Question

A Japanese EXPORTER has a €1,000,000 receivable due in one year.
Spot and forward exchange rate data is given in the table:

Spot Rate |
1-year forward rate |
Contract Size |

$1.20 =€1.00 |
$1.25= €1.00 |
€62.500 |

$1.00 =¥100 |
$1.20= €120 |
¥12,500,000 |

The one-year risk free rates are *i*_{$} = 4.03%;
*i*_{€} = 6.05%; and *i*_{¥} = 1%.
Detail a strategy using forward contract that will hedge exchange
rate risk.

Group of answer choices

Sell €1m forward using 16 contracts at the forward rate of $1.25 per €1.

Borrow €970,873.79 today; in one year you owe €1m, which will be financed with the receivable. Convert €970,873.79 to dollars at spot, receive $1,165,048.54. Convert dollars to yen at spot, receive ¥116,504,854.

Buy €1m forward using 16 contracts at the forward rate of $1.20 per €1.

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Which of the following is true?
An exporter can shift
exchange rate risk to their customers by invoicing in their
customer's local currency.
A 3-year swap contract can be
viewed as a portfolio of 3 forward contracts with maturities of 1,
2, and 3 years. One important exception is that the forward price
is the same for the swap contract but not for the forward
contracts.
Contingent exposure, which
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Suppose that the current spot exchange rate is GBP1= EUR1.50 and
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which of the following will happen in the market?
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C. Interest rate in EUR will decrease
Please provide supporting evidence and provide any
calculations.

Suppose that the current spot exchange rate is GBP1= €1.50 and
the one-year forward exchange rate is GBP1=€1.60.
One-year interest rate is 5.4% in euros and 5.2% in pounds.
If you conduct covered interest arbitrage using EUR 25,000,000,
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A. EUR will depreciate in spot market
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C. Interest rate in EUR will decrease
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The spot exchange rate for Canadian dollars is $C1.33/$US.Dollars
six-month interest rate
one-year interest rateCanada
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2.75%a. What is the six-month fair forward
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