A Japanese MNC wants to lock in the cost of borrowing on a 9-month USD 45 million loan to be taken out in 3 months' time by using Eurodollar futures contracts. How many Eurodollar futures contracts in total will be sold by the Japanese MNC in order to hedge its cost of borrowing? a.135 b.1 c.145 d.9 e.None of the options in this question are correct.
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- Question 6 (6 points): Hedge March 15th: A packer needs to buy Live Cattle in early June. Currently the June Live Cattle (LC) futures are trading at $175.650/cwt. The expected basis is $1.50/cwt. • Does the packer have a long or short cash position?. • Does the packer have a long or short futures position? (buy/sell) June LC futures at • • To hedge: The packer will $175.650/cwt. What is the expected price? June 10th. • The packer must. (buy/sell) cattle locally in the cash market at • $185.025/cwt. To offset their future position, they must $183.00/cwt. What is the actual basis? What is the realized price for the producer? o Method 1: o Method 2: ○ The hedge resulted in a realized price of (buy/sell) June futures atSuppose the value of the S&P 500 stock index is currently 2,400. a. If the 1-year T-bill rate is 6% and the expected dividend yield on the S&P 500 is 4%, what should the 1-year maturity futures price be? Futures price b. What if the T-bill rate is less than the dividend yield, for example, 1%? The T-bill rate is less than the dividend yield, then the futures price should b✓ (Click to select) less than the spot price. more than the spot price.Consider an investor based in the FC that invests in the DC. To hedge the FX risk the FC investor could (select all that are true): A. Engage in a swap for DC at the investment's open date to FC at the invesment's close date B. Engage in a forward DC to FC with an unnknown counter party and no escrow (margin) C. Write a call option FC to DC at today's spot FX rate D. Write a put option FC to DC at today's spot FX E. Exercise a futures contract DC to FC at the date of the investment return trip F. Purchase a futrues contract FC to DC for the return trip Detailed Explanation Please, Thank you!
- Consider a firm in the DC that uses inputs from a supplier in the FC. To hedge the FX risk the FC firm could (select all that are true): Purchase a futures contract for DC to FC below your expected future trajectory of the FX rate and that the supply cotract is written in the DC Purchase a call option for FC to DC, which the firm will exercise if the spot FX rate (FC/DC) at the time is higher than the contract rate and the supply contract is written in the DC. Purchase a futures contract for FC to DC that you could sell for a profit if the DC weakens, which increases your costs of exporting the input Engage in a forward contract for DC to FC at today's spot rate, given that counter-party risk is managable and that the supply contract can be written in the DC. Exercise a futures contract for DC to FC if the strike price of the contract (FC/DC) is higher than the spot market rate at that time and that the supply contrtact can be written in the DC. Purchase a call option for DC to FC,…Firm A can borrow at 5% fixed or at Libor plus 0.5% in the fixed and floating rate markets, respectively. Firm B can borrow at 7% fixed or Libor plus 1% in the fixed and floating rate markets, respectively. A wants to borrow floating and B wants to borrow fixed. If A borrows fixed and B borrows floating and they enter into a fixed-for-Libor interest-rate swap in which A pays Libor flat, what swap rate would you suggest to the two firms if you were an unbiased advisor? Group of answer choices 5,25% 6% 5.50% 5%Economics Consider a firm in the DC that sells it output to a retailer in the FC. To hedge the FX risk the DC firm could (select all that are true): O Write a call option DC to FC at today's spot FX. O Exercise a call option DC to FC at today's spot rate O Purchase a fututes contract for DC to FC at today's spot rate. O Purchase a futures contract for FC to DC to offset lost sales O Write a put option for FC to DC at today's spot rate O Purchase a call option for FC to DC at today's spot rate
- You expect interest rates to rise with upcoming inflation so you shorted (on margins) a US Treasury portfolio. Two weeks later war breaks out in the Middle East and there is unexpected, sustained large influx of foregin capital into the US to seek low risk safety in the Treasury market. What most likely would have happened to your portfolio invetment? You liquidated the position at a gain You keep the portfolio with signifcant loss expected You keep the portfolio with little change in value You liquidated the position at a loss5. Delivery more likely takes place in forwards contracts than in futures contracts.Identify two (2) derivative investment products and how they allow investors to hedge against risk while creating unnecessary risk to the global economy.
- 1 a. Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The spot rate is Lira 2,400/£. Interest rates for the next year are expected to be 8% in the UK and 20% in Italy. Required: Assume the International Fisher Effect is valid, evaluate the effect on the sterling cost of this transaction if Bing Ltd delay payments by one year. b. Hilton a US based Multinational Company will receive 2,000,000 Euros in one year time from items it exported. It did not hedge this transaction; Hilton believes that the future value of the Euro will be determined by Purchasing Power Parity (PPP). It expects that inflation in countries using Euro will be 12% next year, while inflation in the US will be 7% next year. The spot rate of Euro is $ 1.46 and the one-year forward rate is $1.50 Required: a. Estimate the amount of US dollars that Hilton will receive in the one year when converting its Euro receivables into US dollar b. The spot rate of the Australian dollar is pegged at $ 0.13.…Today, in the middle of March 2023, Feroz believe that the quotations of KLCI futures in the Bursa Malaysia Derivatives (BMD) are mismatched. Feroz interested to trade RM5 millions of his portfolio between July 2023 and September 2023. Currently, the Malaysia Treasury Bill is 3.8%. The beta for his company currently shows twice volatile than the market. Currently, KL CI shows 1300 points while KL CI futures is 1350 points. KLCI futures for July, August and September currently is 1315, 1323 and 1345 points respectively. Assume in June 2023, both indices converged at 1330. The dividend yield shows 1.5% lower than current Malaysia Treasury Bill. Required: What is appropriate strategy for Feroz to enter. What is/are the reason(s) Feroz enter this strategy? a. b. C. d. Proof either the strategy is mispricing. Construct the above strategy. What is cash-and-carry arbitrage in KL CI futures?D & R A1 6 Question 6. Foreign Currency Futures and Arbitrage Strategy Today is May 23, 2016. The spot rate for British pounds is 1.9032 CAD/£. The Canadian risk-free rate is 0.52%, and the British risk-free rate is 0.45%. Both risk-free rates are compounded continuously. The vote by the British population for U.K. exit from the European Union (commonly referred to as Brexit) will occur in exactly one month. Due to the uncertainty from this event, market volatility on the British pounds futures is quite high. As an example, the British pound futures contract, which expires on September 23, is priced below the spot rate at 1.4497CAD/£. The futures contract size is 62,500 British pounds. Is the futures contract incorrectly priced? If so, construct a risk-free arbitrage strategy to take advantage of the mispricing. Assume there are 365 days in the year, and the Canadian dollar is the domestic currency.