国际财务管理课后习题答案chapter-8

IM-1CHAPTER8MANAGEMENTOFTRANSACTIONEXPOSURESUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTERQUESTIONSANDPROBLEMSQUESTIONS1.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.IM-25.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.IM-39.Explaincontingentexposureanddiscusstheadvantagesofusingcurrencyoptionstomanagethistypeofcurrencyexposure.Answer:Companiesmayencounterasituationwheretheymayormaynotfacecurrencyexposure.Inthissituation,companiesneedoptions,notobligations,tobuyorsellagivenamountofforeignexchangetheymayormaynotreceiveorhavetopay.Ifcompanieseitherhedgeusingforwardcontractsordonothedgeatall,theymayfacedefinitecurrencyexposure.10.Explaincross-hedginganddiscussthefactorsdeterminingitseffectiveness.Answer:Cross-hedginginvolveshedgingapositioninoneassetbytakingapositioninanotherasset.Theeffectivenessofcross-hedgingwoulddependonthestrengthandstabilityoftherelationshipbetweenthetwoassets.IM-4PROBLEMS1.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.and7pe