Chapter 12 managing economic exposure and translation exposure

· Chapter 10: Questions 1 and 23

· Chapter 11: Questions 6, 23, and 24

· Chapter 12: Questions 7 and 11

Chapter 10 question 1

Transaction versus Economic Exposure Compare and contrast transaction exposure and economic exposure. Why would an MNC consider examining only its “net” cash flows in each currency when assessing its transaction exposure?

CHAPTER 10 QUESTION 23

Changes in Economic Exposure The Walt Disney Company built an amusement park in France that opened in 1992. How do you think this project has affected Disney’s economic exposure to exchange rate movements? Think carefully before you give your final answer. There is more than one way in which Disney’s cash flows may be affected. Explain

Chapter 11: Question 6

Hedging with Forward Contracts Explain how a U.S. corporation could hedge net receivables in Malaysian ringgit with a forward contract. Explain how a U.S. corporation could hedge payables in Canadian dollars with a forward contract.

Chapter 11: Question 23

Forward versus Options Hedge on Payables If you are a U.S. importer of Mexican goods and you believe that today’s forward rate of the peso is a very accurate estimate of the future spot rate, do you think Mexican peso call options would be a more appropriate hedge than the forward hedge? Explain.

Chapter 11: Question 24

Forward versus Options Hedge on Receivables You are an exporter of goods to the United Kingdom, and you believe that today’s forward rate of the British pound substantially underestimates the future spot rate. Company policy requires you to hedge your British pound receivables in some way. Would a forward hedge or a put option hedge be more appropriate? Explain.

Chapter 12: Question 7

Limitations of Hedging Translation Exposure Bartunek Co. is a U.S.-based MNC that has European subsidiaries and wants to hedge its translation exposure to fluctuations in the euro’s value. Explain some limitations when it hedges translation exposure.

Chapter 12: Question 11

Managing Economic Exposure St. Paul Co. does business in the United States and New Zealand. In attempting to assess its economic exposure, it compiled the following information.