Section B - Case 3: GlobalCart
Scenario: GlobalCart is a UK-based cross-border e-commerce company. Its functional currency is the British Pound (GBP).
GlobalCart imports electronics from the US and exports them to Europe.
The company expects to receive EUR 500,000 in 3 months from European customers.
It also needs to pay USD 300,000 in 6 months to its US suppliers.
Question:
The risk that the GBP value of the EUR 500,000 receipt will fall between now and the settlement date in 3 months is known as what type of risk?
ACCA · Question 28 · Risk Management
Section B - Case 3: GlobalCart
Scenario: GlobalCart is a UK-based cross-border e-commerce company. Its functional currency is the British Pound (GBP).
GlobalCart imports electronics from the US and exports them to Europe.
The company expects to receive EUR 500,000 in 3 months from European customers.
It also needs to pay USD 300,000 in 6 months to its US suppliers.
Question:
GlobalCart is considering a money market hedge for the USD 300,000 payment due in 6 months.
Which of the following represents the correct sequence of steps for a money market hedge for a future foreign currency payment?
Answer options:
Borrow USD now, convert to GBP at spot, deposit GBP for 6 months.
Borrow GBP now, convert to USD at spot, deposit USD for 6 months.
Deposit GBP now, convert to USD in 6 months at the forward rate.
Borrow USD in 6 months, convert to GBP at spot, pay supplier.
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