Transaction Exposure Problem: Suppose that you (i.e., company XYZ) are a US-based importer of goods from Canada. You expect the value of the Canada dollar to increase against the US dollar over the next 6 months. You will be making payment on a shipment of imported goods (CAD100,000) in 6 months and want to hedge your currency exposure. The US risk-free rate is 5% and the Canada risk-free rate is 4% per year. The current spot rate is $1.25/CAD, and the 6-month forward rate is $1.3/CAD. You can also buy a 6-month option on Canadian dollars at the strike price of $1.4 /CAD for a premium of $0.10/CAD. If XYZ hedges the exposure using an option hedge, total option premium: $ [l1] will be paid today. The option premium will grow to $ [l2] in six months at the US interest rate. In six months, if the spot price is $1.3 per CAD, the option is [l3] (in/out) of the money. So, XYZ will buy 100,000 CAD at the price of $ [l4] per CAD, which equals to a total cost of $ [l5] . After the option premium, the total (net) dollar costs in six month is $ [l6] .
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I pledge that I have neither given nor received aid on this…
I pledge that I have neither given nor received aid on this exam (no grade will be given if not answering this question).
In conversation, Interbank FX trades use a shorthand abbrevi…
In conversation, Interbank FX trades use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.5170-$1.5184. The “big figure”, assumed to be known to all traders is:
Country in US$ Bid Ask Swiss Franc (CHF) 0.7648 0.7652…
Country in US$ Bid Ask Swiss Franc (CHF) 0.7648 0.7652 Euro (€) 1.4000 1.4200 What are the cross-exchange rates for Swiss Francs priced in euro (€/CHF)? Please leave 4 decimal points for your answer. Bid: € [l1] /CHF Ask: € [l2] /CHF
Assume the six-month European call option has a striking p…
Assume the six-month European call option has a striking price of $0.95/CHF. Assume the option premium is $0.02/CHF. If at the due date, the value of the Swiss Franc has decreased to $0.90/CHF. The option should ______. The net profit/loss of the buyer is _______.
Suppose that the annual interest rate is 6 percent in the…
Suppose that the annual interest rate is 6 percent in the United States and 4 percent in Great Britain, and that the spot exchange rate is $2/£ and the forward exchange rate, with 6-month maturity, is $2.3/£. Assume that an arbitrager can borrow up to $10,000 or £5,000. Step 4: Suppose you can borrow either $10,000 or £5,000. Please fill out the blanks below for both trading options and decide which option will make profit. Option A: 1) Borrow $10,000 today, your repayment in 6 months will be $ [l2] . 2) Exchange into £5,000 today at the current spot rate. 3) Invest £5,000 in UK for 6 months, and you will receive £ [l3] (principal plus interest) in 6 months. 4) Sell forward £ (the future value of your pound investment, which is what you get from the above step) due in 6 months to yield $ [l4] . 5) Your arbitrage profit is $ [l5] . Option B: 1) Borrow £5,000 today, your repayment in 6 months will be £ [l6] . 2) Exchange into $10,000 today at the current spot rate. 3) Invest $10,000 in US for 6 months, and you will receive $ [l7] (principal plus interest) in 6 months. 4) Buy forward £ (the future value of your pound loan, which is what you get from the first step) due in 6 months. The cost will be $ [l8] . 5) Your arbitrage profit is $ [l9] . You will choose option [l1] (Please insert A or B) based on the above calculations.
Questions are based on the following information: UA purch…
Questions are based on the following information: UA purchased an aircraft from Airbus and was billed €30 million payable in one year. UA is concerned with the USD costs from international sales and would like to control exchange risk. The current spot exchange rate is $1.05/€ and one-year forward exchange rate is $1.10/€ at the moment. UA can buy a one-year option on euro with a strike price of $1.12/€ for a premium of $0.02 per euro. Currently, the annual interest rate is 5% in the euro zone and 6% in the U.S.
A British firm offers a French customer the choice of paying…
A British firm offers a French customer the choice of paying a £10,000 bill due in 90 days with either £10,000 or €12,500. The value of this free option is _______.
SHORT ANSWER :SA3: Answer in two-four sentences: Wang [last…
SHORT ANSWER :SA3: Answer in two-four sentences: Wang [last name] Chia-Hao emigrated to the United States to attend college in New Jersey and began calling himself Charles Wang and upon graduation, decided to accept a job offer at Google. When Wang Chia-Hao retired, he liked to tell people he had lived in three different cultures: China, New Jersey, and Google. Use Wang’s experience to explain the difference between acculturation & assimilation. For an extra point, can you find a clue to his enculturation within the details of this scenario?
Students are required to read the exam guidelines and requir…
Students are required to read the exam guidelines and requirements and acknowledge they have read all examination guidelines and requirements before starting the exam.