Question

**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 spot rate is 0.60 USD/CAD and 180-day
forward rate is 0.62 USD/CAD. The expected CAD spot rate in 180
days has 45% chance to appreciate by 12%, 55% chance to
depreciate by 7%.**

**Please calculate the company's revenue**- if making a forward hedge
- if making a money market hedge
- if making an option hedge
- if no hedge

Please show *workings*, a detailed answer will receive
the thumb up for sure. Thank you:)

Answer #1

Problem 2: Milos Inc. will be paying 500,000
Australian dollars in 180 days. Currently, a 180-day call option
with an exercise price of $.68 and a premium of $.02 is available.
Also, a 180-day put option with an exercise price of $.66 and a
premium of $.02 is available. Mender plans to purchase options to
hedge its payable position. Assuming that the spot rate in
180 days is $.65, what is the amount paid for the currency option
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hedging these receivables. The strike price of American-style put
options are $1.29. The premium on the put options is $.02 per unit.
Assume there are no other transaction costs. Finally, there is...

An importer of Swiss watches has an account payable of
CHF750,000 due in 90 days. The following data is available:
Rates and prices in US-cents/CHF.
Spot rate: 71.42 cents/CHF
90-day forward rate: 71.14 cents/CHF
US –dollar 90-day interest rate: 3.75% per year
Swiss franc 90-day interest rate: 5.33% per year.
Option Data in cents/CHF
_______________________________
Strike Call Put
70 2.55 1.42
72 1.55 2.40
_______________________________
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a 90-day put option with an exercise price of $0.72 and a premium
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Kelvin just purchased £15.2 million goods from a British
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The spot exchange rate is $1.21/£. The 90-day interest rates in
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The 90-day forward rate on the pound is $1.2090/£.
A 3-month call at strike price of $1.20/£ can be purchased at a
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A 3-month put option at strike price of $1.20/£ can be purchased
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Trident — the same U.S.-based company discussed in this chapter,
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Given the following exchange rates and interest rates, which of the
following statements about option hedge is correct? Assumptions
Value 90-day A/R in pounds £2,000,000.00 Spot rate, US$ per pound
($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.5421
3-month U.S. dollar investment rate 4.000% 3-month U.S. dollar...

Bradley Machine Corp. expects to need S$500,000
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current spot rate of the Singapore dollar is $0.60/S$. The one
year forward rate of the Singapore dollar is $0.62/S$. The spot
rate in one year is forecasted to be $0.61/S$. The firm’s WACC
is 12% per year.
Assume that one year put options on Singapore dollars are
available, with an exercise price of $0.63/S$ and a premium of
$0.04/S$. One year call...

11)
Trident — the same U.S.-based company discussed in this chapter,
has concluded a second larger sale of telecommunications equipment
to Regency (U.K.). Total payment of £2,000,000 is due in 90 days.
Given the following exchange rates and interest rates, how much is
the dollar receipt of money market hedge at the end of 90 days?
Assumptions
Value
90-day A/R in pounds
£2,000,000.00
Spot rate, US$ per pound ($/£)
$1.5610
90-day forward rate, US$ per pound ($/£)
$1.5421
3-month U.S....

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The first transaction is for the import of good
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Scenario 2:
Considering the calculations you have done so far, you need to
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The first transaction is for the import of good
quality wines from France, since a retail liquor trading chain
customer in the United States, for who you have been doing imports
over the past five years has a very large order this time. The
producer in France informed you...

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