Consider a U $$\begin{array} { l c } \text { Exposed assets } & ¥ 700,000,000 \\\text { Exposed liabilities } & ¥ 500,000,000\end{array}$$

question 56

Multiple Choice

Consider a U.S.-based MNC with manufacturing activities in Japan.The result of a change in the ¥-$ exchange rate on the assets and liabilities of the consolidated balance sheet is: $$\begin{array} { l c } \text { Exposed assets } & ¥ 700,000,000 \\\text { Exposed liabilities } & ¥ 500,000,000\end{array}$$ Ignoring transaction exposure in the yen,the translation exposure will indicate a possible need for a "derivatives hedge" of

• A)short position in ¥200,000,000 currency futures.
• B)long position in ¥200,000,000 currency futures.
• C)either a) or b)
• D)none of the above

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Definitions:

Fixed Exchange-rate System

A currency system where the value of a country's currency is pegged to the value of another currency, a basket of other currencies, or another measure of value such as gold.

Demand for Dollars

Refers to the global desire or need for U.S. currency, driven by its use in international trade, investment, and as a reserve currency.

Balance of Payments Surplus

A situation where the total of the payments received from abroad exceeds the total of the payments made to abroad.