1. A Malaysian company has regular receipts in yen.

Give examples of how the company can

manage this exposure by using matching cash flows strategy.
a. Malaysia company borrow debt from japan bank and they will pay the principal and
interest payment on debt in Japan Yen
b. At the same period, Malaysia company export goods to Japan and get the payment for
the export that the same amount like the amount of debt in Yen.
c. Malaysia company can use the yen from export to pay the debt in Japan.
2. Give an example of how the company above can manage the same exposure above by
using a currency switching strategy.
Dealer & firm agree to exchange equivalent amount of two different currencies for a
specified period of time
a. Malaysia company will swap his Account receivables from the sales to Japan with the
debt in Japan in Japan company Liability which Malaysia company wil pay Yen and
the Japan will receive Yen
b. At the same time, Japan company will swap the sales to Malaysia account with account
debt in Japan in Malaysia company, so the Japan company will pay in MYR and
Malaysia company receive MYR.
3. A US company needs to pay its German supplier 2 million in 90 days. If there is a risk-
sharing agreement that calls for the settlement rate to be the mid-rate between the 90-day
forward rate now ($1.15/) and the spot rate 90 days from now (which turns out to be
$1.25/), how much would be paid by the US company (in $), and how much would be
received by the German supplier (in )?
= $ x 1/1.2 = euro 2,000,000
$= $ 2,400,000 that must paid by U.S company.and the German company will get euro
2,000,000
4. Explain how a Swede company that wishes to lend to its Swiss subsidiary can use a back-
to-back loan to overcome currency exposure.

In a back-to-back loan, a Swede company would loan SEK 1000 to a Swiss. company in the
Sweeden., and the Swiss company would loan an equivalent amount (at spot exchange rates)
inCHF to the Sweden firm in the Dwiss. Both companies get the currency needed without
going to the forex market.

5. Differentiate between a cross-currency swap and a back-to-back loan.

A back-to-back loan is a loan in which two companies in different countries borrow

offsetting amounts from one another in each other's currency.

A cross-currency swap is an over-the-counter derivative in a form of an agreement between

two parties to exchange interest payments and principal on loans denominated in two
different currencies and cross currency swap does not not appear in companys balance sheet