Gray Wolf. Gray Wolf, Ltd., a Canadian manufacturer of raincoats, does not selectively hedge its transaction exposure. Instead, if the date of the transaction is known with certainty, all foreign currency-denominated cash flows must utilize the following mandatory forward cover formula: Mandatory Forward Cover 0-90 days 91-180 days 180 days paying the points forward 75% 60% 50% Recieving the points forward 100% 90% 50% Gray Wolf expects to receive multiple payments in Danish kroner over the next year. DKr3,000,000 is due in 90 days, DKr2,000,000 is due in 180 days, and DKr1,000,000 is due in one year. Using the following spot and forward exchange rates, what would be the amount of forward cover required by company policy for each period?   Dkr = C $1.00 Spot rate 4.70 3-month forward rate 4.71 6-month forward rate 4.72 12-month forward rate 4.74

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Explain your understanding of currency hedging. Why is hedging necessary? If your company is expected to pay ¥100 million to a company in Japan on September 30, 2021 list two ways that your company can hedge this transaction.

A multinational corporation based in the United States expects to receive a large payment in euros from its European client in six months. The corporation wants to hedge against potential depreciation of the euro. Which specific forward contract(s) could the company use to mitigate the currency risk? Select all that apply: Buy U.S. dollars forward against euros Sell U.S. dollars forward against euros Buy euros forward against U.S. dollars Sell euros forward against U.S. dollars

Identify what transaction risk management is done in the following cases: (A) ABC Corporation will only accept P200,000 or its equivalent on the payment date despite having a USD4,000 sale. (B) ABC Corporation pays a foreign-currency denominated purchase early when it sees that the Philippine peso will decrease in value.a. Invoicing in home currency; Leadingb. Forward contract; Leadingc. Invoicing in home currency; Laggingd. Forward contract; Lagging

Busco has a foreign-currency denominated payable, itcan hedge by buying the foreign currency payableforward. The company can expect to eliminate theexposure without incurring costs as long as the forwardexchange rate is an unbiased predictor of the future spotrate. Busco exported an A380 to a UK company, and wasbilled the sum of £ 12,000,000 payable in three months.Currently the spot rate is $1.40/£ and the three-monthforward rate is $1.36/£.The three-month money marketinterest rate is 12% per annum in US and 8% per annumin UK.So the management of Busco decided to managethis transaction exposure and use the money markethedge to deal with this pound account payable. 1)Conduct a cash flow analysis of the money market hedge. Answer:   Transaction Current cash flow (3-month) Cash flow at maturity  1 Borrow £   =£11,764,705.88     - £12,000,000 2 Buy $ spot with £   = $16, 470,588.24   - £11,764,705.88   0 3 Invest in US   - $16, 470,588.24…

Identify what transaction risk management is done in the following cases: (A) ABC Corporation will only accept P200,000 or its equivalent on the payment date despite having a USD4,000 sale. (B) ABC Corporation pays a foreign-currency denominated purchase early when it sees that the Philippine peso will decrease in value.*   Forward contract; Lagging Forward contract; Leading Invoicing in home currency; Lagging Invoicing in home currency; Leading

(b) Jackton Company limited is a UK firm that has bought goods from a US Supplier and must pay US $4 million in three month time. The company finance director wishes to hedge against the foreign exchange risk and is considering 3 methods. Using forward exchange contract Using the money market hedge Using lead payment The annual interest rate and exchange rates are given below; US S UK £ Deposit Rate 1 month 7% Borrowing rate 10.25% Deposit Borrowing 10.75% 3 month 7% 10.75% 4% 14% 4.25% Spot rate £:1 : $ 1.8625 1.8635 1 month forward 0.6-0.58 cents premium 3 months forward 1.80 1.75 cent premium Advice the company on the best method to use. (Show all your workings) [12 marks]

Busco has a foreign-currency denominated payable, it can hedge by buying the foreign currency payable forward. The company can expect to eliminate the exposure without incurring costs as long as the forward exchange rate is an unbiased predictor of the future spot rate. Bus Co exported an A350 to a UK business, and was billed the sum of £11,000,000 payable in three months. Currently the spot rate is $1.30/£ and the three-month forward rate is $1.26/£.The three-month money market interest rate is 11% per annum in US and 7% per annum in UK.So the management of Busco decided to manage this transaction exposure and use the money market hedge to deal with this pound account payable. (i) Show how Busco can eliminate the exchange rate exposure by computing the dollar cost of meeting the pound obligation. ii)Conduct a cash flow analysis of the money market hedge.

Cheng has a 80,000 foreign currency receivable due in 60 days. What is the appropriate action for Cheng to take today if it wishes to hedge its foreign exchange exposure. a. Enter into a FX spot contract today, purchasing foreign currency and selling US dollars b. Sell an FX option today to a Bank, giving the Bank the right but not the obligation to sell to Roberts 50,000 foreign currency and buy US dollars in 60 days. c. Enter into an FX forward today buying foreign currency and selling US dollars for settlement in 60 days d. Enter into an FX forward today buying US dollars and selling foreign currency for settlement in 60 days. e. Buy an FX option today giving Roberts the right but not the obligation to buy 50,000 foreign currency and sell US dollars in 60 days