University of Notre Dame

ACCOUNTING 4566

1.An American company has bought goods from a British supplier for £500,000. Payment is due in
three months’ time and the American company wishes to hedge its currency exposure.The
following possibilities have been suggested: 1.Buy sterling futures now and sell sterling futures in
three months’ time 2.Buy sterling call options now. 3.Sell sterling futures now and buy sterling
futures in three months’ time 4.Buy sterling put options now. Which two of the suggestions
provided would constitute a hedge against exchange rate risk?
A.1 and 3
B.3 and 4
C.2 and 3
D.1 and 2
2.Determine which of the following statement is correct regarding distinguishing characteristic of
futures contracts, relative to forward contracts.
A.Contracts are structured to minimize the effects of credit risk.
B.All the other possible options
C.Contracts are settled daily, and marked-to-market