Question

ACCOUNTS PAYABLE You import textile products from Britain and you agree that you will pay €1,000,000...

ACCOUNTS PAYABLE

You import textile products from Britain and you agree that you will pay €1,000,000 in six months from now.

Spot rate: $1.220/€

Forward Information: 6-month forward rate is $1.240/€.

Option Information:

Strike Price: $1.23/€

Premium: 1% of the current spot rate (for one foreign currency)

Money Market Information

Money market information

US

UK

Borrowing rate, APR, compounded semiannually

4.0%

5.0%

Investing (lending) rate, APR, compounded semiannually

3.0%

4.5%

Buy or Sell Euro Foward?

How do you Hedge?

Which Option Buy or Put?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 500 million yen payable...
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 500 million yen payable in one year. The current spot rate is ¥124/$ and the one-year forward rate is 110¥/$. The annual interest rate is in Japan is 5% for lending and 6% for borrowing; and in the United States it is 7% for lending and 8% for borrowing. The WACC is 7%. PCC can also buy a one-year call option on yen at the strike price of...
Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German...
Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for euro 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have...
Frank sold his house in Paris to a US-based company, and billed $4 million payable in...
Frank sold his house in Paris to a US-based company, and billed $4 million payable in three months. Considering the euro proceeds from international sales, Frank would like to hedge an exchange risk. The current spot exchange rate is $1.25/€ and the three-month forward exchange rate is $1.30/€ at the moment. Frank can buy a three-month put option on US dollars with a strike price of €0.80/$ for a premium of €0.01 per US dollar. Currently, the three-month effective interest...
Royal Minty of Britain has purchased 20,000 ounces of silver from Silver Products at US$8.30, payable...
Royal Minty of Britain has purchased 20,000 ounces of silver from Silver Products at US$8.30, payable in 180 days. The current spot rate is 1.8127 ($US/£) and the 180-day forward is 1.7863. The CEO at Royal Minty suggests that the spot rate in six months time will be 1.7915. Interest rates in Britain are currently 4.70 percent for 180 days and 1.15 percent in the United States. a-1. Calculate the receipts if Royal Minty takes a chance on the spot...
The first transaction is for the import of good quality wines from Australia, since a retail...
The first transaction is for the import of good quality wines from Australia, 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 Australia informed you that the current cost of the wine that you want to import is AUD$2,500,000. The wine in Australia can be shipped to the United States immediately but you have three months...
ADG has a ¥2,400 million payable in 4 months. The relevant market data include: The current...
ADG has a ¥2,400 million payable in 4 months. The relevant market data include: The current spot exchange rate of $0.01274/¥, four-month forward exchange rate of $0.01274/¥, four-month call option on yen with the strike price set at 127 cents for 100 yen that is selling for 3.11 cents per 100 yen. ADG’s borrowing interest rate in dollars is 0.62%, while lending interest rate in yen is 0.18%. Compare three alternative hedging methods as in our discussions in the textbook:...
Forward versus Money Market Hedge on Payables. Assume the following information:       90‑day U.S. interest rate...
Forward versus Money Market Hedge on Payables. Assume the following information:       90‑day U.S. interest rate = 2% per 90 days or 8% per year compounded quarterly       90‑day Malaysian interest rate = 2.5% per 90 days or 10% per year compounded quarterly         Assume borrowing and lending rates are the same for simplicity.       90‑day forward rate of Malaysian ringgit = $0.31       Spot rate of Malaysian ringgit = $0.30       Assume that the Santa Barbara Co. in the...
John Carrol is a U.S.-based forest products firm. In June John Carrol delivers a shipment of...
John Carrol is a U.S.-based forest products firm. In June John Carrol delivers a shipment of raw lumber to Japan. The ¥55,000,000 receivable is due in 180 days. The firm’s foreign exchange advisors believe the yen will be at about ¥115/$ then. The current spot rate is ¥110/$. John Carrol has received a 180 day forward quote of ¥108/$. It also collects the following information: John Carrol’s cost of capital is 7% per annum; the Japanese money market borrowing rate...
You are the manager of a U.S. company situated in Los Angeles and manages the import/export...
You are the manager of a U.S. company situated in Los Angeles and manages the import/export division of the company. The company distributes (resells) a variety of consumer products imported to the U.S.A from Europe and also exports goods manufactured in the U.S.A. to Canada. Therefore, your company is very much dependent on the impact of current and future exchange rates on the performance of the company. Scenario 1: You have to estimate the expected exchange rates between your home...
Eastman Chemical an American importer from France is trying to hedge a payable denominated in Euro...
Eastman Chemical an American importer from France is trying to hedge a payable denominated in Euro using a money market hedge, given the following information: U.S. interest rate for 1 year                 = 6% European interest rate for 1 year       = 4% Euro spot quote                                   = $1.08 Euro 1‑year forward quote                  = $1.15 What will EMN do to hedge the payable of € 5 million due in one year, if it executes a money market hedge today?...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT