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Park co Dec 2016/BPP kit mock 3

This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.

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December 23, 2018 at 4:54 pm #492560
maxpopper
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In this question where it asked that in hedging the foreign currency risk of 2 transactions , which of the following hedges will park co find it to be effective?
a) Leading euro payment on its imported goods
b) Taking out forward exchange contract on its future dinar receipt
c) Buying tailor made currency option for its future payment
Correct ans is all these 3. But please can you explain me?
In another part it asked that which hedging methods will assist Park co in reducing its overall foreign currency risk?
a) Taking out a long term euro-denominated loan
b) Taking out a dinar-denominated overdraft
Correct ans is b. But please can you explain me?
December 24, 2018 at 9:13 am #492593
John Moffat
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First question – I explain all of these methods of hedging currency risk in my free lectures. I don’t know what you are wanting me to add.
Second question – Given that they are at risk of movements in the dinar, taking out a euro loan will be of no relevance.
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