A. You are the treasurer of Arizona Corp. and must decide how to hedge (if at all) future receivables of 350,000Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise priceof $.50 per Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is: Future Spot Rate Probability

A. You are the treasurer of Arizona Corp. and must decide how to hedge (if at all) future receivables of 350,000Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise priceof $.50 per Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is: Future Spot Rate Probability

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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6. Construct a spreadsheet illustrating the steps that Blades' treasurer would need to follow to speculate on expected movements in the baht's value over the next 30 days. Also show the speculative profit (in dol- lars) resulting from each scenario. Use both of Holt's examples to illustrate the possible speculation. Assume that Blades can borrow either $10 million or the baht equivalent of this amount. Furthermore, assume that the following short-term interest rates (annualized) are available to Blades: LENDING BORROWING CURRENCY RATE RATE Dollars 8.10% 8.20% Thai baht 14.80% 15.40%
1) You buy a T-bill at 88 TL. The matursity is 180 days (6 months). Par Value is 100 TL. If the expected inflation for the next 6 month is 11, calculate the real rate of return? (ex ante) 2) The central bank policy rate which is 1 week repo rate is 35%. Find the compounded yield of the policy rate? 3) Mortgage Loan 3 500 000 TL Maturity 120 months Monthly Interest Rate %3.4 Monthly Installments? 4) A person puts 200 dollar to a pension fund every month. This is invested in Eurobonds yielding sa annual. How much will be accumulated after 20 years? 5) Find the price of a bill maturity 200 days. simple yield $36. Par value: 100 TL
It is 1st January and you have an existing $10m floating rate US dollar bank deposit based on 90-day LIBOR. Current interest rate is 4% pa and there is a flat yield curve. The Eurodollar futures price on 1st January is F0 = 99. The next 2 interest rate reset dates on the deposit are the 15th February and the 15th May. The contract size for Eurodollar futures is $1m. How would you hedge this position on 1st January using Eurodollar futures contracts? Explain the outcome of the hedge if (all) yields fall to 3% pa on the 10th January and then fall to 2% pa on the 10th of May. What are the risks in the hedge?
The price of an Australian Savings Bond (ASB) with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the ASB then falls by $100, what will be the interest rate yield to a new buyer of the ASB? Multiple Choice 16.7 percent 8.4 percent 13.6 percent О 15 percent 10 percent
Assume the following information: Current spot rate of Australian dollar = $.64 Forecasted spot rate of Australian dollar 1 year from now = $.59 1-year forward rate of Australian dollar = $.62 Annual interest rate for Australian dollar deposit = 9% Annual interest rate in the United States = 6% Use the above information to show the gain a trader could have from covered interest arbitrage
Determine the risk-neutral value of a eight-month European put option to sell a FLB (First Local Bank) share for a price of R400 when the current price is R420, the interest rate is 10%, and the volatility of the security is 0.28?
Assume that you are running an Australia based company which has an account payable of EUR 125,000 due in three months. You decide to hedge out the associated foreign exchange risk using futures contracts. A futures contract of EUR125,000 is selling at A$1.5410 per euro. Suppose the next three days’ settlement prices are A$1.5399, A$1.5480, and A$1.5410. The initial margin of your performance bond account is $2,000 and maintenance margin is $1,500. What is your margin account balance at the end of the first day and what is the balance of this account at the end of the third day?
An asset has a current price of $10 and has volatility of 0.35. The exercise price in 9 months is $13. The US continuous risk free rate (r^f ) is 5.5% while the Philippine continuous risk-free rate (r^d ) is 6.5%. The value of the call option and put option would be?
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The market price of a security can be modelled by assuming that it will either increase by 25% or decrease by 15% each month, independently of price movement in other months. No dividends are payable in the next two months. The continuously compounded monthly risk-free rate of interest is 1%. The current market price of the security is 127. a.) Use the binomial model to calculate the value of a two-month European put option on the security with strike price of 125. b.) Calculate the value of a two-months American put option on the same security with the same strike price. c.) Calculate the value of a two-months American call option on the same security with the same strike price.
12. Let the current spot rate be 1.21 Sf/$. Let the exercise price be 1.20 $/€. Let the volatility of the swiss franc be 0.26. The time to expiration is 3 months. The US rate is 2% and the swiss rate is 4%.18. What is the delta of the call?19. What is the value of the call?20. What is its time value?21. What is the value of the corresponding put?
Assume that Epping Co. expects to receive S$500,000 in one year. Epping created a probability distribution for the future spot rate in one year as follows: Future Spot Rate $.68 Probability 20% 62 50 30 61 Assume that one-year put options on Singapore dollars premium of $.04 per unit. One-year call options on Singapore dollars are available with an exercise price of S.60 and a premium of $.03 per unit. a are available, with an exercise price of $0.63 and Use the appropriate options hedge to determine whether the firm would exercise the option using each of the three different spot rates i.e. what would the firm do if each spot rate existed at the time it is considering exercising the option (assume the option is about to expire). Then, show the total amount of receivables (in US dollars) based on the appropriate strategy that would be implemented for each of the three spot rates. Indicate whether the amount would be a maximum or a minimum or neither.

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