QUESTION 5 Assume that a Japanese car manufacturer exports cars to U.S. dealerships, which are priced in yen. The demand for those cars declines when the yen is strong. The manufacturer also produces some cars in the U.S. with U.S. materials and those cars are priced in dollars. The manufacturer could reduce its economic exposure by: pricing its exports in dollars. relying completely on Japanese suppliers for its parts. producing more automobiles in the United States. closing down most of its plants in the United States. QUESTION 4 A U.S. firm has sold an Italian firm 1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65 per euro. They paid an option premium $0.01 per euro and the interest rate on the U.S. dollar is 5% per year. If at maturity the exchange rate is $1.70, the total proceeds to the firm are: $1,700,000 $1,690,000 $1,689,500 None of the answers is correct. QUESTION 6 Jasper Corp. converts $1,000,000 into euros when the exchange rate is $1 = 0.75. After three months, the company converts this back into dollars when the exchange rate is $1 = 0.80. What is the outcome of this transaction? A loss of $62,500 A loss of $937,500 A gain of $937,500 Again of $62,500 1 points Save