Suppose the spot rate of the pound today is $1.70 and the three-month forward rate is $1.75.

Question:

a. How can a U.S. importer who has to pay 20,000 pounds in three months hedge his or her foreign-exchange risk?

b. What occurs if the U.S. importer does not hedge and the spot rate of the pound in three months is $1.80?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

International economics

ISBN: 978-8131518823

13th Edition

Authors: Robert J. Carbaugh

See More Books

Question Posted: Nov 14, 2012 03:36 AM

See More Questions

Suppose the spot rate is CHF1.4706/$, and the 180-day forward rate is CHF1.4295/$. If the 180-day dollar interest rate is 7% p.a., what is the annualized 180-day interest rate on Swiss francs that...
The spot rate of exchange is Won1,507/ between Korea and the UK. The one-month forward rate is Won1,450/. A UK company has exported goods to Korea invoiced in Won to the value of Won 1,507m on one...
Suppose the spot rate is $1.08/. The dollar then appreciates by 25 percent against the euro. What is the new exchange rate in dollars per euro?
Convert the ERD below into a Relational Model (Schema List of tables). Specify the Primary and Foreign Keys clearly. id ROLE type id IS A address EMPLOYEE medical details lype name EVIDENCE name...
Give an example of a. A nitrile b. a b- a keto b-diester
Find the solution to the following PDE: \[\begin{aligned}& \frac{\partial^{2} u}{\partial t^{2}}=\frac{\partial^{2} u}{\partial x^{2}} \\& u(0, t)=u(\pi, t)=0 \\& u(x, 0)=0 \\& \frac{\partial...
A long, thin metal plate is hung vertically after a heat treating process. The plate, of width $W=0.2 \mathrm{~m}$, vertical dimension of $3 \mathrm{~m}$, and an initial temperature of...
Lucas has $ 2,000 that he wishes to invest for one year. He has narrowed his choices down to one of the following two actions: a1: Buy bonds of X Ltd., a company that has a very high debt equity...
What are the common issues encountered when scaling chemical processes from laboratory-scale to pilot-scale and ultimately to full-scale production, and how can they be mitigated ?
Evaluate the following expressions: a. Math.abs(1.6) b. Math.abs(2 + 4) c. Math.pow(6, 2) d. Math.pow(5 / 2, 6) e. Math.ceil(9.1) f. Math.ceil(115.8) g. Math.max(7, 4) h. Math.min(8, 3 + 2) i....
Table shows supply and demand schedules for the British pound. Assume that exchange rates are flexible. a. The equilibrium exchange rate equals____. At this exchange rate, how many pounds will be...
Suppose the interest rate (on an annual basis) on three-month Treasury bills is ten percent in London and six percent in New York, and the spot rate of the pound is $2. a. How can a U.S. investor...
Indicate which of the following molecules are optical isomers and identify the chiral carbon atoms in those that are: (a) CH 3 CHBrCH 2 CH 3 ; (b) CH 3 CH 2 CHCl 2 ; (c) 1-bromo-2- chloropropane; (d)...
A crew of 5 bricklayers and 3 helpers construct a CMU partition that is 150 ft long and 11 ft high. What is the labor cost if the productivity rate is 0.11 labor hours/sf bricklayers cost $40.30/hr...
Describing how they intend to apply open communication, praise and encouragement skills in their lives, work or at home.
The number of justices on the Supreme Court isn't written into the Constitution, and Congress has the power to change it. The Judiciary Act of 1789 set the number of justices at six, and the total...
Vermont State, Inc. used $151,000 of direct materials and incurred $62,000 of direct labor costs during the year. Indirect labor amounted to $272,000, while indirect materials used totaled $52,500....
Imagine you are with the adolescent client. What could be some obstacles that prevent you (the counselor) from providing adequate attention to the client?
The United Nations Human Development Index (HDI) is based on GDP per person, life expectancy at birth, and indicators of the quality and quantity of education. a. Explain why the HDI might be better...
The May 2014 revenue and cost information for Houston Outfitters, Inc. follow: Sales Revenue (at standard).............. $ 540,000 Cost of Goods Sold (at standard) ..........341,000 Direct Materials...
True Or False Tort defenses are largely controlled by statute.
In the trade scenario in problem 1, due to overfishing, Norway becomes unable to catch the quantity of fish that it could in previous years. This change causes both a reduction in the potential...
In some economies relative supply may be unresponsive to changes in prices. For example, if factors of production were completely immobile between sectors, the production possibility frontier would...
The counterpart to immobile factors on the supply side would be lack of substitution on the demand side. Imagine an economy where consumers always buy goods in rigid proportionsfor example, one yard...
How do advanced deadlock detection algorithms operate within large-scale systems, and what are the trade-offs between computational complexity and the speed of deadlock resolution ?
Provide an example of typical consumers of energy in real life. Discuss their motives for energy consumption based on economic behavioral models.
How does the concept of a "deadlock-free" system align with the practical realities of resource management in operating systems, and what are the potential drawbacks of striving for complete deadlock...

Suppose the spot rate of the pound today is $1.70 and the three-month forward rate is $1.75.

Question:

Step by Step Answer:

a The US importer can cover her foreign exchange risk by purchasing 20000 pou...View the full answer

International economics

Students also viewed these Economics questions