The current spot exchange rate is $1.14/euro. The current 90-day forward exchange rate is $1.11/euro. How could a U.S firm, which must repay a 40 million euro loan in 90 days, use a forward exchange contract to hedge its risk exposure?
What will be an ideal response?
POSSIBLE RESPONSE: The U.S. firm needs to enter into a forward contract to buy 40 million euros in 90 days. The forward rate is $1.11/euro; therefore, the company must deliver $44.4 million in 90 days. This way, the company has an asset position in euros through the forward contract that covers its liability of the 40-million euro loan.
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What is intellectual property?
A. The power of the mind to create new ideas for future use B. The ability to use technology to solve problems. C. Ideas that are legally protected from being used by others. D. The ability of individuals to use their mind to solve real-world problems.
Wendy spends $30 a week on movies and magazines. The price of a movie is $8, the price of a magazine is $2, and Wendy sees 3 movies a week and buys 3 magazines
The price of a magazine now increases to $4 and Wendy's brother gives her $6 a week so that she can still see 3 movies a week and buy 3 magazines. In this situation, Wendy will see ________ movies and buy ________ magazines. A) 3; 3 B) less than 3; less than 3 C) more than 3; fewer than 3 D) less than 3; more than 3
A currency swap can
A) make foreign goods more expensive in the domestic market. B) make the foreign exchange rate more volatile over time. C) reduce foreign exchange risk. D) make domestic goods more expensive in foreign countries.
Assume that the characteristic functions for individuals 1,2, and 3 are given by V(1) = $20, V(2) = $16, and V(3) = $10 respectively, and value created by the coalition V(1,2,3) = $60 . If the payoff to individual 1 is $30, and that to individuals 2 and 3 is $15 each, which of the following statements is true?
a. The given allocation is within the core. b. 2 and 3 will withdraw from the coalition. c. 2 will block the imputation. d. This allocation is individually rational for all.