1. Use Fig. 4.1 to determine whether each of the currencies listed here is selling at...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. Use Fig. 4.1 to determine whether each of the currencies listed here is selling at a 3-month forward premium or discount against the dollar: a. Pound b. Swiss franc c. Yen d. Canadian dollar 2. Calculate the per annum premium (discount) of a 3-month forward contract on Canadian dollars based on the information in Fig. 4.1. 3. List at least three ways in which a futures contract differs from a forward contract. 4. Assume US corporation XYZ needs to arrange to have £10,000 in 90 days. Discuss the alternatives available to the corporation in meeting this obligation. What factors are important in determining which strat- egy is best? 5. Suppose you are the treasurer of a large US multinational firm that wants to hedge the foreign exchange risk associated with a payable of 1,000,000 UK pound due in 90 days. How many futures contracts would cover your risk? 6. Suppose you are the treasurer of a US multinational firm that wants to hedge the foreign exchange risk associated with your firm's sale of equipment to a Swiss firm worth CHF1,000,000. The receivable is due in 6 months. You want to ensure that Swiss francs are worth at least Forward-Looking Market Instruments 103 $0.90 when the francs are received so you want a strike price of $0.90. How many options contracts do you need to hedge this risk? Do you want a call or put on Swiss francs? What has to happen to the spot rate in 6 months for you to let the option expire? Country Argentina (Peso) Australia (Australian $) Brazil (Real) Canada (Canadian $) India (Indian Rupee) Indonesia (Rupiah) Japan (Yen) Sweden (Krona) Switzerland (Franc) UK (Pound) Euro (Euro) Closing mid-point spot rate 8.4645 1.2220 2.6582 1.1583 63.1225 12385.0 119.895 7.8283 0.9937 0.6413 0.8264 3 Month forward 9.335 1.2301 2.7261 1.1606 64.3525 12590.0 119.792 7.8256 0.9919 0.6418 0.8257 One year forward 11.981 1.2035 2.9417 1.1671 67.4425 13235.0 119.174 7.8015 0.9840 0.6426 0.8220 Figure 4.1 Selected currency spot and forward exchange rates. Source: Financial Time Dec. 31, 2014. All rates are in foreign currency per dollar. 1. Use Fig. 4.1 to determine whether each of the currencies listed here is selling at a 3-month forward premium or discount against the dollar: a. Pound b. Swiss franc c. Yen d. Canadian dollar 2. Calculate the per annum premium (discount) of a 3-month forward contract on Canadian dollars based on the information in Fig. 4.1. 3. List at least three ways in which a futures contract differs from a forward contract. 4. Assume US corporation XYZ needs to arrange to have £10,000 in 90 days. Discuss the alternatives available to the corporation in meeting this obligation. What factors are important in determining which strat- egy is best? 5. Suppose you are the treasurer of a large US multinational firm that wants to hedge the foreign exchange risk associated with a payable of 1,000,000 UK pound due in 90 days. How many futures contracts would cover your risk? 6. Suppose you are the treasurer of a US multinational firm that wants to hedge the foreign exchange risk associated with your firm's sale of equipment to a Swiss firm worth CHF1,000,000. The receivable is due in 6 months. You want to ensure that Swiss francs are worth at least Forward-Looking Market Instruments 103 $0.90 when the francs are received so you want a strike price of $0.90. How many options contracts do you need to hedge this risk? Do you want a call or put on Swiss francs? What has to happen to the spot rate in 6 months for you to let the option expire? Country Argentina (Peso) Australia (Australian $) Brazil (Real) Canada (Canadian $) India (Indian Rupee) Indonesia (Rupiah) Japan (Yen) Sweden (Krona) Switzerland (Franc) UK (Pound) Euro (Euro) Closing mid-point spot rate 8.4645 1.2220 2.6582 1.1583 63.1225 12385.0 119.895 7.8283 0.9937 0.6413 0.8264 3 Month forward 9.335 1.2301 2.7261 1.1606 64.3525 12590.0 119.792 7.8256 0.9919 0.6418 0.8257 One year forward 11.981 1.2035 2.9417 1.1671 67.4425 13235.0 119.174 7.8015 0.9840 0.6426 0.8220 Figure 4.1 Selected currency spot and forward exchange rates. Source: Financial Time Dec. 31, 2014. All rates are in foreign currency per dollar.
Expert Answer:
Answer rating: 100% (QA)
One thing here to note is For example 1 US dollar70 INR means with ... View the full answer
Related Book For
International Money and Finance
ISBN: 978-0123852472
8th edition
Authors: Michael Melvin, Stefan C. Norrbin
Posted Date:
Students also viewed these finance questions
-
Use Figure 4.1 to determine whether each of the currencies listed here is selling at a 3-month forward premium or discount against the dollar: a. Pound b. Swiss franc c. Yen d. Canadian dollar...
-
List at least three ways in which a futures contract differs from a forward contract.
-
Use top-down parsing to determine whether each of the following strings belongs to the language generated by the grammar in Example 12. a) baba b) abab c) cbaba d) bbbcba
-
For the given year, find the standard quotas for the New York City boroughs given in Table 17.5 in Problems 23-28. Assume there are eight council seats. Table 17. 5 1990 Year Total 1790 49 1800 81...
-
Helen is a divisional manager with the Canon Park Property Development group. Her performance report shows a positive divisional margin but a loss for the year. Helen has complained to the CEO about...
-
An article in the Wall Street Journal used the headline Procter & Gamble, in a Strategy Shift, Moves to Raise Prices and the sub-headline Company would seek to push through large price increases on...
-
Blade or diagram efficiency is: (a) \(\frac{\left(v_{w 1}+v_{w 2} ight) u}{v_{a 1}^{2}}\) (b) \(\frac{2\left(v_{w 1}+v_{w 2} ight) u}{v_{a 1}^{2}}\) (c) \(\frac{u^{2}}{v_{a 1}^{2}}\) (d) \(\frac{v_{a...
-
1. What is the expected value of the project? 2. Simulate this project 1000 times and compute the average profit over the 1000 replications. Plot a histogram of the outcomes of the 1000 replications....
-
You are provided with the following information for Carla Vista Co., effective as of its April 30, 2025, year-end. Accounts payable $844 Accounts receivable 840 Accumulated depreciation-equipment 640...
-
Determine the forces in members AB , AC , and AD . Point M is the centroid of triangle BCD . The forces are positive if in tension, negative if in compression. B 5.2' M 5.2' 1190 lb x D 5.2 6.6'
-
Find the largest interval containing x = 0 that the Remainder Estimation Theorem allows over which f(x) = sin(3x) can be approximated by p(x) = 3x - decimal-place accuracy throughout the interval....
-
sumitomo bank, a large bank in southern california, has just purchased 120 computers to standardized the computer equipment in each of its offices. the purchase was made by the purchasing manager,...
-
The quotations from the Financial Times are shown below for these currencies (2-points each). Brazil (R$) Mexico (Peso) Closing Mid-point Change on day Bid/Offer spread 6.5115 12.1800 -0.0795 0.0120...
-
If taxpayers rent their second home out for up to 14 days per year, they can _______. Unset starred question Avoid paying taxes on the rental income Deduct employment income from taxes Join a...
-
(30 points) 1. Create a minimum of 10 questions that you will ask your potential marketing client in order to be able to create and develop an advertising campaign for them. Utilize the information...
-
Overview of HR managemen t and its place in the organization: Select an organization of your choice for analysis. You may select an organization where you are now or have been employed, a civic or...
-
(a) In general, metal fractures can be classified as ductile or brittle, but a fracture can also be a mixture of the two. (i) Explain the THREE (3) stages of ductile fracture in a metal in with the...
-
Fahrad Inc. sells all of its product on account. Fahrad has the following accounts receivable payment experience: Percent paid in the month of sale .........10 Percent paid in the month after the...
-
You are the treasurer of a U.S. firm that has a 1 million commitment due to a German firm in 90 days. The current spot rate is $1.00 per euro, and the 90-day forward rate is $1.11. Ali forecasts that...
-
Suppose that the U.S. is considering devaluing its dollar against a foreign currency to improve the trade balance. What type of pass-through effects would lead to a positive effect on the trade...
-
Suppose that the spot rates of the U.S. dollar, British pound, and Swedish kronor are quoted in three locations as the following: Is there an arbitrage opportunity? If so, explain how you, as a...
-
(a) If the particle in Figure 23.6 carries a negative charge \(q (b) Does the electric field created by the particle point toward or away from the particle? (c) If \(q\) and \(q_{2}\) are negative,...
-
If you know the electric field \(\vec{E}\) at some location, how can you determine the magnitude and direction of the electric force exerted by that field on an object carrying a charge \(q\) and...
-
(a) In Figure 23.14, what is the direction of the force \(\sum \vec{F}^{E}\) exerted on a particle carrying a charge \(+q\) and placed at \(\mathrm{P}_{1}\) ? (b) How does \(\sum \vec{F}^{E}\) change...
Study smarter with the SolutionInn App