12. Your firm is a British importer of Italian shoes. You have placed an order with an Italian firm for €1,000,000 worth of shoes. Payment (in EUR) is due in 3 months. What is the company's CCY position? With the rates provide below, what is the amount of GBP you will pay if you implement a money market hedge? Current FX rate is €1.2000/£ and money market rates are 0.25% and 1.00% for the EUR and the GBP respectively. Company's Position: A. £ 833,854.17 B. £ 834,894.86 C. £ 831,774.73 D. £1,197,755.61

12. Your firm is a British importer of Italian shoes. You have placed an order with an Italian firm for €1,000,000 worth of shoes. Payment (in EUR) is due in 3 months. What is the company's CCY position? With the rates provide below, what is the amount of GBP you will pay if you implement a money market hedge? Current FX rate is €1.2000/£ and money market rates are 0.25% and 1.00% for the EUR and the GBP respectively. Company's Position: A. £ 833,854.17 B. £ 834,894.86 C. £ 831,774.73 D. £1,197,755.61

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Please use this information to answer the question below: A US firm's expected Accounts Receivables in Euro Zone due in 1 year Current Spot Rate (SR) for EUR Annual interest rate in US (Rh) Annual interest rate in Euro Zone (RF) EUR 15,000,000 USD 1.25 5% O use a money market hedge O use a forward hedge 12% If the 1-year Forward rate for EUR is $1.15, then based on all information given above, the firm should:
Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €11.00 million payable in six months. Currently, the six-month forward exchange rate is $1.15 per euro and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.10 per euro in six months. Required: a. What is the expected gain/loss from a forward hedge? 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. b. If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? d. Suppose now that the future spot exchange rate is forecast to be $1.22 per euro. Would you recommend hedging? a. b. Would you recommend hedging this euro…
Suppose that you are the CFO of Google with an extra U.S. $20 Million to invest for one year. You are considering the purchase of U.S. T-bills that yield 4% per year. The spot exchange rate is $1.00 = €0.90, and the one-year forward rate is $1.00 = €0.95 . What must the interest rate in the Eurozone (on an investment of comparable risk) be before you are willing to consider investing there instead of the US? a. 9.78% b. 1.56% c. 4.00% d. 5.56%
company will receive €75 million in 1 year from an Italian customer. observe the following data. $:€ Spot Rate $1.25:€1.00 $:€ Forward Rate $1.30:€1.00 How many USD will you receive if you employ a forward hedge
The following is the spot and forward rates of dollar against Euro. Spot 30-day forward Euro/$ 0.85 0.90 You sign a contract for selling John Deere with the amount of 1 billion euros that will be delivered in 30days. You expect the 30day later the spot rates of dollar to be 0.75 with 50% chance and 0.95 with 50%. What is the expected dollar amount if no forward has been used? As a risk-neutral person, is it a good idea to use the forward?
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
Assume the spot rate between the uk and the US is .€ .6789= $1 while the one year Foward rate is €.6782=$1. The risk free rate in the UK is 3.1 percent. The risk free rate in the U.S is 2.9 percent. How much profit can you earn for the year on a loan of $1,500 by utilizing covered interest abitrage?
An investor has $10m to invest and has the following options: 1) depositing it in a US bank account paying 3% annually, or 2) depositing it in a German bank, where the annual rate of interest is only 2%. Assume that today the current spot exchange rate for the Euro is given as $1.2750, while the 1-year Dollar-Euro forward rate is posted as 1.2995. a. Based on your knowledge of the relationship between interest rate differentials and the current dollar-euro forward premium or discount, in which country should the investor deposit her money? why? b. If you had the power to adjust the German interest rate, with all else constant, what rate would you establish, such that the investor is totally indifferent between depositing in either countries? Show your work and the logic behind it.
The current spot exchange rate is $1.60/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? A. Sell €1,000,000 forward for $1.60/€, and you expect to gain $20,000. B. Buy €1,000,000 forward for $1.55/€, and you expect to gain $70,000. C. Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€. D. Buy €1,000,000 forward for $1.60/€, and you expect to gain $20,000.
5. A U.S. firm expects a receivable (cash inflow) of €1,000,000 in six months. The current exchange rate is $1.125/€. Firm wants to sell euros in six months (to convert the inflow into dollars). Consider 3 possible spot prices in six months. 1. $1.195/€ 2. $1.100/€ 3. $1.025/€ What kind of option, put or call, is appropriate to hedge with? In each scenario, what is the total amount of the firm's NET receivable? NET receivable implies you should consider the receivable as well as the hedging costs of buying the option. (Assume an option exercise price of $1.130/€ and option premium of $.016/€) | 1. 2. 3.
In a recent e-news, you observe that the 6-month forward rate is $1.5031/Euro. Further, if you invest the dollar, it fetches you interest at the rate of 2% p.a. In comparison, the interest rate in Eurozone is 1% p.a. You also see that CAD 1.5513 are needed to purchase a Euro and CAD 1.332 are needed to buy a US$. Is it possible for you to make an arbitrage profit? If so, which arbitrage strategies will you employ and what will be the profit? Assume that interest rate parity holds and you have one million dollars available to conduct arbitrage.
Newstar Co. expects to pay 500,000 euro in one year. Assume the annual interest rate of borrowing or lending euro is 1% and the annual interest rate of borrowing or lending U.S. dollar is 2%. The spot rate of euro is $1.12 per euro. How much guaranteed amount of U.S. dollar does the company expect to pay after hedging the euro payable transaction in the international money market? (pick the closest answer) A. 565,545 USD. B. 554,510 USD. C. 562,786 USD. D. 576,912 USD.

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