A US Firm Could Issue Bonds Denominated in Euros and Partially

question 13

Multiple Choice

A U.S. firm could issue bonds denominated in euros and partially hedge against exchange rate risk by:

• A) invoicing its exports in U.S. dollars.
• B) requesting that any imports ordered by the firm be invoiced in U.S. dollars.
• C) invoicing its exports in euros.
• D) requesting that any imports ordered by the firm be invoiced in the currency denominating the bonds.

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Definitions:

Reasoning

The mental activity of transforming information to reach conclusions.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Endowment Effect

The cognitive bias causing individuals to ascribe higher value to things merely because they own them.

Loss Aversion

A psychological principle suggesting people tend to prefer avoiding losses to acquiring equivalent gains.