1. USNet, Inc., an American networking equipment firm, sells CAD12.5 million worth of networking gear to a Canadian telecom company. The term of the transaction calls for a payment of CAD 12.5 million to be paid immediately. Canadian interest rate is 5% per year, and the US interest rate is 2%. How much is USNet’s transaction exposure?
A. CAD 12.75 million
B. CAD 13.125 million
C. CAD 12.5 million
D. CAD 0
2. A U.S. firm sells merchandise today to a British company for GBP100,000. The current exchange rate is USD2.03/GBP, the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. If the exchange rate changes to USD2.05/GBP the U.S. firm will realize a ________ of ________.
A. loss; USD 2000
B. gain; GBP 2000
C. loss; GBP 2000
D. gain; USD 2000