Your Firm,which Operates in the United States,has a Contractual Payment

question 110

Multiple Choice

Your firm,which operates in the United States,has a contractual payment of £1 million due in 3 months.Which of the following methods would be considered speculative regarding your exchange rate risk?

• A) Buy 1 million pounds now at the current spot rate.
• B) Buy 1 million pounds in 3 months at the current spot rate.
• C) Contract forward to buy 1 million pounds in 3 months.
• D) Borrow dollars, convert to pounds at spot, and invest for 3 months.

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Definitions:

Prosperity Phase

A period in the business cycle characterized by economic growth, high employment, and rising incomes.

Three-Phase Cycle

A conceptual model describing the three stages of economic cycles: expansion, peak, and recession.

OPEC

The Organization of the Petroleum Exporting Countries, an intergovernmental organization of oil-exporting countries that coordinates and unifies petroleum policies among Member Countries.

Quadrupled

To increase or be increased fourfold.