Forecasting the values of foreign exchange rates

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Reference no: EM132055089

1. Suppose the corporate treasurer of Pentel is very good at forecasting the values of foreign exchange rates by defining the relationships between the exchange rate and other factors. The factors that he uses to forecast exchange rates include oil prices, inflation rates, trade balances, and GDP growth. The treasurer determines the hedging strategy for each of Pentel’s currency positions based on his forecast for the value of the currency. This is an example of a(n)

A. active hedging strategy using technical analysis.

B. active hedging strategy using fundamental analysis.

C. static passive hedging strategy.

D. dynamic passive hedging strategy.

2. Suppose that your firm is an exporter and the firm is being paid with a time draft. The amount is EUR 7,000,000 and it is due in 6 months. The acceptance fee is 0.7% and the banker's acceptance can be sold at a discount of 1.6%. What is the all-in cost (annualized) of financing the transaction with a banker's acceptance? (Note: Use semiannual compounding.)

A. 3.04%

B. 4.28%

C. 5.89%

D. 2.30%

Reference no: EM132055089

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