Today is November 25, 2022. Easton, a U.S. company, exports baseball equipment to Taiwan. Easton expects...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Today is November 25, 2022. Easton, a U.S. company, exports baseball equipment to Taiwan. Easton expects to receive a payment of TWD 300 million on March 25, 2023, say, a 4-month maturity for the payment (TWD: Taiwanese Dollar). Easton decides to hedge this exposure using a March forward contract, which expires on March 25, 2023. The 4-month Taiwanese annualized interest rate is 1.2%, while the 4-month U.S. annualized interest rate is 3.3%. On November 25, the spot exchange rate is 31.890 in USDTWD, and the forward matured on March 25, 2023, trades at 31.720 today in USDTWD. (A) Use the information given in the Excel output table as below (based on 20 years of 4-month changes) to calculate the VaR associated with Easton's open position (use a 97.5% single-tailed level of confidence, or z = 1.96). (15 points) (B) Calculate the amount to be received on March 25, 2023, using a forward hedge. (5 points) (C) Calculate the amount to be received on March 25, 2023, using a money market hedge. (6 points) (D) Compared with the results for forward hedge and money market hedge, which strategy is better in this case? (2 points) Notes: Data is in terms of "USDTWD," but the question is in terms of USD-i.e., the USD is the domestic currency. • DATA The information below is based on 4-month percentage changes from 2002:1 to 2021:12. 4-mo% change USDTWD Mean Standard Error Median Mode Standard Deviation Kurtosis Skewness Minimum Maximum Sum Count -1.99% 0.2784% -1.60% 3.16% 0.712128 -0.34207 -9.364% 7.2586% -9.102 60 Today is November 25, 2022. Easton, a U.S. company, exports baseball equipment to Taiwan. Easton expects to receive a payment of TWD 300 million on March 25, 2023, say, a 4-month maturity for the payment (TWD: Taiwanese Dollar). Easton decides to hedge this exposure using a March forward contract, which expires on March 25, 2023. The 4-month Taiwanese annualized interest rate is 1.2%, while the 4-month U.S. annualized interest rate is 3.3%. On November 25, the spot exchange rate is 31.890 in USDTWD, and the forward matured on March 25, 2023, trades at 31.720 today in USDTWD. (A) Use the information given in the Excel output table as below (based on 20 years of 4-month changes) to calculate the VaR associated with Easton's open position (use a 97.5% single-tailed level of confidence, or z = 1.96). (15 points) (B) Calculate the amount to be received on March 25, 2023, using a forward hedge. (5 points) (C) Calculate the amount to be received on March 25, 2023, using a money market hedge. (6 points) (D) Compared with the results for forward hedge and money market hedge, which strategy is better in this case? (2 points) Notes: Data is in terms of "USDTWD," but the question is in terms of USD-i.e., the USD is the domestic currency. • DATA The information below is based on 4-month percentage changes from 2002:1 to 2021:12. 4-mo% change USDTWD Mean Standard Error Median Mode Standard Deviation Kurtosis Skewness Minimum Maximum Sum Count -1.99% 0.2784% -1.60% 3.16% 0.712128 -0.34207 -9.364% 7.2586% -9.102 60
Expert Answer:
Related Book For
Auditing and Assurance services an integrated approach
ISBN: 978-0132575959
14th Edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley
Posted Date:
Students also viewed these finance questions
-
Spot EURUSD is at 1.0589 with 3 month forward points of 27. If 3 month EUR interest rates are currently at 0.5% the implied 3 month USD interest rate is ____
-
The spot rate between the U.S. dollar and the Taiwan dollar is $1 = TWD29.905. If the interest rate in the United States is five percent and in Taiwan is three percent, then what should be the...
-
Easton Electronics in Irvine, California, is a contract manufacturer that assembles complex solid- state circuit boards for advanced technology companies in the aerospace and health sciences...
-
You and your spouse have earned salary and wages of $41,750. In addition you have municipal bond interest income of $600 and savings account and certificate of deposit interest income of $800. You...
-
Refer to information from QS 23-10. Turks pays a sales manager a monthly salary of $4,000 and a commission of 10% of camera sales (in dollars). Prepare a selling expense budget for the month of June.
-
Considering only students who do not bring a videogame to campus, find and interpret a 95% confidence interval for the difference in mean GPA between students whose roommate does not bring a...
-
The test statistic F is never greater than 1. In Exercises 7 and 8, determine whether the statement is true or false. If the statement is false, rewrite it as a true statement.
-
Was the confiscation of all cigar manufacturers by the Cuban government in the early 1960s and expropriation or a nationalization? Was this confiscation commercial activity in which a private...
-
UCD uses forward contract to hedge 450,000 euro receivable. Suppose one year later, the euro spot exchange rate is $1.1200. What is UCD's real cost of hedging?
-
A factory produces office chairs. According to the past data, the weekly demand has the following probability distribution. The selling price per chair is $120. In addition, the historical data...
-
The Bucks Centre for the Performing Arts (BCPA), an entertainment venue, wants to allow customers to order tickets through the Internet. This new Online Ticketing System (OTS) must allow the customer...
-
Riana Miren and Trinh are 28 and 37 years old, respectively. Based on a normal distribution with mean 52.8 years and standard deviation 10.3, what is the probability that a skydiver will be between...
-
Lens Junction sells lenses for $46 each and is estimating sales of 16,000 units in January and 18,000 in February. Each lens consists of 2 pounds of silicon costing $2.50 per pound, 3 oz of solution...
-
Months 1 2 7475AEN 3 15 Given the following data, compute MAD, MSE, and MAPE for the following data. Then, please compute the standard deviation of forecast error using the first eight months. Demand...
-
In your first week of operating the caf , you only expect to sell 3 2 0 medium cups of coffee daily, Monday through Friday. You plan to sell the specialty ciffee for $ 3 . 4 0 each. You know your...
-
Use a working paper to consolidate the trial balances of ITI and GOC at June 30, 2018. Calculate the DR. CR. Eliminations. International Technology Inc. (ITI) acquired all of the voting stock of...
-
____________a group of buyers and sellers of a good or service. The terms __________refer to the behavior of people as they interact with one another in markets. Modern economics is about, supply and...
-
Provide examples of a situations in which environmental disruptions affected consumer attitudes and buying behaviors.
-
Multiple Choice Questions The following questions deal with auditing year-end cash. Choose the best response. a. A CPA obtains a January 10 cutoff bank statement for a client directly from the bank....
-
Items 1 through 6 are questions typically found in a standard internal control questionnaire used by auditors to obtain an understanding of internal control for notes payable. In using the...
-
How does the auditor read and evaluate information that is available only in machine-readable form?
-
State the main audit objectives for (1) sales transactions and (2) debtors balances.
-
What are the major files and printed outputs of computerised processing for sales transactions?
-
What is the sequence of steps normally associated with processing of credit sales? For each step, identify one control.
Study smarter with the SolutionInn App