Question

Please show how answer is derived.

Kanga Co. expects to receive A$500,000 in 360 days. Interest rates are as follows:: | ||

| U.S. | Australia |

360-day borrowing rate | 6% | 4% |

360-day deposit rate | 5% | 3.5% |

The forward rate of the Australian dollar is $.75 and the spot rate of the Australian dollar is $.73. Kanga Co. plans to use a money market hedge for 360 days. | ||

(1) How many A$ will you borrow? | ||

(2) How many U.S. dollars will you receive when you convert the borrowed Australian dollars to U.S. dollars | ||

(3) How many U.S. dollars will you have after investing them for 360 days? |

Answer #1

Amount borrowed in Australian dollars= | 500000/(1+4%) | |

480,769.23 | ||

Amount converted back to USD | 480769.23*0.73 | |

350,961.54 | ||

Amount in USD after 360 days | =350961.54*(1+5%) | |

368,509.62 | ||

Narto Co. (a U.S. firm) exports to Switzerland and expects to
receive 200,000 Swiss francs in one year. The one-year U.S.
interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 9% when investing funds,
and 10% when borrowing funds. The spot rate of the Swiss franc is
$.80. Narto expects that the spot rate of the Swiss franc will be
$.75 in one year. There is a put option available on...

Mattel is a U.S.-based company whose sales are roughly
two-thirds in dollars (Asia and the Americas) and one-third in
euros (Europe). In September, Mattel delivers a large shipment of
toys (primarily Barbies and Hot Wheels) to a major distributor in
Antwerp. The receivable, €36 million, is due in 90 days,
standard terms for the toy industry in Europe. Mattel's treasury
team has collected the following currency and market quotes in the
table below. The company's foreign exchange advisers believe the...

Maria Gonzalez and Ganado.
Ganado the ?U.S.-based company discussed in this chapter—has
concluded another large sale of telecommunications equipment to
Regency? (U.K.). Total payment of ?£3,000,000 is due in 90 days.
Maria Gonzalez has also learned that Ganado will only be able to
borrow in the United Kingdom at 14.681?% per annum? (due to credit
concerns of the British? banks). Given the exchange rates and
interest rates in the popup? window, compare alternate ways below
that Ganado might hedge its...

You are the treasurer of Arizona Corporation and must decide how
to hedge (if at all) future receivables of 350,000 Australian
dollars (A$) 180 days from now. Put options are available for a
premium of $0.02 per unit and an exercise price of $0.50 per
Australian dollar. The forecasted spot rate of the Australian
dollar in 180 days is:
The 180-day forward rate of the Australian dollar is $0.50.
What is the probability that the forward hedge will result in...

An American company will be given 1,500,000 CAD in 180
days (360 days per year), and it wants to maximise the USD value of
this transaction.
Call and put options on the CAD in USD are available
with the following specifications:
Call premium: 0.04 USD, Strike price of a call = 0.74
USD/CAD
Put premium: 0.03 USD, Strike price of a put = 0.75 USD/CAD
The annual interest rate in US and Canada is 2% and 4%
respectively. The current...

Crown Co. is expecting to receive 100,000 British pounds in one
year. Crown expects the spot rate of British pound to be $1.49 in a
year, so it decides to avoid exchange rate risk by hedging its
receivables. The spot rate of the pound is quoted at $1.51. The
strike price of put and call options are $1.54 and $1.53
respectively. The premium on both options is $.03. The one-year
forward rate exhibits a 2.65% premium. Assume there are no...

Your Australian friend is a foreign exchange student in Boston.
Because of the travel restrictions in place, she is unable to
return to Australia. To fund her accommodation and living expenses
in the US, she decides to invest some money for 245 days.
She can invest in Australia, where annualised 245-day interest
rates are currently 3.94%. Alternatively, she can convert her
Australian dollars into USD at a current spot rate of AUD0.8505/USD
and invest at an annualised 245-day interest rate...

Lorre Co. needs 200,000 Canadian dollars (C$) in 90 days and is
trying to determine whether or not to hedge this position. Lorre
has developed the following probability distribution for the
Canadian dollar: Possible Spot Rates in 90 days Probability $.54
15% $.57 25% $.58 35% $.59 25% The 90-day forward rate of the
Canadian dollar is $.585. If Lorre implements a forward hedge, what
is the probability that hedging will be more costly to the firm
that not hedging?...

the 90-day U.S. interest rate is 4.13%. The 90-day Malaysian
interest rate is 4.75%. The 90-day forward rate of Malaysian
ringgit is $0.402, and the spot rate of Malaysian ringgit is
$0.402. Assume that the Santa Barbara Co. in the United States will
need 234,535 ringgits in 90 days. It wishes to hedge this payables
position. How much is the cost difference of Santa Barbara from
implementing a forward hedge and a money market hedge (Please round
to a dollar...

EXCEL FORMAT ONLY, PLEASE AND THANK YOU
Suppose a BMW 528i is priced at $68,750 in New York and €50,267
in Berlin. In which place is the car more expensive if the spot
rate is $1.3677/€?
[EXCEL]Forward rate: If the spot rate was $1.0413/C$ and the
90-day forward rate was $1.0507/C$, how much more (in U.S. dollars)
would you receive by selling C$1,000,000 at the forward rate than
at the spot rate?
8. [EXCEL]Forward rate: Crane, Inc., sold equipment to...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 24 minutes ago

asked 31 minutes ago

asked 57 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago