Foreign Exchange Risk Management

Which instrument allows a company to lock in an exchange rate for a future date?

• Spot contract
  

• Forward contract

• Option contract

• Futures contract

What is the main purpose of currency options?

• To eliminate risk completely
  

• To speculate on currency movements

• To fix interest rates

• To provide flexibility in managing exchange rate risk

Foreign exchange risk only affects multinational corporations.

• True

• False

Foreign exchange risk only affects multinational corporations

• True

• False

What is the main purpose of currency options?

• To provide flexibility in managing exchange rate risk

• To eliminate risk completely

• To speculate on currency movements

• To fix interest rates

Which risk arises from the need to convert financial statements of foreign subsidiaries into the parent company's currency?

• Transaction risk

• Translation risk

• Operational risk

• Economic risk

A futures contract differs from a forward contract in that it is:

• Standardized and exchange-traded

• Private and customizable

• Not legally binding

• Traded over-the-counter

Transaction risk arises due to time differences between the agreement and settlement of a contract

• True

• False

Economic risk is also known as operating exposure

• True

• False

Foreign exchange risk can be entirely eliminated through hedging

• True

• False