Question

Which of the following is true?

       An exporter can shift exchange rate risk to their customers by invoicing in their customer's local currency.
       A 3-year swap contract can be viewed as a portfolio of 3 forward contracts with maturities of 1, 2, and 3 years. One important exception is that the forward price is the same for the swap contract but not for the forward contracts.
       Contingent exposure, which refers to a situation in which the firm may or may not be subject to exchange exposure, can best be hedged with money market hedging.
       An MNC seeking to reduce transaction exposure with a strategy of leading and lagging can probably employ the strategy more effectively with customers or outside suppliers than with intra firm payables and receivables.

Answer 1

A 3-year swap contract can be viewed as a portfolio of 3 forward contracts with maturities of 1, 2, and 3 years. One important exception is that the forward price is the same for the swap contract but not for the forward contracts

First statment is false because invoicing should be done in exporter's currency to shift exchange rate risk

Third statement is false because hedging using options is the appropriate way for contingent exposure

Fourth statement is false because it should be employ the strategy more effectively with intra firm payables and receivables than with customers or outside suppliers