Do you think a firm should hedge their currency risk? Take a position and explain.
- Do you think a firm should hedge their currency risk? Take a position and explain.
Homework Answers
Yes a firm should hedge their currency risk. The benefits of
hedging far outweighs the cost of hedging. It helps in case the
firm has transaction or translation exposure. It minimises losses
due to these exposures.
Transaction exposure occurs when companies buy or sell in different
currencies. There is actual cash outflow or inflow. Hence there is
actual profit or loss.
Translation exposure occurs due to consolidation of balance sheet
of subsidiaries. There is currency exposure of assets and
liabilities .
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Do you think a firm should hedge their currency risk? Take a
position and explain.
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Q3) If you have a long position in a foreign currency, you can hedge with A) a short position in a currency forward contract. B) borrowing in the domestic and foreign money markets. C) a short position in an exchange-traded futures option. D) a short position in foreign currency warrants Q4) If you owe a foreign currency denominated debt, you can hedge with A) a long position in a currency forward contract, or buying the foreign currency today and investing...
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a)Should a U.S. firm take a long or short position in British Pound futures if it...
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Explain and provide examples of using foreign exchange currency options to hedge
Explain and provide examples of using foreign exchange currency options to hedge
Part 1. Suppose you need to hedge the risk in a stock portfolio that your company...
Part 1. Suppose you need to hedge the risk in a stock portfolio that your company owns in it's pension plan using the E-mini S&P500 futures contracts (which has a multiplier of 50). The current value of the portfolio is $325 million and the S&P500 is currently at 2637.72 while the futures price (for next month delivery) is at 2643.25. You estimate that the "beta" of this portfolio is 1.1 while the beta of the S&P500 is 1. What position...
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Q3) If you have a long position in a foreign currency, you can hedge with A) a short position in a currency forward contract. B) borrowing in the domestic and foreign money markets. C) a short position in an exchange-traded futures option. D) a short position in foreign currency warrants Q4) If you owe a foreign currency denominated debt, you can hedge with A) a long position in a currency forward contract, or buying the foreign currency today and investing...
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