Question

1. A ) U.S.-based MNC that frequently imports raw materials from Canada. It is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is an appropriate hedging technique under these circumstances?

Sell Canadian dolars forward

Purchase canadian dollar future contracts

buy canadian dollar put potion

sell canadian dollar call option

1 B ) Which of the following is correct?

The longer the time to maturity, the greater the value of a currency call option, other things equal.

The shorter the time to maturity, the greater the value of a currency put option, other things equal.

The higher the spot rate relative to the exercise price, the greater the value of a currency put option, other things equal.

The lower the exercise price relative to the spot rate, the smaller the value of a currency call option, other things equal.

1 C) The greater the variability of a currency, the _______ will be the premium of a call option on this currency, and the _______ will be the premium of a put option on this currency, other things equal.

Greater, lower

greater,greater

lower,greater

lower,lower

Answer 1

U.S.-based MNC that frequently imports raw materials from Canada. It is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is an appropriate hedging technique under these circumstances-

ANS   Purchase canadian dollar future contracts

1 b)

The longer the time to maturity, the greater the value of a currency call option, other things equal.

1C) The greater the variability of a currency, the _GREATER_ will be the premium of a call option on this currency, and the _GREATER_ will be the premium of a put option on this currency, other things equal.