国际财务管理课后习题答案chapter 8.docx

国际财务管理课后习题答案chapter 8.docx

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国际财务管理课后习题答案chapter8

CHAPTER8MANAGEMENTOFTRANSACTIONEXPOSURE

SUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTERQUESTIONSANDPROBLEMS

QUESTIONS

1.Howwouldyoudefinetransactionexposure?

Howisitdifferentfromeconomicexposure?

Answer:

Transactionexposureisthesensitivityofrealizeddomesticcurrencyvaluesofthefirm’scontractualcashflowsdenominatedinforeigncurrenciestounexpectedchangesinexchangerates.Unlikeeconomicexposure,transactionexposureiswell-definedandshort-term.

2.Discussandcomparehedgingtransactionexposureusingtheforwardcontractvs.moneymarketinstruments.Whendothealternativehedgingapproachesproducethesameresult?

Answer:

Hedgingtransactionexposurebyaforwardcontractisachievedbysellingorbuyingforeigncurrencyreceivablesorpayablesforward.Ontheotherhand,moneymarkethedgeisachievedbyborrowingorlendingthepresentvalueofforeigncurrencyreceivablesorpayables,therebycreatingoffsettingforeigncurrencypositions.Iftheinterestrateparityisholding,thetwohedgingmethodsareequivalent.

3.Discussandcomparethecostsofhedgingviatheforwardcontractandtheoptionscontract.

Answer:

Thereisnoup-frontcostofhedgingbyforwardcontracts.Inthecaseofoptionshedging,however,hedgersshouldpaythepremiumsforthecontractsup-front.Thecostofforwardhedging,however,mayberealizedexpostwhenthehedgerregretshis/herhedgingdecision.

4.Whataretheadvantagesofacurrencyoptionscontractasahedgingtoolcomparedwiththeforwardcontract?

Answer:

Themainadvantageofusingoptionscontractsforhedgingisthatthehedgercandecidewhethertoexerciseoptionsuponobservingtherealizedfutureexchangerate.Optionsthusprovideahedgeagainstexpostregretthatforwardhedgermighthavetosuffer.Hedgerscanonlyeliminatethedownsideriskwhileretainingtheupsidepotential.

5.SupposeyourcompanyhaspurchasedaputoptionontheGermanmarktomanageexchangeexposureassociatedwithanaccountreceivabledenominatedinthatcurrency.Inthiscase,yourcompanycanbesaidtohavean‘insurance’policyonitsreceivable.Explaininwhatsensethisisso.

Answer:

Yourcompanyinthiscaseknowsinadvancethatitwillreceiveacertainminimumdollaramountnomatterwhatmighthappentothe$/€exchangerate.Furthermore,iftheGermanmarkappreciates,yourcompanywillbenefitfromtherisingeuro.

6.RecentsurveysofcorporateexchangeriskmanagementpracticesindicatethatmanyU.S.firmssimplydonothedge.Howwouldyouexplainthisresult?

Answer:

Therecanbemanypossiblereasonsforthis.First,manyfirmsmayfeelthattheyarenotreallyexposedtoexchangeriskduetoproductdiversification,diversifiedmarketsfortheirproducts,etc.Second,firmsmaybeusingself-insuranceagainstexchangerisk.Third,firmsmayfeelthatshareholderscandiversifyexchangeriskthemselves,renderingcorporateriskmanagementunnecessary.

7.Shouldafirmhedge?

Whyorwhynot?

Answer:

Inaperfectcapitalmarket,firmsmaynotneedtohedgeexchangerisk.Butfirmscanaddtotheirvaluebyhedgingifmarketsareimperfect.First,ifmanagementknowsaboutthefirm’sexposurebetterthanshareholders,thefirm,notitsshareholders,shouldhedge.Second,firmsmaybeabletohedgeatalowercost.Third,ifdefaultcostsaresignificant,corporatehedgingcanbejustifiablebecauseitreducestheprobabilityofdefault.Fourth,ifthefirmfacesprogressivetaxes,itcanreducetaxobligationsbyhedgingwhichstabilizescorporateearnings.

8.Usinganexample,discussthepossibleeffectofhedgingonafirm’staxobligations.

Answer:

Onecanuseanexamplesimilartotheonepresentedinthechapter.

9.Explaincontingentexposureanddiscusstheadvantagesofusingcurrencyoptionstomanagethistypeofcurrencyexposure.

Answer:

Companiesmayencounterasituationwheretheymayormaynotfacecurrencyexposure.Inthissituation,companiesneedoptions,notobligations,tobuyorsellagivenamountofforeignexchangetheymayormaynotreceiveorhavetopay.Ifcompanieseitherhedgeusingforwardcontractsordonothedgeatall,theymayfacedefinitecurrencyexposure.

10.Explaincross-hedginganddiscussthefactorsdeterminingitseffectiveness.

Answer:

Cross-hedginginvolveshedgingapositioninoneassetbytakingapositioninanotherasset.Theeffectivenessofcross-hedgingwoulddependonthestrengthandstabilityoftherelationshipbetweenthetwoassets.

PROBLEMS

1.CrayResearchsoldasupercomputertotheMaxPlanckInstituteinGermanyoncreditandinvoiced€10millionpayableinsixmonths.Currently,thesix-monthforwardexchangerateis$1.10/€andtheforeignexchangeadvisorforCrayResearchpredictsthatthespotrateislikelytobe$1.05/€insixmonths.

（a）Whatistheexpectedgain/los