exchange rate Put option Exercise? Inflow Outflow Put premium Exercise cost Profit 1,625 1,64 1,6513 1,6612 1,701

Q: What is the required annual rate of return on the cocoa contract ? You plan to hold the contract for…

A: Solution:- Given in Question- Risk Free Return = 4% Risk Premium = 6% Beta = -0.291 A. To Calculate…

Q: A speculator is considering the purchase of a 6-month Swiss franc call option on 50,000 francs with…

A: Currency = 50,000 FrancsStrike price = $1.0885/SFrPremium = $0.0075/SFrSpot price =…

Q: An asset currently costs $432. The risk-free rate in the economy is 2.8% per year. What should be…

A: Current price = p = $432 Risk free rate = r = 2.8% Time = t = 8 / 12 year

Q: In the US futures contract for Arabica, the most widely produced coffee beans, is traded at…

A: Futures are traded on the margins and margins are to be maintained if money falls below margin than…

Q: . What is the value of the put option? (

A:

Q: An institutional investor, Gilbert Limited, is planning to purchase a straight Eurobond in order to…

A: Euro bond is a debt instrument denominated in a currency other than the home currency of the country…

Q: Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's…

A: Here,RequiredPlatinum is 10,000 ouncesFuture Contract Rate is $1,290 per ouncesTime Period of Future…

Q: The spot price for smoked salmon is $5,000 per ton and its six-month futures price is $4,800. The…

A:

Q: We want to price a European call option: \phi (S(T)) = max{0, K-S(T)} on a risky asset whose price…

A: Valuing a European call choice on a dangerous resource whose cost toward the end of the month t is…

Q: A short forward contract on a commodity that was negotiated some time ago will expire in 9 months…

A: A short forward contract is in force. There is still some time to maturity. We need to quantify the…

Q: Amazon would like to get a floating rate loan $10,000,000. It can borrow at 7.92% or Libor + 1%. A…

A: Two unrelated questions appear on the screen. One of them is from the topic of fixed versus floating…

Q: Today, the July 2022 coffee futures price is trading at 120 cents per pound. Fast forward to late…

A: Futures Contracts: An agreement between a party and the exchange to buy or sell a fixed…

Q: a. The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. Note: Round…

A: The relative worth of two currencies, or the amount of one currency that may be exchanged for one…

Q: The British pound (£) is currently worth 1.45 euros (€). This can either increase by u = 1.1 or…

A: The Binomial Tree option pricing model is used to find out the value of options on an underlying…

Q: In a MNC has peso payables coming due in 90 days, and is certain the the peso will appreciate.…

A: Put option contracts are the contracts which gives the buyer the right to sell an underlying asset.…

Q: Today is mid July. Your Australian company builds trucks and thus need to buy raw materials from…

A: Forward contract is an OTC(over the counter contract ) used for hedging and speculation to buy and…

Q: A rice importer is going to sell rice in one year. In order to lock in a fixed selling price, the…

A: Synthetic future contact is a combination of buying and selling a put and call option at same strike…

Q: A US based IT firm required GBP 100000 in 180 days. The company feels that exchange rates are…

A: 1. Forward contract =                                                                          =…

Q: The British pound (£) is currently worth 1.45 euros (€). This can either increase by u = 1.1 or…

A: The European options only allow the holder to exercise the option at the maturity date. On the other…

Q: To find the quoted price of a 180-day T-bill with a 5% yield and the contract price for a $1,000,000…

A: Treasury bills are short term debt securities issued by U.S. Department of the treasury serves as an…

Q: Suppose the risk free rate in pounds (£) is 5.71% and the risk free rate in US dollars ($) is 7.95%.…

A: The covered interest rate parity ensures the determination of future exchange rates without…

Q: A $2000 bill with a $25 coupon in the US is currently selling at $1800, and a 4000 Swedish Krona…

A: The uncovered interest rate parity refers to the relationship between the relative change in the…

Q: Suppose your company needs to make a payment of 50 million Swiss franc one year from now, how would…

A: Payment obligation = 50 million Swiss franc Futures contract = 125,000 Swiss franc.

Q: An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward…

A: Forward contract:A forward contract is a type of derivative contract that allows individuals or…

Q: An Indian exporter has entered into a sale transaction of pulses for $20,000 for which the payment…

A: calculation in words:Without Hedging:If the exporter does not hedge, the profit or loss would depend…

Q: Suppose that after graduation, you take a job with an Oklahoma oil company. Yo boss indicates that…

A: For hedging, if we go long that means we have got the right to buy the underlying asset at…

Q: Assume the following information: You have $1,000,000 to invest Current spot rate of pound =…

A:

Q: Suppose for simplicity that the price of frozen concentrated orange juice is currently at $1000 per…

A: The futures price will depend upon the spot price, the risk-free rate, and the time to maturity.

Q: As a US exporter selling to Europe. You wish to hedge a 1,040,000 Euro to be received in 3 months…

A: Calculation of dollars received if U.S. exporter hedge the position with futures or if Exporter…

Q: Your firm purchased an equipment from a British company. Total cost was £50,000 (in 30 days). The…

A: Determining the maximum (or minimum) strike price for the option, you will want to choose a strike…

Q: Calculates the price of a 60-day PUT option, on the USD/MXN that presents a spot of 19.9246 MXN per…

A: Spot rate is 19.9246 MXN per USD Put Strike is 20.000 MXN per USD Risk free rate is 4% per year in…

Q: A commercial bill with a face value of P50 000 has a current price of P49291. This bill is trading…

A: Time to maturity means the time in which the bill will be matured and the maturity amount will be…

Q: Consider a one-period binomial model in which the underlying is at 65 Euros, and can go up 30% or…

A: Binomial Model

Q: futures price is $820 per ounce. How many contracts do you need to purchase? How much will you pay…

A: Given that,To find the different entities using the given information.

Q: l. The one year risk-free rate is 6% per annum. The futures price for delivery of one bushel of corn…

A: Spot and futures are related to each other through risk free interest and cost of carrying the…

Q: a. How many contracts must you purchase to protect your portfolio from exchange rate risk? b.…

A: a):Total exposure in dollar terms = $430,000Total exposure in pound terms = $430,000*0.57 = 245,100…

Q: Consider a one-step binomial model over a 3-month period. The current asset price is $100. In 3…

A: Introduction Binomial Model To value American options, the binomial option pricing model uses an…

Q: 6. You are considering purchasing $20,000 worth of British pound denominated CDs. The current…

A: The objective of the question is to find out the minimum annual percentage rate (APR) in British…

Q: Your company needs £500,000 per month. You choose to hedge half of the required amount by entering…

A: Futures are standardized contracts. They are used to buy or sell underlying asset at the…

Q: Suppose you borrow $10,000,000 in the interbank money market at a KLIBOR yield of 6% pa for a term…

A: First of all, we need to understand the meaning of forward rate agreement- It is an agreement…

Q: Consider a farmer who plans to sell 6,000 bushels of corns on date T. The date-T spot price of corn…

A: Plan to sell = 6,000 bushels  Mean = $500 per bushel Standard deviation = $50 per bushel  Future…

Q: You manage a food company. The company will need 850,000 bushels of soya bean in 3 months. The 3…

A: As per our guidelines we are supposed to answer only one question (if there are multiple questions…

Q: Suppose that the spot price of a Canadian dollar is U.S. $0.89 and that the exchange rate has a…

A: Spot price : The spot price is the current market price at which a certain asset can be bought or…

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.