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LOS g: Explain the limitations to hedging the exchange rate risk of a foreign market portfolio and discuss two feasible strategies for managing such risk.
Q1. If a manager plans to use currency forwards to hedge a long position in foreign equities, then which of the following would be a reasonable strategy?
A) Short an amount that is more than the current equity position.
B) Short an amount that is less than the current equity position.
C) Go long an amount that is more than the current equity position.
Q2. If a manger shorts a forward currency contract to hedge the expected value of a foreign-equity portfolio in one year. The worst-case scenario is if the portfolio’s return is:
A) less than the expected value and the currency depreciates.
B) greater than the expected value and the currency appreciates.
C) less than the expected value and the currency appreciates.
Q3. When hedging the exchange-rate risk of a foreign currency-denominated equity portfolio, a manager must recognize that the position has:
A) exchange-rate risk only.
B) both equity risk and foreign exchange risk.
C) equity risk only.
Q4. In order to perfectly hedge an investment in foreign equities, a manager would most likely have to use:
A) currency forwards only.
B) both currency forwards and equity futures.
C) both currency futures and equity forwards.
Q5. All else being equal, when investing in foreign equity assets, the exchange-rate dimension of the investment generally:
A) diversifies the position and thus lowers risk.
B) can be completely hedged.
C) increases the total risk.
Q6. An asset manager says he has perfectly hedged an equity portfolio that is denominated in a foreign currency by only using forward currency contracts. We know then that the:
A) asset manager is not telling the truth.
B) number of contracts used is equal to that used on a comparable equity position.
C) number of contracts used is greater than that used on a comparable equity position. | 
发表于 2009-4-9 11:13
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