3. (a) Maendeleo Co., a U.S. firm plans to use a money market hedge to hedge...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
3. (a) Maendeleo Co., a U.S. firm plans to use a money market hedge to hedge its payment of 5 million Australian dollars for Australian goods in one year. The U.S interest rate is 6 percent, while the Australian interest rate is 10 percent. The spot rate of the Australian dollar is $0.96, while the one year-forward rate is $0.84. (i) Determine the amount of U.S. dollars needed in one year if a money market hedge is used (3 points). (!!) Using the information in the previous question, would Maendeleo Co. be better off hedging the payables with a money market hedge or with a forward hedge? (3 points). (b) Bobcat Company, U.S.-based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was Won8,000 million. Won2,000 million has already been paid, and the remaining Won6,000 million is due in six months. The current spot rate is Won1,210/$, and the 6-month forward rate is Won1,275/$. The six-month Korean won interest rate is 18% per annum, the six-month US dollar rate is 6% per annum. Bobcat can invest at these interest rates or borrow at 3% per annum above those rates. A six-month call option on won with a 1400/$ strike rate has a 4.0% premium, while the six-month put option at the same strike rate has a 3.4% premium. Bobcat can invest at the rates given above or borrow at 2% per annum above those rates. Bobcat's weighted average cost of capital is 12%. Required: (i) Illustrate, with detailed computations, alternate ways that Bobcat might deal with its foreign exchange exposure (20 points). (ii) Which alternative method do you recommend, and why? (4 points). 3. (a) Maendeleo Co., a U.S. firm plans to use a money market hedge to hedge its payment of 5 million Australian dollars for Australian goods in one year. The U.S interest rate is 6 percent, while the Australian interest rate is 10 percent. The spot rate of the Australian dollar is $0.96, while the one year-forward rate is $0.84. (i) Determine the amount of U.S. dollars needed in one year if a money market hedge is used (3 points). (!!) Using the information in the previous question, would Maendeleo Co. be better off hedging the payables with a money market hedge or with a forward hedge? (3 points). (b) Bobcat Company, U.S.-based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was Won8,000 million. Won2,000 million has already been paid, and the remaining Won6,000 million is due in six months. The current spot rate is Won1,210/$, and the 6-month forward rate is Won1,275/$. The six-month Korean won interest rate is 18% per annum, the six-month US dollar rate is 6% per annum. Bobcat can invest at these interest rates or borrow at 3% per annum above those rates. A six-month call option on won with a 1400/$ strike rate has a 4.0% premium, while the six-month put option at the same strike rate has a 3.4% premium. Bobcat can invest at the rates given above or borrow at 2% per annum above those rates. Bobcat's weighted average cost of capital is 12%. Required: (i) Illustrate, with detailed computations, alternate ways that Bobcat might deal with its foreign exchange exposure (20 points). (ii) Which alternative method do you recommend, and why? (4 points).
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Predicting Genetic disorders in Children based on their Medical information and History Hereditary diseases is becoming more of a problem as human population grows exponentially. Genetic testing...
-
The paraboloid is formed by revolving the shaded area around the x axis. Determine the radius of gyration k x . The density of the material is ? = 5 Mg/m 3 . y? = 50 x 100 mm 200 mm
-
What is a 95% CI for the population mean of d? Suppose we decide a better measure of the effectiveness of the drug is the mean decrease in blood pressure rather than the measure of effectiveness used...
-
Oliver Inc. makes three types of olive oil that can be sold at split-off or processed further and then sold. The joint cost for October is \(\$ 325,000\). The number of ounces in a bottle of each...
-
For each of the following transactions or economic events, prepare the journal entry that would be required. Assume the year end in each case is December 31: a. On April 2, 2017, Barthel Inc. issued...
-
Company uses the aging method to adjust the allowance for uncollectible accounts at the end of the period. LOADING... ( Click the icon to view additional information. ) . . . Question content area...
-
Snap Photography works weddings and prom-type parties. The balance of Ward, Capital was $14,000 at December 31, 2023. At December 31, 2024, the business's accounting records show these balances: a....
-
E3-16 The December 31, 2024, adjusted trial balance for Fightin Blue Hens Corporation is presented below. Required: Accounts Debit Credit Cash $ 12.000 Accounts Receivable 150,000 Prepaid Rent 6,000...
-
A student developed an experiment to measure the acceleration of the gravity. In the experiment, two photogates were used to measure the time it takes the object to fall from rest (at the first...
-
ChooChoo has pre-tax profit from all operations in 2019 of $32 million. This amount includes a $5 million operating loss from the toy car division incurred between the beginning of the year and...
-
A. What interim reporting requirements would the company have as a corporation? 1. Describe the guidance related to interim financial reporting under generally accepted accounting principles (GAAP)...
-
1. Outline the emergency management training and exercise model and discuss the importance of each step in the process. 2. Discuss what stakeholders including government, private and public partners...
-
If 0 = 11T 6 1 = then tan(0) = cot (0) = sec (0) = = csc (0) = Give exact values. No decimals allowed!
-
In Exercises 1558, find each product. (9 - 5x) 2
-
If the first of three slices of pizza generates 24 utils and four slices of pizza generate 28 utils, then the marginal utility of the fourth slice of pizza is _________ utils.
-
_________ utility is the extra satisfaction generated by an additional unit of a good that is consumed in a given time period.
-
To reach _________, consumers must allocate their incomes in such a way that the marginal utility per dollars worth of any good is the same for every good.
Study smarter with the SolutionInn App