In which of the following scenarios does the firm benefit from the Euro (EUR) depreciating against the US Dollar (USD)?

	A.	A US firm is planning to sell a machine to a European supplier next year
	B.	A US firm expects to receive 10 million Euros in one month
	C.	A US corporation needs to make a principal payment on a 2 million Euro loan next week.
	D.	All of the above
	E.	None of the above

A South African firm has sold some heavy machinery to a European customer. It thinks that it is likely to receive Euros (EUR) in two months from now. How can the South African firm hedge this exposure? I. Enter into a forward contract to buy Euros in 2 months II. Enter into a forward contract to sell Euros in 2 months III. Buy a put option on the Euro that expires in 2 months. IV. Buy a call option on the Euro that expires in 2 months. V. Ask the customer to pay in South African Rand (ZAR).

	A.	I and IV
	B.	II and III
	C.	II and V
	D.	II, III and V
	E.	II
	F.	I

Which of the following foreign currency exposures are difficult to hedge?

	A.	Transaction Exposure
	B.	Operating Exposure
	C.	(B) and (C) are both difficult to hedge
	D.	Translation Exposure
	E.	They are all difficult to hedge

You will pay 70 million YEN in 1 month. Assume the YEN/USD exchange rate has a mean of 110 YEN/USD and a standard deviation of 7, what is the 99% Value at risk (VAR)? Round to the nearest thousands of dollars.

	A.	0.7 m YEN
	B.	0.813 m USD
	C.	7.454 m USD
	D.	Not enough information
	E.	1.115 m US

US based multinational Surplusgoodies Inc has a European subsidiary with net exposed assets of 400 m Euro (EUR). The exchange rate changes from 0.8 EUR/USD to 0.9 EUR/USD. The European subsidiary uses the US Dollar as its functional currency. Which answer below is correct - round to the nearest million.

	A.	Surplusgoodies' net income is not affected
	B.	Surplusgoodies' net income increases by 56 m USD
	C.	Surplusgoodies' net income decreases by 40 m USD
	D.	Surplusgoodies' net income increases by 40 m USD
	E.	Surplusgoodies' net income decreases by 56 m USD

Consider the following information for Global Warning Corp. (GW) and Hurricane Epsilon Industrial Complex (HEPIC). Global Warning has a current price of $55, a US beta of 1.1 and a dividend yield of 5%. HEPIC has a price of $40, a US beta of 0.76 and a dividend yield of 6%. Both Global Warning and Hurricane Epsilon are expected to experience dividend growth rates of 2% and 4% respectively in perpetuity (i.e., forever). Assume both Global Warning and HEPIC are 100% equity financed. In addition you know that the S&P 500 index is at 22000, the yield on the 3-month Treasury bill is 2% and the equity risk premium is 8%.

	A.	Global Warning and HEPIC have the same implied cost of capital
	B.	Global Warning has a lower implied cost of capital than Hurricane Epsilon
	C.	Not enough information to know whether Global Warning or Hurricane Epsilon has a higher cost of capital.
	D.	Global Warning has a higher implied cost of capital than Hurricane Epsilon
	E.	Global Warning and Hurricane Epsilon have the same cost of equity

Which of the following is a correct statement about hedging foreign exchange exposure

	A.	Options are better than futures contracts for hedging foreign exchange rate exposures
	B.	Futures contracts are better than both options and swaps for hedging foreign exchange rate exposures
	C.	None of the above statements are correct
	D.	Neither futures contracts, swaps nor options are effective for hedging foreign exchange rate exposure
	E.	Swaps are better than futures contracts for hedging foreign exchange rate exposures

Solve for the weighted average cost of capital (WACC) for Lightning Complex Corp (LC). LC has a beta of 2 and a debt-to-equity ratio 3. The risk-free rate is 3% and the market risk premium 8%. LC pays a 8% interest rate on its debt.

	A.	8.35%
	B.	10.75%
	C.	16.25%
	D.	Not enough information
	E.	11.55%

Backward Industries - a US based MNC - projects it will receive 50,000 Brazilian Real (BRZ) from a Brazilian customer in 3 months, however, it is only 50% certain that the money will actually be paid out as the customer is currently in financial distress. Backward wants to reduce its exposure to foreign exchange rate risk. Which of the following is the best option for Backward in this situation?

	A.	Enter into a forward contract to buy Brazilian Real
	B.	Buy a put option on the US Dollar
	C.	Tell your Brazilian customer not to pay
	D.	Buy a call option on the Brazilian Real
	E.	Do not hedge this exposure
	F.	Buy a put option on the Brazilian Real

You believe that the US dollar (USD) will fall in value against the Canadian Dollar (CAD). Your best strategy is to...

	A.	All of the above a good strategies.
	B.	Write a call option on the US Dollar
	C.	None of the above
	D.	Buy a put option on the US Dollar
	E.	Buy a call option on the Canadian Dollar
	F.	Borrow in CAD, exchange your CAD for USD, put your USD in a US bank until the dollar depreciates and finally, exchange your USD for CAD and repay your CAD loan.

Home bias only affects investors in developing countries, but not in developed economies.

True

False

Translation exposure is less important than both transaction and operating exposure.

True

False

It is not easy to consistently make money speculating in foreign exchange markets.

True

False

The only advantage of futures contracts relative to forward contracts is that default risk is lower.

True

False

Xzom Corp has repay its Euro (EUR) debt next year. It is concerned that the volatility of the USD/EUR exchange rate may affects its ability to repay the debt. Xzom only benefits from hedging if the US Dollar depreciates?

True

False