Oscar Manufacturing Co. Ltd. is a British based company that regularly receives orders from the Euro...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Oscar Manufacturing Co. Ltd. is a British based company that regularly receives orders from the Euro zone countries. Some raw materials are imported from Mexico while the USD is the payment currency. Recently, Oscar has signed a contract of 6.5 million Euros with a French company and a contract of 2 million USD to import raw materials from Mexico, with payment due in 6 and 3 months time respectively. The following market data is available: GBP foreign exchange rates (Currency per GBP): EURO Spot 1.1681 1.1683 3 months forward 1.1659- 1.1665 6 months forward 1.1634- 1.1640 Interest rates (per annum): Borrowing 2.80% 3.0% 1.18% GBP US Dollar Euro Investing 0.1% 0.25% 0.0% 1.36 1.37 Euro futures on Intercontinental Exchange, Euro 125,000 contract size June 0.8575 September 0.8594 Currency options, GBP 62,500 contract size, premium the U.S. cents per GBP Strike price CALLS PUTS ($US) USD 1.3543-1.3545 1.3547-1.3551 1.3543-1.3548 March 1.53 0.93 June 1.87 1.12 March 1.23 1.97 June 1.32 2.21 Options and futures contracts mature at the month end. The options are American style. Suppose that it is now 1st March. (a) Discuss and evaluate alternative strategies that you might use to minimize the foreign exchange rate risk. Strike Price 1.36 1.37 Contract No. Contract in GBP Premium in $ Premium in GBP underhed ge in GBP @3 month using spot Under hedge in USD rate forward Total in GBP needed for payment 3 month option premium in GBP carry forward (using borrowing rate) Total GBP needed Oscar Manufacturing Co. Ltd. is a British based company that regularly receives orders from the Euro zone countries. Some raw materials are imported from Mexico while the USD is the payment currency. Recently, Oscar has signed a contract of 6.5 million Euros with a French company and a contract of 2 million USD to import raw materials from Mexico, with payment due in 6 and 3 months time respectively. The following market data is available: GBP foreign exchange rates (Currency per GBP): EURO Spot 1.1681 1.1683 3 months forward 1.1659- 1.1665 6 months forward 1.1634- 1.1640 Interest rates (per annum): Borrowing 2.80% 3.0% 1.18% GBP US Dollar Euro Investing 0.1% 0.25% 0.0% 1.36 1.37 Euro futures on Intercontinental Exchange, Euro 125,000 contract size June 0.8575 September 0.8594 Currency options, GBP 62,500 contract size, premium the U.S. cents per GBP Strike price CALLS PUTS ($US) USD 1.3543-1.3545 1.3547-1.3551 1.3543-1.3548 March 1.53 0.93 June 1.87 1.12 March 1.23 1.97 June 1.32 2.21 Options and futures contracts mature at the month end. The options are American style. Suppose that it is now 1st March. (a) Discuss and evaluate alternative strategies that you might use to minimize the foreign exchange rate risk. Strike Price 1.36 1.37 Contract No. Contract in GBP Premium in $ Premium in GBP underhed ge in GBP @3 month using spot Under hedge in USD rate forward Total in GBP needed for payment 3 month option premium in GBP carry forward (using borrowing rate) Total GBP needed
Expert Answer:
Answer rating: 100% (QA)
Foreign Exchange Rate Risk Minimization Strategies for Oscar Manufacturing Oscar Manufacturing can use a variety of strategies to minimize its foreign exchange rate risk Natural hedge This involves ma... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
1. Show that 23(4x+4)=4(2-3)+20 2. Show the equation below in a Sigma operator notation: (ay+4)+(ay +5)+ (ay +6) + (ay +7) + (ay +8) + (ay +9)
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Read the case study and answer the question below with a one page response. What does a SWOT analysis reveal about the overall attractiveness of Under Armours situation? Founded in 1996 by former...
-
A teacher has just given an algebra exam. What are some of the statistics she could compute?
-
The balance sheet data of Wyeth Company at the end of 2010 and 2009 follow. Land was acquired for $30,000 in exchange for common stock, par $30,000, during the year; all equipment purchased was for...
-
For the circuit in Figure 6.14, \(\beta=100, V_{A}=\infty, V_{C C}=10 \mathrm{~V}\), and \(R_{B}=50 \mathrm{k} \Omega\). (a) Determine \(V_{B B}\) and \(R_{C}\) such that \(I_{C Q}=0.5 \mathrm{~mA}\)...
-
The following information is available for Jay Company: Calculate the following ratios for 2019: a. Gross profit percentage b. Return on sales c. Asset turnover d. Return on assets e. Return on...
-
Pay Corporation acquired a 75 percent interest in Sue Corporation for $600,000 on January 1, 2011, when Sue's equity consisted of $300,000 capital stock and $100,000 retained earnings. The fair...
-
QUESTION 4 Desperate Company is approaching the end of its fiscal year, and the management team is under pressure to meet or exceed earnings expectations set by analysts and investors. The CEO has...
-
Which series has the highest beta. BraveNewCoin Liquid Index for Bitcoin 1D BNC Trading Brave Ne Yellow Green Blue Orange
-
8. Find the lines that are tangent and normal to the curve at the given point. y=6 sin (xx-y), (1,0) The line tangent to the curve y=6 sin (x-y) at (1,0) is y= The line normal to the curve y = 6 sin...
-
A spherical helium-filled balloon has a radius of 12m. The balloon, basket, and cables have a mass of 196 kg. (a) If the density of the air is air = 1.25kg/m 3 , what is the maximum additional mass...
-
The Cheyenne Hotel in Big Sky , Montana, recorded its total electrical costs and number of occupancy - days over the last year. An occupancy - day represents a room rented for one day. The hotel's...
-
Suppose we have a lognormally distributed $55 stock with a 14% continuously compounded expected rate of return, a 4% dividend yield, and a 25% volatility. The continuously compounded interest rate is...
-
1. Explain the stages of the consumer buying behavior. Illustrate your answer with a recent personal experience. 2. Explain the meaning of value and highlight the differences between utilitarian...
-
Find the equivalent system of equations to the following augmented matrices: 0 3 a) 1 -1 4 0 Solution: (a) (b) (c) 2 -2 2 3 1 b) 4 3 2 0 00 6 10 0 7 1 0 0 1 -3 10 -3 9 0 -1.1 0 0 3 -5T 3 2.5
-
Heat engine X takes in 4.4 times more energy by heat from the hot reservoir than heat engine Y. Engine X delivers 2.4 times more work, and it rejects 8.0 times more energy by heat to the cold...
-
Determine which of the following limits exist. Compute the limits that exist. lim x-0 1- + 3x X
-
Explain why political risk may discourage international business.
-
1. What is the amount, in baht, that Blades needs to borrow to cover the payments due to the Thai suppliers? What is the amount, in yen, that Blades needs to borrow to cover the payments due to the...
-
The treasurer of Glencoe, Inc., detected a forecast bias when using the 30-day forward rate of the euro to forecast future spot rates of the euro over various periods. He believes he can use this...
-
Under U.S. GAAP, research and development costs are expensed as incurred; however, in the natural resource industry, the cost of finding and developing natural resources may be capitalized to the...
-
Under U.S. GAAP, an asset that is impaired should be written down in value, with an equivalent loss taken on the income statement. Discuss how you would determine whether an assets value was impaired...
-
Under U.S. GAAP, the interest cost associated with borrowings used in the self-construction of a business asset may be capitalized to the balance sheet as part of the self-constructed assets cost...
Study smarter with the SolutionInn App