Your Firm Is a U

question 12

Multiple Choice

Your firm is a U.S.-based exporter of bicycles.You have sold an order to a French firm for €1,000,000 worth of bicycles.Payment from the French firm (in euro) is due in three months.Detail a strategy using futures contracts that will hedge your exchange rate risk.Have an estimate of how many contracts of what type and how much (in $) your firm will have.

• A)Go short 12 six-month forward contracts; pay $1,290,000.
• B)Go short 16 six-month forward contracts.Pay $1,230,000.
• C)Go long 16 six-month forward contracts; raise $1,230,000.
• D)Go long 12 six-month forward contracts.Receive $1,230,000.

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Definitions:

Self-Serving Bias

A cognitive bias that causes individuals to see their successes as based on internal factors while attributing failures to external factors.

False Consensus Effect

The tendency to overestimate how much other people share our beliefs, attitudes, and behaviors.

Stanley Milgram

A psychologist best known for his groundbreaking studies on obedience, demonstrating people's willingness to follow authority figures' orders, even to the extent of harming others.

Obedience

The act of following the directions or commands of a person in authority.