Your firm is a Swiss exporter of bicycles. You have sold an order to a British firm for £1,000,000 worth of bicycles. Payment from the British firm (in pounds sterling) is due in 12 months. Use a money market hedge to redenominate this one-year receivable into a franc-denominated receivable with a one-year maturity. U.S. $ equiv. Currency per U.S. $ Contract Size Country £ 10,000 Britain (pound) $ 1.9600 £ 0.5102 interest APR 12 months forward $ 2.0000 £ 0.5000 rates € 10,000 Euro $ 1.5600 € 0.6410 i$ = 4% 12 months forward $ 1.6000 € 0.6250 i€ = 3% SFr. 10,000 Swiss franc $ 0.9200 SFr. 1.0870 i₤ = 2% 12 months forward $ 1.0000 SFr. 1.0000 isFr. = 1% The following were computed without rounding. Select the answer closest to yours. SFr. 2,000,000 SFr. 2,151,118.62 SFr. 2,068,383.28 SFr. 1,921,941.75 SFr. 2,109,548.17
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- A UK company owes an American company $100,000 due to be paid in three months. The company wishes to avoid exchange rate risk, so borrows enough in sterling now and converts it immediately to dollars which are invested to bring in the required amount in three months' time. The following information is available: Spot rate $/£ 1.7755 - 1.7765 3-month interest rates: Sterling 3.250% US dollar 2.425% How much will the UK company have to borrow now to clear the debt in three months? A. £54,958 B. £54,989 £56,744 D. £56,775 C.Consider a U.S.-based company that exports goods to Switzerland. The U.S. company expects to receive a payment of 50,000 Swiss Francs (CHF) on a shipment of goods in 6 months' time. The U.S. interest rate is 2% p.a., and the Swiss interest rate is 4% p.a. Assume that the current spot rate is CHF0.96/USD. Which of the following statements is correct: The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to sell Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to sell Swiss francs forwardGotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm expects to receive €1.2 million in 6 months’ time from a customer abroad. Current exchange rates in the home country of Gotohell are: Exchange rate : Euros Per dollar Spot : 4.1780-4.2080 6-month forward : 4.2302- 4.2606 12-month forward : 4.2825-4.3132 Required: a) Calculate the rate of forward discount of the euro on the 6-month forward exchange rate both for buying and selling rate. b) Assuming that forward contract is the only hedging tool available in the home country of Gotohell, calculate, when compared to its current dollar value, the gain or loss which Gotohell will incur by taking out a forward exchange contract on the future receipt of euros. c) On the basis of your answer in (b), advise Gotohell on the desirability of this hedge. d) If the interest rate in the home country of Gotohell is 4% per year, calculate the implied annual interest rate in the foreign customer’s…
- Gotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm expects to receive €1.2 million in 6 months’ time from a customer abroad. Current exchange rates in the home country of Gotohell are: Exchange rate : Euros Per dollar Spot : 4.1780-4.2080 6-month forward : 4.2302- 4.2606 12-month forward : 4.2825-4.3132 Required: a) Calculate the rate of forward discount of the euro on the 6-month forward exchange rate both for buying and selling rate. b) If the interest rate in the home country of Gotohell is 4% per year, calculate the implied annual interest rate in the foreign customer’s country, using the mid-spot and the mid-twelve-month forward exchange rate.Gotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm expects to receive €1.2 million in 6 months’ time from a customer abroad. Current exchange rates in the home country of Gotohell are: Exchange rate : Euros Per dollar Spot : 4.1780-4.2080 6-month forward : 4.2302- 4.2606 12-month forward : 4.2825-4.3132 Required: a) Calculate the rate of forward discount of the euro on the 6-month forward exchange rate both for buying and selling rate. d) If the interest rate in the home country of Gotohell is 4% per year, calculate the implied annual interest rate in the foreign customer’s country, using the mid-spot and the mid-twelve-month forward exchange rate.A UK importer contracts to pay 18 million Yen for raw material from a supplier in Japan on one month's credit. The importer arranges with his bank to cover the transaction in sterling on the forward exchange market. The following rates are quoted to him (in Yen/£): Spot rate 247.45 - 247.75 1 month forward 248.00 – 248.80 What will be the cost of the shipment in sterling?
- Victoria Exports (Canada). A Canadian exporter, Victoria Exports, will be receiving six payments of €13,400, ranging from now to 12 months in the future. Since the company keeps cash balances in both Canadian dollars and U.S. dollars, it can choose which currency to exchange the euros for at the end of the various periods. Which currency appears to offer the better rates in the forward market? (Click on the icon to import the table into a spreadsheet.) U Period spot 1 month 2 months 3 months 6 months 12 months Period Days Forward Spot 1 month 2 months Days Forward 30 60 90 180 360 0 30 60 Calculate the forward premium, the Canadian dollar proceeds, and the difference from the spot rate proceeds in the C$/Euro forward market below: (Round the forward premium to three decimal places and the Canadian dollar amounts to the nearest cent.) C$/euro C$/euro 1.3337 1.3364 1.3386 1.3412 1.3437 1.3461 1.3337 1.3364 1.3386 US$/euro 1.3217 1.3220 1.3222 1.3225 1.3230 1.3256 Forward Premium on the…Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Assumptions Arbitrage funds available Spot exchange rate (kr/$) 3-month forward rate (kr/S) US dollar 3-month interest rate Danish kroner 3-month interest rate Value $5,000,000 6.1720 6.1980 4.000% a) 5.000% a) kr Equivalent kr 30,860,000 Heidi Høi Jensen generates a covered interest arbitrage profit because, although U.S. dollar interest rates are lower, the U.S. dollar is selling forward at a premium against the Danish krone. What is the amount of that profit? kr21,102 kr34,750 kr24,250 kr54,150Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.3356 S$/US$. You have just placed an order for 30,000 motherboards at a cost to you of 218.50 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $175 each. a. Calculate your profit if the exchange rate stays the same over the next 90 days. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. Calculate your profit if the exchange rate rises by 10 percent over the next 90 days. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. Calculate your profit if the exchange rate falls by 10 percent over the next 90 days. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d. What is the break-even exchange rate? Note: Do not round…
- James Clark is a foreign exchange trader with Citibank. He notices the following quotes: Spot exchange rate USD 1.2051/CHF One-year forward exchange rate USD 1.1922/CHF One-year $ interest rate 8% per year One-year CHF interest rate 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1,000,000.Your firm is a U.S.-based supplier of agricultural parts. A European customer just made a €50,000 purchase on trade credit terms of net 30 days. At the time of the sale, the exchange rate was EUR/USD 1.19. The projected exchange rate in 30 days is EUR/USD 1.21. Calculate the value of accounts receivable on the date of the sale. a. $41,322.31 b. $42,016.81 C. $59,500.00 d. $60,500.00American Airlines is trying to decide how to go about hedging 70 million swiss francs in ticket sales receivable in 180 days. Suppose it faces the following exchange and interest rates. Spot rate: $0.6433-42/SFr Forward rate (180 days): $0.6578-99/SFr DM 180-day interest rate (annualized): 4.01%-3.97% U.S. dollar 180-day interest rate (annualized): 8.01%-7.98% What is the hedged value of American’s ticket sales using a money market hedge? Assume the first interest rate is the rate at which money can be borrowed and the second one the rate at which it can be lent. A $42,999,212 B $45,907,296 C $41,450,291 D $35,501,223