Suppose that you have revenues denominated in Japanese Yen expected in 6 months. How would you hedge this risk using money market instruments? How would a money market hedge compare to a forward hedge?
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Suppose that you have revenues denominated in Japanese Yen expected in 6 months.
How would you hedge this risk using
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- Illustrate how the currency risk exposure can be hedged for Fund Y. Determine the payoff for the forward position if the exchange rate rises to MYR/RMB 1.6830 after 3 months.Jerome J. Jerome is considering investing in a security that has the following distribution of possible one-year returns: Probability of occurrence 0.10 0.20 0.30 0.30 0.10 Possible return −0.10 0.00 0.10 0.20 0.30 a. What is the expected return and standard deviation associated with the investment?Question 1) Federico wants to calculate the expected rate of return for security for his work as a freelance investment banker. He has the following figures to calculate CAPM: the risk-free interest rate is 4%, the expected return of the market is 17%, and the risk index of the security is 1.40.
- Topic: risk mitigation by various types of hedging. You know you have to purchase a large quantity of some product from Europe a year from now, you face the risk that the value of the euro could increase dramatically, thus costing you a lot of money. Fortunately, there are ways to hedge this risk, so that if the euro does increase relative to the dollar, your hedge minimizes your losses. Question: What does " if the euro does increase relative to the dollar, your hedge minimizes your losses" mean? What is the further explanationThe market portfolio (M) has the expected rate of return E(rM) = 0.12. Security A is traded in the market. We know that E(rA) = 0.17 and βA = 1.5. (1) What is the rate of return of the risk-free asset (rf)? (2) Security B is also traded in the market. βB = 0.8. Then what is “fair” expected rate of return of security B according to the CAPM? (3) Security C is a third security traded in the market. βC = 0.6, and from the market price, investors calculate E(rC) = 0.1. Is C overpriced or underpriced? What is αC?Suppose investors expect interest rates to increase substantially in the future. Currently, should they prefer to purhcase short-term or long-term investments? Explain your asnwer.
- What is the amount of the risk premium on a U.S. Treasury bill if the inflation rate is 2.6 percent, the risk-free rate is 3.1 percent, and the market rate of return is 7.4 percent?Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year 1 2 O21.20% 3 4 5 6 O22.34% O 23.49% O24.63% O24.10% Market 10.00% 12.00% 16.00% 14.00% 12.00% 10.00% Security J 12.00% 14.00% 18.00% 22.00% 18.00% 14.00%At any point in time forward rates computed by the yield curve represent the market's best estimates about the future course of short-term interest rates. Hence, for an individual investor who has a one-period investment horizon, it makes no difference what the term to maturity is on the individual security purchased. True/false?
- Which of the following statement is true a. Gold generally provides a hedge against inflation over long periods of time b. Capital market is the market for short and long-term fixed income securities c. Investment in real estate is liquid d. Money market is the market for short and long-term fixed income securitiesWhy do we discount the future in valuing investments today that are expected to provide returns in the future? Explain with examples. Define & explain Annual Percentage Rate (APR) & the Effective Annual Rate (EAR). What is the relationship between APR & EAR? The discounting of the future is assumed to be exponential. What does behavioral finance have to say about this assumption? What is hyperbolic discounting?The constant rupee value plan requires a. Investors to fix the expected value of their portfolio b. Investors to fix their periodical installments c. Investors to fix their rebalancing points d. All of the mentioned