The Following Is an Example of Radio Shack Hedging Its

question 34

Multiple Choice

The following is an example of Radio Shack hedging its foreign currency risk:

• A) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to buy yen.
• B) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to sell yen.
• C) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack buys yen at a spot-exchange 1 month from now.
• D) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen at a spot-exchange 1 month from now.
• E) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen in a forward-exchange deal.

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Definitions:

Residual Dividend Policy

A strategy where a company pays dividends out of the residual or leftover equity only after all project capital needs are met.

Dividend Payout Ratio

Amount of cash paid out to shareholders divided by net income.

Ex-dividend Date

The date on which a stock begins trading without the right to receive the next declared dividend, effectively setting the cut-off for new investors to benefit from the upcoming dividend payment.

Date Of Record

The date set by a corporation on which the shareholders must be registered to be eligible to receive dividend payments.