5. If plains States chooses not to change hedge their euro receivable, the amount they
receive in six months will be_________.
(d) undeterminable today
6. If Plains States chooses to hedge its transaction exposure in the forward market, it will ________ € 1, 250,000 forward at a rate of ______.
(a) sell; $0.8750/€
(b) sell; $0.8924/€
(c) buy; $0.8750/€
(d) buy; $0.8924/€
7. Plains States chooses to hedge its transaction exposure in the forward market at the
available forward rate. The payoff in 6 months will be______.
(c) $1,093, 750
(d) $1,075, 000
8. If Plains States locks in the forward hedge at $0.8750/€, and the spot rate when the
transaction was recorded on the books was $0.8924/€, this will result in a “ foreign
exchange loss” accounting transaction of _______.
(c) This was not a loss, it was a gain of $21,750.
(d) There is not enough information to answer this question.
9. Plains States would be ________ by an amount equal to __________ with a forward
hedge than if they had not hedged and their predicted exchange rate for 6 months had
(a) better off; $43,750
(b) better off; $62500
(c) worse off; $43,750
(d) worse off; $62500
10. If Plains States chooses to implement a money market hedge for the Euro receivables, how much money will the firm borrow today?
(a) € 1,201,923
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