A US firm owns a product plant in the industrial outskirts of Seville in Spain, which it may sell in the near future when the plans for the closure of the product line take place. The board of directors of the US firms have been given the following forecasts regarding the value of the plant in the next year: State 1 State 2 State 3 State 4 Probability S($/€) € value of the plant € 3.2m 0.25 0.25 0.25 0.25 $ 1.20/€ $ 1.25/€ € 3.6m $ 1.30/€ € 4.1m $ 1.35/€ € 4.5m

Q: Given the following American put option prices and current underlying share price of $304.75, check…

A: Strike            Put price 300                 7.75 305                 8.15 310…

Q: What is the cash-flow cost of hedging translation exposure with a currency option:   The option…

A: When a company hedges translation risk with a currency option, the amount of cash costs incurred by…

Q: Firms typically hedge their foreign exchange exposure to: A. Speculate on currency movements. B.…

A: C. Reduce the uncertainty of future cash flows. Firms frequently do business with other countries,…

Q: d. Forward contracts are not traded in any exchanges across the world.

A: Features of a forward contract include these of the above mentioned options: Forward contracts are…

Q: explain the nature of potential risk in international transactions and critically discuss how…

A: The question is based on the concept of risk management in the international market. Risk is defined…

Q: Which of the following activities or transactions would most likely face right-way risk of…

A: A derivative does not have its own value, it has got derived value from the underlying assets.…

Q: Investors who have international investments are subject to I. political risk II. currency risk…

A: The investors invest in various assets or at various sources in order to generate higher returns or…

Q: Exchange rate fluctuations can be used as a tool of speculation by speculators. Make an example of…

A: Speculators who anticipate rising prices want to make a profit by buying futures contracts.…

Q: interest rate and currency swap dealer

A: Risk confronting refers to some uncertainty or potential loss chances that will go to happen in…

Q: Answer true or false to the following statement and explain: “Investors engage in forward exchange…

A: The exchanging of one currency for another is known as Foreign Exchange (forex or FX). For example,…

Q: =) FALSE?

A: The exchange rate refers to the value of the one currency converted into the other currency. The…

Q: According to the CAPM, the expected return of an asset that has just diversifiable risk and no…

A: As per CAPM,  Expected Return = Rf + ( Beta * (Rm -Rf)) Rf = Risk free rate of return Rm = Market…

Q: An exploration and production company will produce and deliver natural gas in North Dakota,…

A: Basis risk arises when a company hedges its position in the cash market with positions in the…

Q: Explain how political risk and exchange rate risk increase the uncertainty of international projects…

A: Political risk and exchange rate risk are two important sources of uncertainty that can increase the…

Q: how a firm might use a commodity derivative to reduce risk in its business? please include a…

A: In the world of derivatives, options etc. commodity derivatives are an important concept.…

Q: The Fama-French 3-factor model is a multi-factor models that includes two additional risk factors…

A: The Fama and French model takes into account three variables: the ratio of a company's book value to…

Q: A major risk faced by a swap dealer is exchange rate risk. This is   a)the probability exchange…

A: Exchange rate risk, also known as currency risk, is the financial risk posed by an exposure to…

Q: w can the company use currency futures contracts to hedge against exchange rate risk?

A: A future contract is an agreement to buy or sell the underlying asset on a specified future date and…

Q: According to the efficient market school, do the best job at predicting future spot exchange rates.

A: Efficient market -It is such a market in which prices reflect all available market information.

Q: compare or contrast forwards and options:

A: Options are the financial derivatives used to cover up the risks in the derivatives market. in an…

Q: Assume a company needs to hedge payables. Which of the following conditions has to be met so a…

A: Call option gives holder a right to buy a stock, but it is not an obligation to buy the stock.…

Q: Hedgers should buy calls if they are hedging an expected outflow of foreign currency.   True or…

A: Hedging is the strategy used by the traders to offset the risk that is occurred from the investment…

Q: h) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the…

A: The answers to the questions are given below

Q: Under what conditions can companies use hedge accounting to account for a foreign currency option…

A: Hedge Accounting: Hedge accounting is a process which identifies gains or losses on hedging tools in…

Q: If a bank wants to shorten its asset duration, what type of risk is the bank concerned about?…

A: Asset duration is a financial metric used to measure the sensitivity of the price or value of a…

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.