A Firm That Sells Goods to Foreign Countries on a Regular

question 14

Multiple Choice

A firm that sells goods to foreign countries on a regular basis can avoid exchange-rate risk by

• A)buying stock options.
• B)selling puts on financial futures.
• C)using a foreign exchange swap.
• D)buying swaptions.

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Definitions:

Mail Float

The time difference between when a check is written and when it is actually cleared and funds are deducted from the payer's account.

Availability Float

The time difference between when a check is deposited in a bank account and when the funds are made available.

Miller-Orr Model

A financial model used to manage cash balances by setting upper and lower limits on cash reserves, triggering buying or selling of securities when these thresholds are crossed.

Safety Stock

Safety stock is additional inventory held by a business to prevent stockouts caused by variations in supply and demand.