Consider a Simple Exchange Risk Hedging Strategy in Which the U.S

question 36

Multiple Choice

Consider a simple exchange risk hedging strategy in which the U.S. dollar based investor sells the expected foreign currency proceeds of a risky investment forward. Although the expected foreign investment proceeds will be converted into U.S. dollars at the known forward exchange rate under this strategy, the unexpected foreign investment proceeds

• A)will have to be converted into U.S. dollars at the uncertain forward spot exchange rate.
• B)will have to be converted into U.S. dollars at the uncertain future spot exchange rate.
• C)will have to be converted into U.S. dollars at the uncertain swap exchange rate.
• D)none of the above

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Definitions:

Normal Balance

The side (debit or credit) of an accounting ledger where increases are recorded, reflecting the natural balance of an account.

Financial Statement

A formal record of a company's financial activities, including the income statement, balance sheet, and cash flow statement.

Permanent/Temporary

Describing the duration of accounts or conditions; permanent refers to longstanding or indefinite, while temporary implies a limited or specific time frame.

Normal Balance

The side (debit or credit) of an account that is expected to have a higher balance, reflecting its nature in the double-entry accounting system.