Burak is a Turkish businessman who has business agreements with Japanese and Russian companies. He buys raw
Question:
Burak is a Turkish businessman who has business agreements with Japanese and Russian companies. He buys raw materials from Russia and sells products to Japan. Currently, 1 Turkish Lira=13.23 Japanese Yen and 1 Russian Rubble=0.11 Turkish Lira. He is expecting both Yen and Rubble is going to depreciate significantly against Lira in 30 days. He will also have to make payment of 6500 Rubble and will receive payment of 925000 Yen exactly after 30 days. He is now thinking to purchase some derivatives contract to hedge his risk. A European call option on Russian Rubble available at 1 Rubble=0.107 Turkish Lira with 0.004 Lira Premium and a put option on Russian Rubble available at 1 Rubble= 0.109 Turkish Lira with 0.001 Lira Premium. Similarly, a European call option on Yen available at 1 Lira=13.18 Yen with 0.03 Yen Premium and a put option on Yen available 1 Lira= 13.20 Yen Turkish Lira with 0.02 Yen Premium. All the contracts have the same expiration date which is 30 days from today.
Required
a. How Burak is going to design strategy so that he can have the highest amount of Lira at the end of the day considering his anticipation is going to be true.
b. What is the maximum amount of Lira Burak can have after 30 days if proper strategy is chosen and both yen and rubble depreciates by 5% against Lira after 30 days.
Managerial Accounting An Introduction to Concepts Methods and Uses
ISBN: 978-0324639766
10th Edition
Authors: Michael W. Maher, Clyde P. Stickney, Roman L. Weil