6 Space-X Corporation, located in the United States, has an accounts payable obligation of $750 million payable in one year to Mitsubishi Electric ofJapan. The current spot rate is 116/S and the one year forward rate currently is ¥115/S. However, it is expected that the actual spot rate one yearfrom now could be 118/S. The annual interest rate is 3 percent in Japan and 6 percent in the United States. One-year Call Options on (one Optionround-lot 1,000,000) with a Strike/Exercise Price of $0.0086% are currently trading at the Philadelphia Stock Exchange (PHLX) for a premium of0.012 cents/The Hedge Ratio that is required for a perfect hedging strategy is:A. 0.50B. 0.75OC 0.83OD.0.14

Introduction The hedge ratio contrasts the cost of an investment that is hedged with the overall…

Answered: Space-X Corporation, located in the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 2P

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Currently, the spot rate is RM4.2000/USD and the one year forward rate is RM4.1000/USD. Interest rate in United States is 3% per annum and in Malaysia is 2% per annum. Assume that you can borrow as much as USD100,000 or RM420,000 for your coming project. If Interest Rate Parity (IRP) is not holding, determine how would you carry out covered interest arbitrage (CIA) and compute the profit.
XYZ Corporation, located in the United States, has an accounts payable obligation of ¥658 million payable in one year to a bank in Tokyo. The current spot rate USDJPY = 105.50 and the one year forward rate is 104.25. The annual interest rate is 1.1 percent in Japan and 4.1 percent in the United States. XYZ can also buy a one-year call option on yen at the strike price of $0.0093 per yen for a premium of 0.040 cent per yen. Assume that the forward rate is the best predictor of the future spot rate. The future dollar cost of meeting this obligation using the option hedge is
The current spot rate is $0.80/A$ and the six-month forward rate is $0.7775/A$. One-year interest is 8% in the United States and 9% in Australia. An investor can borrow up to $ 500,000 or A$625,000, the dollar equivalent at the spot rate. a) Determine if IRP is holding between Australia (A$) and USA ($) b) If IRP does not exist, explain briefly how an investor would realize certain arbitrage profit in U.S. dollar terms. c) Explain (briefly) how IRP will be restored as a result of the arbitrage transactions investors carry out above. (Hint to answer : As more investors buy _____(A$ or $) at spot price, _____(A$ or $) will appreciate and hence, the spot price $0.80/A$ will increase so that the interest rate parity is restored.)
XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the one year forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. XYZ can also buy a one-year call option on yen at the strike price of $0.0086 per yen for a premium of 0.012 cent per yen.
XYZ Corporation, located in the United States, has an accounts payable obligation of ¥1500 million payable in six months to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the six month forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. a) What is the future dollar cost of meeting this obligation using the money market hedge a. $92,307. b. $ 19582168.89 c. $13054779.26 d. $ 6589854.111
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 520 million yen payable in one year. The current spot rate is ¥125 per dollar and the one-year forward rate is ¥111 per dollar. The annual interest rate is 6 percent in Japan and 9 percent in the United States. PCC can also buy a one-year call option on yen at the strike price of $0.0080 per yen for a premium of 0.0140 cents per yen. Note: A Negative value should be indicated with a minus sign. Do not round intermediate calculations. Round your final answer in whole dollars not in millions. Required: a. Compute the future dollar costs of meeting this obligation using the money market and forward hedges. b. Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used. c. At what future spot rate do you think PCC may be indifferent between the option and forward hedge? > Answer is…
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 520 million yen payable in one year. The current spot rate is ¥125 per dollar and the one-year forward rate is ¥111 per dollar. The annual interest rate is 6 percent in Japan and 9 percent in the United States. PCC can also buy a one-year call option on yen at the strike price of $0.0080 per yen for a premium of 0.0140 cents per yen. Note: A Negative value should be indicated with a minus sign. Do not round intermediate calculations. Round your final answer in whole dollars not in millions. Required: a. Compute the future dollar costs of meeting this obligation using the money market and forward hedges. b. Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used. c. At what future spot rate do you think PCC may be indifferent between the option and forward hedge? Answer is…
A U.S. investor can borrow 1,000,000 or 500,000 GBP. The spot rate is $2.00/GBP, the one year forward rate is $2.02/GBP. The U.S. one year interest rate is 14% and the one year British interest rate is 12%. Determine if there is a covered interest rate arbitrage opportunity, and if so, clearly show each step involved in the arbitrage opportunity. Show the total dollar profit. If you determined that there is no arbitrage opportunity, describe why you made that decision.
One year borrowing and deposit interest rates are 12.5% and 10.5% respectively in the US and 10.5% and 8.5% respectively in Germany. The spot exchange rate for the US dollar is $1.50 to the EURO. The 12-month forward rate is $1.55.i) Assuming you do not have any initial investment funds, suggest a way you might profit from the pricing inconsistency presented above. Start with a borrowing amount and then explain and calculate the gain/loss with the rates that you will borrow and deposit.ii) Will the situation persist forever? Explain your answer.
Star Alien (US company) sold equipment to Heavy Metal Industry (Italian company) for 1-million-euro receivable in one year. The current spot rate is $1.15/€ and the one-year forward rate is $1.20/€. The annual interest rate is 5 percent in Italy and 8 percent in the United States. Star Alien can also purchase a one-year put option on the euro at the strike price of $1.18 per euro for a premium of 9 cents per Euro. Assuming that the forward exchange rate is the best predictor of the future spot rate, what is the expected future dollar revenue when the option hedge is used? $1,200,000. $1,150,000. $1,297,200. $1,180,000. $1,180,000. $1,082,800. $1,102,800.
Star Alien (US company) sold equipment to Heavy Metal Industry (Italian company) for 1-million-euro receivable in one year. The current spot rate is $1.15/€ and the one-year forward rate is $1.20/€. The annual interest rate is 5 percent in Italy and 8 percent in the United States. Star Alien can also purchase a one-year put option on the euro at the strike price of $1.18 per euro for a premium of 9 cents per Euro. What is the future dollar proceeds of this sale using the money market hedge? Question 1 options: $1,180,000. $1,102,800. $1,150,000. $1,118,056. $1,200,000. $1,182,857.
Calculate the forward rate for a 30-day Forward Contract given Spot Rate = 1.1542 AUD/CAD. The 30-day deposit rate in Canada is 5% and the corresponding rate in Australia is 8% (Note: The interest rates given are not annual rates but are for 30 days. No conversion necessary.) 2) Given Spot Rate=1.3275 SF/$ and the one-year forward rate is 1.3159 SF/$. What should be the one year interest rate in the US if the one year interest rate in Switzerland is 10% 3) Given Forward Rate is 1.50SF/$, i$ = 8%, iSF=10%, calculate the spot price today

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