Answer Happy

1. The following are rates for currencies on March 1 and April
1. The U.S. dollar decreased in value against which currency:
Mar.
01
April 01
(a)
USD/CAD
0.74/1

0.70/1
(b)
USD/NTD
0.03/1
0.04/1
(c)
USD/SGD
0.34/1

0.33/1
(d) USD/SWISS
1.31/1
1.30/1
2. A Japanese exporter of silk ties has shipped to its U.S.
customer merchandise under Net 30 day terms. Immediately after
shipment, in order to eliminate its foreign currency exposure, the
Japanese exporter should:
(a) purchase dollars on the spot market
(b) enter into a 30 day forward contract to buy dollars
(c) enter into a 30 day forward contract to sell dollars
(d) sell dollars in 30 days on the spot market
3. H&M U.S. purchased ladies’ sandals from a supplier in
Spain (part of the Eurozone and thus a user of Eurodollars) under
Net 60 day terms. The transaction was in U.S. dollars. Upon
shipment by the supplier in Spain. H&M U.S. should do what to
eliminate foreign exchange exposure:
(a) Buy Eurodollars on the spot market
(b) sell Eurodollars on the spot market
(c) enter into a 60 day forward contract to buy Eurodollars
(d) do nothing as it does not have a foreign currency risk
4. Under which scenario does the exporter have the least foreign
currency risk:
(a) a sale of merchandise under Net 30 day terms, price in a
foreign currency
(b) a sale of merchandise under D/A 30 day terms, price in a
foreign currency
(c) a sale of merchandise under prepayment terms, price in a
foreign currency
(d) a sale of merchandise under D/P payment terms, price in a
foreign currency
5. You are a U.S. importer of chocolate from Switzerland. Your
seller in Switzerland offers a price that is in Swiss Francs. You
accept the price and payment terms of D/A 30. Which of the
following statements is true
(a) The seller in Switzerland has a foreign currency
exposure
(b) You, the importer, have a foreign currency exposure
(c) Neither party has a foreign currency exposure as the payment
term is D/A
(d) Both parties have a foreign currency exposure as the payment
term is D/A