Ch. 10

1. In thinking about Accounts Receivable hedging and using the formula which follows, if the firm can earn a return greater than the breakeven rate on the loan proceeds, then the firm should hedge using forwards, rather the a money market hedge. True or False

Formula: Loan Proceeds * (1 + BE Rate) = Forward Proceeds

2. The value of a forward hedge depends on the spot rate at expiration. True or False

3. Factors which can guide the type of currency hedge that should be used include:
   1. the firms risk tolerance
   2. the treasurers expectation of the direction and magnitude of change in the exchange rate
   3. the current spot rate
   4. both a and b
   5. All of the above

4. In hedging an Accounts Receivable transaction using a Put Option, the graph of potential outcomes with regard to spot prices is based on a Protective Put strategy, rather than a traditional Put Option Payoff Chart. True or False

5. The majority of firms actively hedge transaction exposure beyond 18 months. True or False