1. Suppose there are no transaction costs. If the one year forward rate of the euro is an accurate estimate of the spot rate one year from now, then the actual cost of hedging payable will be:
positive.
zero.
positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.
negative.
2. ABC Inc. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Jonathan Inc. is a U.S.-based MNC that has the same exposure as ABC Inc. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk?
ABC Inc.
Jonathan Inc.
the firms have about the same level of exposure.
neither firm has any exposure.