PU Transaction Exposure and Economic Exposure Discussion

Description

1. Compare and contrast transaction exposure and economic exposure.

During the Asian crisis in 1998, there were rumors that China would weaken its currency (the yuan) against many currencies in the U.S. and in Europe. This caused investors to sell stocks in Asian countries such as Japan, Taiwan, and Singapore. Offer an intuitive explanation for such an effect. What types of Asian firms would be affected the most?

2. Assume that Stevens Point Co. has net receivables of 100,000 Singapore dollars in 90 days. The spot rate of the S$ is $.50, and the Singapore interest rate is 2% over 90 days. Suggest how the U.S. firm could implement a money market hedge.

Explanation & Answer:

2 Questions

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