2. Money Market Hedge on Receivables Assume that Parker Company will receive200,000 Canadian dollars in 360 days. Assume the following interest rates:360-day borrowing rate360-day deposit rateU.S.6%4%Canada5%3%Assume the forward rate of the Canadian dollar is $.80 and the spot rate of the Canadiandollar is $.78. If Parker Company uses a money market hedge, how much U.S. dollarswill it receive in 360 days from its Canadian dollar receivable? (round to whole dollars)(2 points)

Interest Rate - The fee that a lender assesses on a borrower is known as the interest rate, which is…

Answered: 2. Money Market Hedge on Receivables…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Assume the following information (rates are actual 90-day interest rates, not annualized): Spot rate of Canadian dollar S 0.900 90 day forward rate of Canadian dollar $0.890 90-day Canadian interest rate 3.50% 90-day U.S. interest rate 2.40% Given this information, the yield (percentage return) to a U. 5. investor who used covered interest arbitrage would be ( assume the investor invests $1 million). The yield (percentage return) to a Canadian investor who used covered interest arbitrage would be Group of answer choices
Company A wants to borrow US Dollar (USD) at a floating rate of interest and Company B want to borrow Australian Dollar (AUD) at a fixed rate of interest. They have been quoted the following rates by Bank C. USD AUD Company A LIBOR +0.5% 5.0% Company B LIBOR+1.0% 6.5% Develop an interest rate swap that will net the bank 50 basis point spread and will appear equally attractive to Company A and Company B. Explain your answer.
4 Assume that Intel has net receivables of SGD1,500,000 in 90 days. The spot rate of the Singapore Dollar (SGD) is USD0.7300, and the Singapore interest rate is 12.00% per annum and US interest rate is at 10.00% per annum. Suggest how the U.S. firm could implement a money market hedge. (Show your strategy and workings).
As the chief financial officer of a U.S. firm, you expect to receive payment of €1 million in 90 davs. The current spot rate is $1.40 per euro. Your firm will incur losses on the deal if the dollar weakens to less than $1.10 per euro. Please list at least two derivatives and discuss your detailed strategy to hedge against this foreign exchange risk.
A British bank issues a $130 million, three-year Eurodollar CD at a fixed annual rate of 8 percent. The proceeds of the CD are lent to a British company for three years at a fixed rate of 10 percent. The spot exchange rate of pounds for U.S. dollars is £1.50/US$. a-1. Is this expected to be a profitable transaction ex ante? Yes No a-2. What are the cash flows if exchange rates are unchanged over the next three years? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. (e.g., 32.16)) Eurodollar CD British Loan t Cash Outflow (U.S.$) (£) Cash Inflow (£) Spread (£) 1 million million million million 2 million million million million 3 million million million million b. If the U.S. dollar is expected to appreciate against the pound to £1.65/$1, £1.815/$1, and £2.00/$1 over the next three years, respectively, what will be the cash flows on this transaction? (Negative amount should be indicated by a minus sign. Do not round intermediate…
Company A (a U.S. MNC) wants to borrow £10,000,000 at a fixed rate for five year. Company B (a U.K. MNC) wants to borrow $16,000,000 at a fixed rate for five year. Today's exchange rate is £1- $1.6. The information below summarizes what each company can do without using swaps. Company A Company B $ Loans 8 10.6 £ Loans 11.6 12.4 If Company A wants to save 0.3% of the £10,000,000 loan through a Swap Bank, and If Company B wants to save 0.2% of the $16,000,000 loan through a Swap Bank. How much can the Swap bank earn on pound (£) loans (in terms of %) after meeting Company A and Company B's demand? (if your answer is 1.34%, just enter "1.34". If your answer is -1.34%, just enter"-1.34").
Assume the following information: 90-day U.S. interest rate 90-day Malaysian interest rate 3% 5% 90-day forward rate of Malaysian ringgit Spot rate of Malaysian ringgit $0.394 $0.398 Assume that the Santa Barbara Co. in the United States will need 250,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge. Do not round intermediate calculations. Round your answers to the nearest dollar. The firm will pay out $ in 90 days if it uses the forward hedge and $ if it uses the money market hedge. Thus, it should use the -Select- hedge.
QUESTION 3 (a) KL Co. will be paying USD100,000.00 in 60 days. Assume the following interest rates: U.S. Malaysia 360-day borrowing rate 360-day deposit rate 7% 6% 5% 4% Assume the forward rate of the USD is RM4.20 and the spot rate of the USD is RM4.15. If KL Co. uses a money market hedge, how much will KL Co. be paying in 60 days?
Use the following information to calculate the dollar cost of using a money market hedge to hedge 200,000 Jordanian Dinar of payables due in 180 days. Assume the spot rate of the Jordanian Dinar is $2.02 and the 180 day forward rate is $2.00. The Jordanian interest rate is 5%, and the U.S. interest rate is 4% over the 180 day period. A)$391,210. B)$396, 190. C)$ 384,762. D)$400, 152 E)none of these.
Suppose one-year German Treasury bill pays 4.34% and one-year Canadian Treasury bill pays 3%. The current spot exchange rate is 1 Euro (EUR) = 1.3581 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3238 CAD. How much %3D arbitrage profit can an investor earn on an investment value of CAD 3 million?
You are the financial manager for Belltower Associates, which is headquartered in Australia. You have received the below spot and interest rates quotes from your bank: Bid Ask NZD 0.8298/AUD NZD 0.8340/AUD 4.50% 5.00% 0.90% 1.30% Spot exchange rate Interest rate for AUD Interest rate for NZD Suppose that Belltower Associates has a receivable in NZD in one year's time and they wish to engage in a hedge to lock in their domestic (i.e. Australian dollar) currency equivalent of its value. Belltower Associates intends to achieve this by using their bank's spot rates and money market interest rates in order to create a synthetic forward contract. What is the effective forward exchange rate that Belltower Associates is able to achieve for hedging the AUD value of their NZD receivable? O a. NZD 0.8012/AUD O b. NZD 0.8635/AUD O c. O d. O e. NZD 0.8298/AUD NZD 0.8594/AUD NZD 0.7974/AUD NZD 0.8085/AUD
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

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