5. Hanson Corp. frequently quarter, Hanson has identified its net exposure to the pound as being 1,000,000. The 90-day forward rate is $1.50. Furthermore, Hanson's financial center has indicated that the possible values of the British uses a forward hedge to hedge its British pound () payables. For the next pound at the end of next quarter are $1.57 and $1.59, with probabilities of .50 and .50, respectively. Based on this information, what is the expected real cost of hedging payables? A) $80,000. B) -$80,000. C) $1,570,000. D) $1,580,000 6. Cerra Co. expects to receive 5 million euros tomorrow as a result of selling goods to the Netherlands. Cerra estimates the standard deviation of daily percentage changes of the euro to be I percent over the (VAR) method based on a 95% confidence level, what is the maximum one-day loss in dollars if the expected percentage change of the euro tomorrow is 0.5%? The current spot rate of the euro (before considering the maximum one-day loss) is $1.01. A) -$75,750. B) $57,575. C) -$58,075. D) $25,250. 7. Jacko Co. is a U.S.-based MNC with net cash inflows of Singapore dollars and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Kriner Co. is a U.S.-based MNC that has the same exposure as Jacko Co. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk? A) Jacko Co. B) Kriner Co. C) the firms have about the same level of exposure. D) neither firm has any exposure. 8. Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What is the net inflow or outflow as measured in U.S. dollars? A) $500,000 outflow. B) $500,000 inflow. C) $275,000 inflow. D) $275,000 outflow. 9. Celine Co. will need 500,000 in 90 days to pay for German imports. Today's 90-day forward rate of the euro is $1.07. There is a 40 percent chance that the spot rate of the euro in 90 days will be $1.02. and a 60 percent chance that the spot rate of the euro in 90 days will be $1.09. Based on this information, the expected value of the real cost of hedging payables is $ A) -35,000 B) 25,000 C) 4,000 D) 4,000 2