1. A U.S. firm buys merchandise from a British company for100,000. If the current exchange rate is $1.75/ and the forward exchange rate is $1.74/, to hedge the transaction risk the U.S. firm should

A. sell forward at $1.75/

B. sell forward at $1.74/

C. buy forward at $1.75/

D. buy forward at $1.74/

2. A U.S. firm sells merchandise to a japanese company for100 million and receives payment in 6 months. If the current exchange rate is 129.87/$ and the 6 month forward exchange rate is128.53/$, to use money market hedge for the transaction risk, the U.S. firm should

A. borrow100 million

B. borrowat a value equal to the six month present value of100 million

C. borrow $0.77 million

D. borrow $0.778 million

3. A U.S. firm buys merchandise from France. To hedge the transaction risk the U.S. firm should:

A. buy euro call option

B. sell euro call option

C. buy euro put option

D. sell euro put option

4. which of the following statements is Incorrect?

A. Money Market hedges almost always return more than forward hedges because of the greater risk involved

B. While hedging can protect the owner of an asset from loss, it also eleminates any gain from an increase in the value of the asset hedged against

C. Hedging is the taking of a position, acquiring either a cash flow, an asset, or a contract (including a forward contract) that will rise (fall) in value and offset a fall (rise) in the value of an existing position