Assume that you provide financial advice to Minelli Enterprises Limited. The company's management has come to...
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Assume that you provide financial advice to Minelli Enterprises Limited. The company's management has come to you for guidance over a foreign exchange transaction. The company, based in New Zealand, has sold GBP$4,500,000 worth of equipment to a customer in Great Britain. The payment has been deferred for six (06) months. The following information has been provided: NZD 1.9639/GBP NZD 1.9613/GBP 3.12% p.a. 2.22% p.a. 1.22% p.a. 0.86% p.a. 0.68% p.a. 0.92% p.a. Spot exchange rate Six-month forward rate %3D New Zealand lending rate New Zealand deposit rate Great Britain lending rate Great Britain deposit rate Risk free rate in New Zealand Risk free rate in Great Britain Required: 5.1 Calculate the expected spot rate in 6 months, assuming the Interest Rate Parity holds between the two countries. (Round off calculations to four decimals.) (3 marks) 5.2 Calculate the expected value of the sale in New Zealand dollars using the expected spot rate calculated in 5.1 above, assuming they do not hedge. Based on your result, should the company hedge? Why? (2 marks) 5.3 Calculate the value of the proceeds from the sale if the company enters a forward rate agreement. (2 marks) Assume that you provide financial advice to Minelli Enterprises Limited. The company's management has come to you for guidance over a foreign exchange transaction. The company, based in New Zealand, has sold GBP$4,500,000 worth of equipment to a customer in Great Britain. The payment has been deferred for six (06) months. The following information has been provided: NZD 1.9639/GBP NZD 1.9613/GBP 3.12% p.a. 2.22% p.a. 1.22% p.a. 0.86% p.a. 0.68% p.a. 0.92% p.a. Spot exchange rate Six-month forward rate %3D New Zealand lending rate New Zealand deposit rate Great Britain lending rate Great Britain deposit rate Risk free rate in New Zealand Risk free rate in Great Britain Required: 5.1 Calculate the expected spot rate in 6 months, assuming the Interest Rate Parity holds between the two countries. (Round off calculations to four decimals.) (3 marks) 5.2 Calculate the expected value of the sale in New Zealand dollars using the expected spot rate calculated in 5.1 above, assuming they do not hedge. Based on your result, should the company hedge? Why? (2 marks) 5.3 Calculate the value of the proceeds from the sale if the company enters a forward rate agreement. (2 marks)
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Answer 5 O calaulation d the Expected spot xak in G mont... View the full answer
Related Book For
Multinational Business Finance
ISBN: 978-0133879872
14th edition
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
Posted Date:
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