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:

Disaffirm

To disaffirm means to officially reject, deny, or renounce a contract or agreement, especially by a minor or someone not fully competent.

Disaffirm

The legal act of renouncing or rejecting a contract or agreement, particularly one entered into by a minor.

Tort Theory

A framework within civil law that addresses and provides remedies for civil wrongs not arising from contractual obligations, where one party's negligence or intentional act causes harm to another.

Disaffirmance

The legal act of renouncing or voiding a contract or agreement, particularly used in cases where one party is a minor or where there has been fraud or mistake.