Chapter 07 Foreign Currency Transactions and Hedging Foreign Exchange Risk Multiple Choice Questions 1. According to the World Trade Organization‚ what was the size of international trade in 2008? A) $7‚000‚000‚000 (7 billion dollars) B) $70‚000‚000‚000 (70 billion dollars) C) $37‚000‚000‚000 (37 billion dollars) D) $16‚000‚000‚000‚000 (16 trillion dollars) Answer: D Level: Easy LO: 1 2. In the years between 1990 and
Premium Currency United States dollar Foreign exchange market
2012-11-12 The Illusion of Happiness “If we are not happy there is something wrong with us”‚ says Chris Hedges‚ author of the article The Illusion of Happiness. This way of thinking might be the reason why there is such a big infatuation around psychology. Or‚ positive psychology might simply be a figment created by psychologists in a purely lucrative goal. Through his paper‚ Chris Hedges tries to demystify the mystery around positive psychology and strongly demonstrates how it is used to brainwash
Premium Psychology Sociology
systematic risk of the portfolio that cannot be reduced by diversification has been hedged. A hedge is an investment position intended to offset potential losses/gains that may be incurred by a companion investment. In simple language‚ a hedge is used to reduce any substantial losses/gains suffered by an individual or an organization. According to Bruce Greenwald‚ investors who primarily trade in futures may hedge their futures against synthetic futures. A synthetic in this case is a synthetic future comprising
Premium Futures contract Short Long
exposure was incurred as a result of changes in accounting standards; that required GM Canada to assign the US dollar as its functional currency due to the large number of assets denominated in the currency. GM’s policy specifies that it should only hedge 50% of its commercial operating exposures and translation exposures should not be hedged. Whereby the CAD exposure is CAD 1682 Million‚ it would have a significant impact on the firm‚ more so due to the CAD 2143 million translation exposure‚ thus a
Premium United States dollar Foreign exchange market Currency
Thus‚ with a sales volume of 25‚000 participants and the exchange rate rises to $1.48/euros then AIFS will be subject to a loss of $4‚391‚892. If the exchange rate drops to $1.01/euros then AIFS will save $5‚198‚020. 3. With a 100% forward hedge under a final sales volume of 25‚000 participants‚ AIFS is facing a dollar inflow of $25‚000‚000. Under this assumption‚ the optimal amount of expenses would be 1000 Euros per student. Risk arises when currency rates between the Euro and the dollar
Premium Currency United States dollar Dollar
Long-Term Capital Management‚ LP. (A) (HBS Case No. 9-200-007) Long-Term Capital Management‚ LP. (A) Hedge Funds According to the book‚ “Financial Markets and Institutions” by Anthony Saunders‚ hedge funds are financial intermediaries that pool the financial resources of individuals and companies and invest those resources in (diversified portfolios of assets. In other words‚ they are a type of investment pool that solicit funds from (wealthy) individuals and other investors (e.g.‚ commercial
Premium Hedge fund Investment
A major United States Airline • Results of operations are impacted by changes in • Aircraft fuel prices • Interest rates • Foreign currency exchange rates • Derivative contracts Derivative Type Hedged Risk Classification of Gains and Losses Fuel hedge contracts Interest rate contracts Foreign currency exchange contracts Increases in jet fuel prices Increases in interest rates Fluctuations in foreign currency exchange rates Aircraft fuel and related taxes Interest expense‚ net Passenger revenue
Premium Airline Futures contract Option
(90% of its clients re-conduct their contracts). However‚ Aspen succeed to finance its need by selling its receivables to two financial institutions - guarantying a hedge to the currency - depending on the nature of the receivable (where it comes from‚ the amount etc.). Aspen hedge all its receivable and do not use any natural hedge (compensating expenses and sells in a local currency). We also have to point out that the currencies have a high volatility‚ without being correlated‚ which benefits
Premium Currency Foreign exchange market Short
the British firm had transferred a 10% deposit (GBP117‚500)‚ Rothschild was planning on receiving GBP1.0575 million on April 14‚ 1986. On January 13‚ the day the bid was accepted‚ the value of the pound was (U.S. dollars) USD1.4480. Hedge strategy: The spot hedge worked similarly in that it also created a pound obligation 90 days hence. Dozier would borrow pounds and exchange the proceeds into dollars at the spot rate. On April 13‚ Dozier would use its pound receipts to repay the loan. Any gains
Premium Forward contract United States dollar Currency
gain leverage and corporate control for activist purposes. In 2008‚ Porsche’s CFO carried out the “short squeeze” to acquire control over Volkswagen through option contracts‚ which lead to huge losses for short-selling hedge funds. And meanwhile in 2007‚ TCI and 3G‚ 2 UK-based hedge funds‚ violated SEC disclosure requirements by hiding their intentions to takeover CSX by entering into equity total return swaps with lots kind of investment banks. CSX was a one of the largest railroad and transport
Premium Stock Short Futures contract