Calculate the impact of the two hedging strategies and the unhedged position under the following three scenarios at the end of January:

a) US$ = Can$ 0.90

b) US$ = Can$ 1.00

c) US$ = Can$ 1.10

(For simplification purposes, you may ignore the difference in time values over the 3-month period.)

Forward rates 

 

Spot Rate USD/CAD     0.9344/0.9351
PERIOD	BID	ASK
1 MONTH	0.934330	0.935130
2 MONTHS	0.934190	0.935010
3 MONTHS	0.934160	0.934990
6 MONTHS	0.934530	0.935510
12 MONTHS	0.935620	0.936700
2 YEARS	0.938660	0.940940

 

 

Excerpt from montreal options exchanges online quotes for US$ Friday November 2,2007

 

CALL OPTION				PUT OPTION
YY/MM/Strike	BID PRICE	ASK PRICE	LAST PRICE	YY/MM/Strike	BID PRICE	ASK PRICE	LAST PRICE
07 NO 93.500	0.74	0.79	0.79	07 NO 93.500	0.83	0.88	0.88
07 NO 94.000	0.53	0.58	0.58	07 NO 94.000	1.12	1.17	1.17
07 NO 94.500	0.36	0.41	0.41	07 NO 94.500	1.45	1.50	1.50
07 NO 95.000	0.24	0.29	0.29	07 NO 95.000	1.83	1.88	1.88
07 DE 93.500	1.39	1.44	1.44	07 DE 93.500	1.47	1.52	1.52
07 DE 94.000	1.16	1.21	1.21	07 DE 94.000	1.74	1.79	1.79
07 DE 94.500	0.95	1.00	1.00	07 DE 94.500	2.04	2.09	2.09
07 DE 95.000	0.79	0.84	0.84	07 DE 95.000	2.36	2.41	2.41
07 JA 93.500	1.68	1.73	1.73	07 JA 93.500	1.72	1.79	1.79
07 JA 94.000	1.45	1.50	1.50	07 JA 94.000	2.00	2.05	2.05
07 JA 94.500	1.24	1.29	1.29	07 JA 94.500	2.29	2.34	2.34
07 JA 95.000	1.06	1.11	1.11	07 JA 95.000	2.60	2.65	2.65

Answer rating: 100% (QA)

a US Can 090 3month forward rate 09084 Unhedged position 3month forward rate 09084 Value of 100000 U... View the full answer