An Indian exporter has entered into a sale transaction of pulses for $20,000 for which the payment will be given after two months. If the exporter expects the USD price to fall within two months, calculate his profit if he hedges the risk through forex option as under: USD/INR spot buying rate is 82.50 USD/INR Future 2 months 84.00 Spot rate afterwo months is 83.00
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- The current spot exchange rate is $1.60/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? A. Sell €1,000,000 forward for $1.60/€, and you expect to gain $20,000. B. Buy €1,000,000 forward for $1.55/€, and you expect to gain $70,000. C. Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€. D. Buy €1,000,000 forward for $1.60/€, and you expect to gain $20,000.You use today's spot rate of the Brazilian real to forecast the spot rate of the real for one month ahead. Today's spot rate is $0.4524. Assume that you obtain the end-of-month spot exchange rates of the Brazilian real during the end of each of the last 6 months. End of Month 1 2 3 4 5 6 % $ Value of Brazilian real Use the value-at-risk method to determine the maximum percentage loss of the Brazilian real over the next month based on a 95 percent confidence level. Do not round intermediate calculations. Round your answer to two decimal places. $0.4231 0.4179 0.4192 0.4542 0.4649 0.4524 Forecast the exchange rate that would exist under these conditions. Do not round intermediate calculations. Round your answer to four decimal places.An Omani importer will receive commodities from USA and he has to pay an amount of USD 250,000 next month. Which of the below markets is well suited to offer hedging protection against this transactions risk exposure? a. Inflation rate market O b. Transactions market C. Spot market O d. Forward market
- 5. A U.S. firm expects a receivable (cash inflow) of €1,000,000 in six months. The current exchange rate is $1.125/€. Firm wants to sell euros in six months (to convert the inflow into dollars). Consider 3 possible spot prices in six months. 1. $1.195/€ 2. $1.100/€ 3. $1.025/€ What kind of option, put or call, is appropriate to hedge with? In each scenario, what is the total amount of the firm's NET receivable? NET receivable implies you should consider the receivable as well as the hedging costs of buying the option. (Assume an option exercise price of $1.130/€ and option premium of $.016/€) | 1. 2. 3.Question 2 In 6-month from today, a U.S. based company will receive 2,000,000 Australian dollars (AUD) and the company wants to hedge the exchange rate risk. The expected AUD spot rate in 6-month will either appreciate by 5% (p.a) with 40% probability or depreciate by 10% (p.a.) with 60% probability. All rates are continuous compounding (please round your answers to 4 decimals in the exchange rate calculations). As the financial manager of the company, you look at Bloomberg and collect the following information: • U.S. interest rate: . . 4% p.a. 5% p.a. 1 AUD=0.63 USD Spot rate: Call option premium 0.03 USD, with exercise exchange rate 1 AUD-0.65 USD and 6-month maturity Put option premium 0.02 USD, with exercise exchange rate 1 AUD-0.64 USD and 6-month maturity Australian interest rate: 1) Calculate the 6-month forward exchange rate, describe how a forward agreement can be used to hedge the receivable money, and calculate the resulting amount of USD in 6 months.Your small US multinational business forecasts 25,000 Euro expenses to be paid in 6 months. You hedge 100% of the expenses using a call option with the strike price set at the EUR forward rate of 1.30. (The premium cost of the option is assumed to be $0 for this question). If the actual EUR foreign exchange rate in 6 months is 1.10, then what is the US dollar gain or loss on your hedged exposure?
- A Japanese exporter has a €1,000,000 receivable due in one year. To hedge the position, you will buy put options on euro True or False?the current spot exchange rate is $1.85/£ and the three-month forward rate is $1.80/£. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $1.82/£ in three months, assume that you would like to buy or sell £1,000,000. a) what actions do you need to take to use these rates to earn a profit? what is the expected dollar profit from speculation? b) What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be $1.76/£As a US exporter selling to Europe. You wish to hedge a 1,040,000 Euro to be received in 3 months with futures or forwards. Futures contract sizes for the Euro are 125,000E each. How many dollars will you receive/pay for the goods if you hedge with futures, forwards, and not hedging? Also, rank them? Now End Spot 1.100-01 $/E 1.300-01 $/E Futures 1.120 $/E 1.315 $/E Forwards 1.130-31 $/E
- A $2000 bill with a $25 coupon in the US is currently selling at $1800, and a 4000 Swedish Krona bill with a 200 Krona coupon is trading for 3500 Krona. Both mature in 1 year. The Krona is currently trading at US $.15. If uncovered interest parity holds, the market believes the Krona will trade at ____ US dollars in 1 years' time. (Round to the nearest 2 decimal points)A U.K importer has future payables of DM 20,000,000 in one year. The importer mustdecide whether to use option or a money market to hedge this position. The followinginformation is availableSpot rate £ 0.74 =DM1One year call optionExercise Price £ 0.76= DM1Premium £ 0.04 per DMOne year Put OptionExercise Price £ 0.77 =DMPremium £ 0.02 per DMSterling Deposit Rate 8% Per AnnumSterling Borrowing Rate 9% Per AnnumDM Deposit Rate 6% Per AnnumDM Borrowing Rate 7% Per AnnumForecast one-spot Rate £ 0.70 £0.77 £0.70Probability 25% 55% 20%Required:Assume that the importer’s objective is to minimize the sterling value of DM payables.Which of the hedging instruments would you recommend? Verify your answer by estimatingthe sterling cost for each type of hedge. Compare cost of hedging and non-hedgingCalculates the price of a 60-day PUT option, on the USD/MXN that presents a spot of 19.9246 MXN per USD. The PUT Strike is 20,000 MXN per USD, the risk-free rate in Mexico is 4.00% per year and in the United States it is 0.25% per year. The volatility of the USD/MXN exchange rate is 12.88% per year.
