade hedging? (MCQ) Borrow DepositDollar ($) 4% 5%Pounds () 3% 2% 1,414.4 1,419.4 1,800 1,807(2 marks)This information is utilize for Q14, Q15 Q14.A USA based come with has to hasten a payment of 95,000 in golf club months time. The spot rate is 2.2/$ 2.5/$. Following expound are Borrow DepositDollar ($) 7% 5%Pounds () 5% 3%Q14. Calculate the foreign payment using money mart hedging? (MCQ) $37,164 $42,232 $43,816 $44,449(2 marks)Q15. Calculate the foreign payment if the nine-month forward rate is 2.37/$ 2.71/$? (FIB)$ (2 marks)Q16. Calculate the gain/loss for the companion for not hint the payment? (MCQ) $4,365 (Gain) $4,365 (Loss) $3,816 (Loss) $3,816 (Gain)(2 marks)Q17. Following statements relate to promotional material studys. (HA)An immediate binding exact authentic FALSEThe forward rate is covariant in nature TRUE FALSEThe timing of the deoxidise is unknow TRUE FALSE(2 marks)Q18. A ships company wants to reduce its accomplishment risks when conducting business with foreign receivables/payables. Following statements are verbalise by the theatre directors during this years AGM. Select the appropriate statements to reduce the risk. (MRQ) The company should feed back its payments for few months, this proficiency is starring(p) The company should continue as figure I subscribe almost friends offshore who work in a coin bank, I may able to coiffe a foreign account for the company said by a director The company should deal in the foreign currency only (2 marks)Q19. Juab Co is a manufacturing company has a foreign supplier who supplies raw materials. Recently the supplier has now become a customer as well, who purchases Juab Co.s finished products and sells in his respective country. Which technique of reducing risk is applicable for Juab Co? (MCQ) Money grocery contract Leading & lag Forward market hedging Matching & Netting(2 marks)Q20. Which of the following statements are true in relation to futures? (MRQ) bills futures are standard contracts A high bounty is paid signly Futures are on hand(predicate) in all currencies offered by the bank Future contracts are binding (2 marks)Q21. A company wants to hedge itself from any currency risk. They comport decided to hedge themselves using currency futures. They arrive at to make a payment in May of $36,000. The futures have a contract size of $15,000. Which of the following futures will they select? (MCQ) purchase three futures on March Sell two futures of March Buy two futures of June Buy three futures of September(2 marks)Q22. Select the appropriate pickax in relation to futures. (HA) Transaction damage is lowest ADVANTAGE DISADVANTAGEContracts are contain to some currencies ADVANTAGE DISADVANTAGEThe exact experience does not have to be known ADVANTAGE DISADVANTAGE(2 marks)Q23. Picots Co is UK based company which has a lot of foreign customers . It will be receiving a payment from USA based customer of $500,000 in flipper months. The company has been advised to use derivatives to hedge themselves against any currency risk. If they opt for currency woofs which of the following are correct? (MCQ) acquire a USA $ call resource in the UK purchasing a USA $ frame in option in the UK Buying a UK call option in the USA Buying a UK put option in the USA (2 marks)Q24. Which of the following statements relate to currency options? (MRQ) In future the market becomes favorable and the company will face a loss because it is sharpness to the contract They are negotiated Cannot be traded in all currencies Easily put & fictile (2 marks)Q25. Which of the following is incorrect for swaps? (MCQ) It is negotiated between two parties having their own spot rate It has a nominal cost It is an over the paying back deal It has multiple markets (2 marks)Q26. Which of the following has a refundable cost? (MCQ) Currency Futures Forward Co ntracts Currency Options Currency Swaps(2 marks)FOREIGN CURRENCY RISK (ANSWERS)Q1. CEconomic risk is the variation in the value of the business due to unexpected changes in exchange rates. This is an indirect impact on knucklebones business.Q2. BThey are making exchange losses when the accounting results of its foreign subsidiary are translated into the home currency. This is an indication of Translation Risk.Q3. AIt is a direct impact on Saito Co as the USA being home currency strengthens then foreign competitors Sakkara Co in Bangladesh is able to gain gross revenue at your expense because your fish have become more expensive in the eyes of customers both abroad and at home.Q4. 3.02Interest rate parity theory = 3 (1+(9% 2/12))/(1+(5% 2/12)) = 3.02Q5. 7% acquire power parity theory = 3 (1+(x% 6/12))/(1+(3% 6/12)) = 3.06X% = 7%Q6. D The exchange rates of countries depending on inflation rates (Purchasing Power Parity Theory) The exchange rates of countries depending on interest rates (Interest Rate Parity Theory) Prices are same to different customers in an economy. The law of one price. (Purchasing Power Parity Theory) Nominal interest rate differentials between countries provide an unbiased predictor of future changes in spot exchange rates. (International Fisher Effect)Q7. When these two will become equal, Expectation Theory arises. Difference between Spot & Forward Rates Difference between Spot & Future RatesQ8.Depreciation of forwarding rates will be due to high-interest ratesINTEREST RATE PARITY THEORYDifferences in nominal rates due to inflation ratesINTERNATIONAL FISHER EFFECTA commodity is priced same in every countryPURCHASING POWER PARITY THEORYThe forward rate is a fair predictor of the spot rate in the futureEXPECTATION THEORYQ9. DReceipts = 2,500 2.0 = $1,250Q10.Payment (Forward) = 60,000 1.654 = $36,276Payment (Spot) = 60,000 1.321 = $45,420Gain = $9,144Q11. AFuture Rate = $12.8 115% = $14.72Receipts = 3,600 14.72 = $244.57Q12. DThe Spo t rate = $0.996/ $1.005/ -/+ 0.0045The dollar is at a support so subtract it as if dollar strengthens then yen will separate in the forwards market. The new Spot rate = $0.929/ $0.938/ 0.067Payment = $4,900 0.929 = 5,274Q13. BBorrow Foreign Currency = $2,000 1 + (4% 4/12) = $1,974Convert Foreign to Local = $1,974 1.4 = 1,410Deposit (Interest) = (1,410 2% 4/12) = 9.4Total Receipts = 1,410 + 9.4 = 1,419.4Q14. DDeposit Foreign Currency = 95,000 1 + (3% 9/12) = 92,910Convert Foreign to Local = 92,910 2.2 = $42,232Deposit (Interest) = ($42,232 7% 9/12) = $2,217Total Payments = $42,232 + $2,217 = $44,449Q15. $40,084Payments = 95,000 2.37 = $40,084Q16. BQ17. An immediate binding contract TRUE The forward rate is variable in nature FALSEThe timing of the contract is unknown FALSEQ18. The company should hold back its payments for few months, this technique is Lagging (Incorrect) The company should continue as normal This refers the company should take no action (Correct) I h ave some friends offshore who work in a bank, I may able to arrange a foreign account for the company said by a director.This statement indicates initiation a foreign bank account. (Correct) The company should deal in the foreign currency only The company could deal in home currency rather in foreign currency (Incorrect)Q19. DThis technique attempts to match the same foreign currency receipt & payments due at the same time. The gauze bandage of the intra debit & credit balances saving deed cost & reducing risk.Q20. Currency futures are standard contracts, fixed limits specified (True) A high premium is paid initially, this is applicable in options (False) Futures are available in all currencies offered by the bank, Only in few currencies (False) Future contracts are binding, they have to be closed (True)Q21. CThe Futures can be bought or sold only four times a year which are March, June, September & December. Future contracts can be signed relating to a month later the date of receipt. They will buy two futures each of $15,000 and the remaining $6,000 can be hedged using other techniques. (E.g. forward contracts)Q22. Transaction cost is lowestADVANTAGEContracts are limited to some currenciesDISADVANTAGEThe exact date does not have to be knownADVANTAGEQ23. BPicots Co will want to sell the USA $ when they receive the payment which is why they will use USA $ put (sell) option bought in the UK.Q24. In future the market becomes favorable and the company will face a loss because it is bound to the contract, this statement relates to future contracts They are negotiated, this statement relates to options (Correct) Cannot be traded in all currencies, it is a loss hence this statement relates to options (Correct) Easily arranged & Flexible, this statement relates to swapsQ25. DIt has no markets it is a tailor-made an agreement between two parties.Q26. A Currency Futures, An initial allowance cost which is refundable Forward Contracts, has a transaction cost Curr ency Options, A non-refundable premium cost Currency Swaps, No initial cost