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/lossfromtheforwardhedging?

（b）IfyouwerethefinancialmanagerofCrayResearch，wouldyourecommendhedgingthiseuroreceivable？

Whyorwhynot?

（c）Supposetheforeignexchangeadvisorpredictsthatthefuturespotratewillbethesameastheforwardexchangeratequotedtoday。

Wouldyourecommendhedginginthiscase？

Whyorwhynot？

Solution：

（a）Expectedgain（＄）=10,000,000（1.10–1.05）

=10,000，000（。

05）

=$500,000。

（b）IwouldrecommendhedgingbecauseCrayResearchcanincreasetheexpecteddollarreceiptby＄500,000andalsoeliminatetheexchangerisk.

（c）SinceIeliminateriskwithoutsacrificingdollarreceipt，Istillwouldrecommendhedging.

2。

IBMpurchasedcomputerchipsfromNEC,aJapaneseelectronicsconcern，andwasbilled¥250millionpayableinthreemonths.Currently，thespotexchangerateis¥105/$andthethree-monthforwardrateis¥100/＄。

Thethree—monthmoneymarketinterestrateis8percentperannumintheU。

S.and7percentperannuminJapan。

ThemanagementofIBMdecidedtousethemoneymarkethedgetodealwiththisyenaccountpayable.

（a）Explaintheprocessofamoneymarkethedgeandcomputethedollarcostofmeetingtheyenobligation.

（b）Conductthecashflowanalysisofthemoneymarkethedge.

Solution：

（a）。

Let’sfirstcomputethePVof¥250million，i.e。

250m/1.0175=¥245,700，245。

7

SoiftheaboveyenamountisinvestedtodayattheJapaneseinterestrateforthreemonths,thematurityvaluewillbeexactlyequalto¥25millionwhichistheamountofpayable.

Tobuytheaboveyenamounttoday,itwillcost:

＄2,340,002.34=¥250,000,000/105.

Thedollarcostofmeetingthisyenobligationis＄2，340,002。

34asoftoday.

（b）

___________________________________________________________________

TransactionCF0CF1

____________________________________________________________________

1.Buyyensspot-$2,340,002.34

withdollars¥245，700,245.70

2.InvestinJapan-¥245，700，245。

70¥250，000，000

3.Payyens—¥250,000，000

Netcashflow—$2，340,002.34

____________________________________________________________________

3.YouplantovisitGeneva，Switzerlandinthreemonthstoattendaninternationalbusinessconference。

YouexpecttoincurthetotalcostofSF5,000forlodging，mealsandtransportationduringyourstay.Asoftoday，thespotexchangerateis＄0。

60/SFandthethree—monthforwardrateis$0.63/SF.Youcanbuythethree-monthcalloptiononSFwiththeexerciserateof＄0。

64/SFforthepremiumof$0.05perSF.Assumethatyourexpectedfuturespotexchangerateisthesameastheforwardrate.Thethree-monthinterestrateis6percentperannumintheUnitedStatesand4percentperannuminSwitzerland。

（a）CalculateyourexpecteddollarcostofbuyingSF5，000ifyouchoosetohedgeviacalloptiononSF.

（b）CalculatethefuturedollarcostofmeetingthisSFobligationifyoudecidetohedgeusingaforwardcontract。

（c）Atwhatfuturespotexchangeratewillyoubeindifferentbetweentheforwardandoptionmarkethedges？

（d）IllustratethefuturedollarcostsofmeetingtheSFpayableagainstthefuturespotexchangerateunderboththeoptionsandforwardmarkethedges。

Solution:

（a）Totaloptionpremium=（。

05）（5000）=$250。

Inthreemonths，$250isworth$253.75=$250（1.015）.Attheexpectedfuturespotrateof＄0.63/SF,whichislessthantheexerciseprice，youdon’texpecttoexerciseoptions.Rather，youexpecttobuySwissfrancat＄0.63/SF.SinceyouaregoingtobuySF5，000,youexpecttospend$3，150（=.63x5，000）。

Thus，thetotalexpectedcostofbuyingSF5,000willbethesumof＄3，150and$253。

75，i。

e。

，$3,403.75.

（b）＄3，150=（.63）（5，000）。

（c）$3,150=5，000x+253。

75,wherexrepresentsthebreak-evenfuturespotrate。

Solvingforx，weobtainx=$0。

57925/SF。

Notethatatthebreak-evenfuturespotrate,optionswillnotbeexercised。

（d）IftheSwissfrancappreciatesbeyond＄0.64/SF，whichistheexercisepriceofcalloption,youwillexercisetheoptionandbuySF5,000for＄3,200。

ThetotalcostofbuyingSF5，000willbe$3，453。

75=＄3，200+＄253.75.

Thisisthemaximumyouwillpay.

4。

BoeingjustsignedacontracttosellaBoeing737aircrafttoAirFrance.AirFrancewillbebilled€20millionwhichispayableinoneyear。

Thecurrentspotexchangerateis＄1。

05/€andtheone-yearforwardrateis$1。

10/€.Theannualinterestrateis6.0％intheU.S。

and5。

0％inFrance.Boeingisconcernedwiththevolatileexchangeratebetweenthedollarandtheeuroandwouldliketohedgeexchangeexposure。

（a）Itisconsideringtwohedgingalternatives：

selltheeuroproceedsfromthesaleforwardorborroweurosfromtheCreditLyonnaiseagainsttheeuroreceivable。

Whichalternativewouldyourecommend？

Why？

（b）Otherthingsbeingequal，atwhatforwardexchangeratewouldBoeingbeindifferentbetweenthetwohedgingmethods？

Solution：

（a）Inthecaseofforw