Questions 23-36 are based on the following information: Transaction Exposure Problem: (34 points in total) Suppose that you (i.e., company XYZ) are a US-based importer of goods from Canada. You expect the value of the Canada dollar to increase against the US dollar over the next 6 months. You will be making payment on a shipment of imported goods (CAD100,000) in 6 months and want to hedge your currency exposure. The US risk-free rate is 5% and the Canada risk-free rate is 4% per year. The current spot rate is $1.25/CAD, and the 6-month forward rate is $1.3/CAD. You can also buy a 6-month option on Canadian dollars at the strike price of $1.4 /CAD for a premium of $0.10/CAD. If XYZ uses MMH, the guaranteed dollar cost today should be $ .(please leave 2 decimal points for your answer. Example: 123.23)

 Comment on the following statement from a CFO of a domestic company: “Our main market is in US. Everything is denominated in USD. So our company does not have to worry about foreign exchange rate”. Do you agree or disagree with the above statement? Why or why not? Please explain your reason/argument. 

Questions 23-36 are based on the following information: Transaction Exposure Problem: (34 points in total) Suppose that you (i.e., company XYZ) are a US-based importer of goods from Canada. You expect the value of the Canada dollar to increase against the US dollar over the next 6 months. You will be making payment on a shipment of imported goods (CAD100,000) in 6 months and want to hedge your currency exposure. The US risk-free rate is 5% and the Canada risk-free rate is 4% per year. The current spot rate is $1.25/CAD, and the 6-month forward rate is $1.3/CAD. You can also buy a 6-month option on Canadian dollars at the strike price of $1.4 /CAD for a premium of $0.10/CAD. This is an _________ case for XYZ.  

GE Transportation just sold locomotives to a Chinese importer. The payment of $80 million is due in six months, then

 An exporter can shift exchange rate risk to their customers by

 The hedging strategy that Nike’s shoes are primarily made in Malaysia, Philippines, Indonesia, Vietnam now instead of China compared with 10 years ago is an example of _________.

Walmart financial statement shows that Walmart only hedges Japanese Yen and British Pound (instead of over 100 foreign currencies). Which of the following best describes Walmart’s hedging strategy? 

 In Aspen Skiing Company case, the strong dollar in 80s had a _______ effect on the competitive position of Aspen Skiing Company.

Questions 37-40 are based on the following information: (15 points in total) A U.S. firm holds an asset in UK and considers selling it in one year. The firm faces the following scenario of the future spot rates in one year:   State 1 State 2 State 3 State 4 State 5 Probability 20% 20% 20% 20% 20% Spot rate ($/£) 1.6 1.5 1.4 1.3 1.2 P*(£) 1200 1400 1600 1800 2000 P ($) $1920 $2100 $2240 $2340 $2400 In the above table, P* is the pound price (local price) of the asset in UK held by the U.S. firm and P is the dollar price of the asset. The variance of the dollar value of the hedged position is .

 When the domestic currency is strong or expected to become strong