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Business English Exercises
 

Currency Valuation and Strategic Hedging

Answers to test questions and links to explanations

Home > Teaching Business English > Business English Lessons, Advanced Level # 289
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currency valuation and strategic hedging answer 1
The US dollar's current weakness is making hedging risk very attractive for corporates in North America, while their counterparts in Europe don't have the same advantage.

Correct answer: (b) attractive

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currency valuation and strategic hedging answer 2
However, an active and strategic approach to hedging means that Europeans should not be deterred, Didier Hirigoyen exhorts.

Correct answer: (b) deterred

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currency valuation and strategic hedging answer 3
The current weakness of the US Dollar versus major currencies has revived the debate around net investment hedging as well as earnings translation risk.

Correct answer: (c) versus

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currency valuation and strategic hedging answer 4
Although North American companies' hedging opportunities are now generally benefitting from favourable market conditions, European corporations may not have to shy away from managing these risks.

Correct answer: (d) shy

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currency valuation and strategic hedging answer 5
A solid currency valuation assessment combined with a structured hedging framework can lead to a successful programme; this approach however demands a slightly more dynamic methodology than is common in the corporate world.

Correct answer: (b) demands

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currency valuation and strategic hedging answer 6
Between internal policy constraints and accounting regulation, most companies have chosen to be mostly passive, implementing hedging strategies in a systematic manner or not at all, but rarely taking into consideration market conditions in the decision making process.

Correct answer: (d) taking

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currency valuation and strategic hedging answer 7
While it is fair for companies to state that they are not involved in the currency market to 'punt' on the direction of exchange rates, it is also fair to say that hedging should not be done in a vacuum either.

Correct answer: (d) a vacuum

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currency valuation and strategic hedging answer 8
While understanding the mechanisms and characteristics of the FX market is key to a sound hedging policy, remaining aware of currency valuation and including it in the risk management process can add value to a firm in the long run.

Correct answer: (c) in the long run

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currency valuation and strategic hedging answer 9
The PPP currency valuation model, modified to reflect the assumption that a currency pair has, on average, traded at fair value over the 20 years preceding the measurement point, offers some insight into the long-term behaviour of exchange rates and their tendency to mean-revert on an inflation adjusted basis.

Correct answer: (a) insight

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currency valuation and strategic hedging answer 10
For example, the EUR/$ exchange rate has, over the past 14 years, hovered in a broad band around the PPP implied rate.

Correct answer: (b) hovered

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