IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 1500 million payable in three months. Currently, the spot exchange rate is ¥110/$ and the three-month forward rate is ¥100/S. The three-month money market interest rate is 12 percent per annum in the United States and 9 percent per annum in Japan. The management of IBM decided to use a money market hedge to deal with this yen account payable a. Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation b. Conduct a cash flow analysis of the money market hedge
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- IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed ¥210 million payable in three months. Currently, the spot USD/JPY rate is 108 and the three-month forward rate is 103. The three-month money market interest rate is 4.6 percent per annum in the U.S. and 2.4 percent per annum in Japan. The management of IBM decided to use the money market hedge to deal with this yen account payable. Calculate today's dollar cost of meeting this yen obligation. (USD, no cents)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. $ 6589854.111Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-month interest rate is 8 percent per annum in the United States and 7 percent per annum in Germany. Currently, the spot exchange rate is €1.01 per dollar and the six-month forward exchange rate is €0.99 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize the return?
- Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-month interest rate is 12 percent per annum in the United States and 11 percent per annum in Germany. Currently, the spot exchange rate is €1.20 per dollar and the six-month forward exchange rate is €1.18 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should they invest to maximize the return? Required: a. The maturity value in six months if the extra cash reserve is invested in the U.S.: Note: Do not round intermediate calculations. b. The maturity value in six months if the extra cash reserve is invested in Germany: Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar. c. Where should they invest to maximize the return? a. Maturity value b. Maturity value C. Better investmentSuppose that the treasurer of IBM has an extra cash reserve of $400,000 to invest for six months. The six-month interest rate is 4.3 percent per annum in the United States and 3.2 percent per annum in Germany. Currently, the EUR/USD is 1.2248 and the six-month forward exchange rate is1.2351. The treasurer of IBM does not wish to bear any exchange risk. How much would IBM have if they choose to invest in Europe hedging their risk? (USD, no cents)IBM purchased computer chips from Toshiba, a Japanese electronics concern, and was billed ¥250 million payable in three months. Currently, the spot exchange rate is ¥105/$ and the three-month forward rate is ¥100/$. The three-month money market interest rate is 8% per year in the U.S. and 7% per year in Japan. The management of IBM decided to use the money market hedge to deal with this yen account payable. a. Explain the process of a money market hedge from this deal and compute the dollar cost of meeting the yen obligation. b. Conduct the cash flow analysis of the money market hedge.
- Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The interest rate is 12 percent per annum in the United States and 11 percent per annum in Germany. Currently, the spot exchange rate is €1.05 per dollar and the six-month forward exchange rate is €1.03 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he or she invest to maximize the return?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…Credible Research sold a microchip to the Vausten Institute in Germany on credit and invoiced €10 million payable within half a year. Currently, the 6-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Credible Research predicts that the spot rate is likely to be $1.05/€ in 6 months. (i) What would be the expected gain or loss from the forward hedging? (ii) As a decision-maker for Credible Research, would you suggest hedging this euro receivable? Please explain why or why not? (iii) what if the foreign exchange advisor anticipates that the future spot rate will be similar to the forward exchange rate quoted today. As the decision-maker would you propose hedging in this case? If yes or no why?
- Hedging using forward rates: Assume the hypothetical spot rate between the JPY and USD was 101.25 JPY per USD. Suppose you are purchasing 2000000 JPY worth of microprocessors deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 101.18 JPY per USD. What does that imply for your payment to the bank in 3 months?9. Cray Research sold a super computer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in six months. Currently, the six-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.05/€ in six months. (a) What is the expected gain/loss from the forward hedging? (b) If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Why or why not? (c) Suppose the foreign exchange advisor predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? Why or why not? (d) Suppose now that the future spot exchange rate is forecast to be $1.17/€. Would you recommend hedging? Why or why not?An American firm is owed ¥350,000,000.00 payable in one year. The current spot is $0.0120/\. A Japanese bank is paying 1.00% on deposits or will lend at 4.00%. A U.S. bank is paying 4.50% or will lend at 6.50%. The firm would like to hedge this exposure with money market hedging. How much do they need to borrow today? $4,038,461.54 ¥346,534,653.47 ¥336,538,461.54 $4,158,415.84 O None of the alternatives