Americorp. has an exposure (having unhedged positions) in both Swiss francs (SF) with expected net inflows...
Americorp. has an exposure (having unhedged positions) in both Swiss francs (SF) with expected net inflows of SF 200 mil. and in Danish kroner (DK), with expected net outflows of DK500 mil. Current exchange rates are $0.40/SF and $0.10/DK. If the dollar weakens, then Americorp. will:
Select one: a. be adversely affected, because the dollar value of its SF position exceeds the dollar value of its DK position.
b. remains unaffected, because of the no changes in net inflows and outflows
c. benefit, because the dollar value of its SF position exceeds the dollar value of its DK position
d. benefit, because the dollar value of its DK position exceeds the dollar value of its SF position.
e. be adversely affected, because the dollar value of its DK position exceeds the dollar value of its SF position.
Homework Answers
Dollar value of SF position = Amount*Exchange rate
= 200 million*0.40 = $80 million
Danish Kroner = 500 million*0.10 = $50 million
Hence, when dollar weakens,
c. benefit, because the dollar value of its SF position exceeds the dollar value of its DK position
Since SF will be converted into more dollars
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