ABC Company, an Australian firm, has a USD 385 million payable in one year. ABC is concerned that the exchange rate might change adversely. It enters into a risk sharing arrangement with its supplier. The AUD/USD base rate is set at 0.77. There is a neutral zone of 0.693 to 0.847. Outside of the neutral zone, the parties split the exchange rate change equally. Suppose the final exchange rate is 0.9625, how much must ABC pay?  Select one: a. 318.6837 million b. 334.6179 million c. 286.8154 million d. 22.2337 million e. 370.5625 million

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
icon
Related questions
icon
Concept explainers
Question

ABC Company, an Australian firm, has a USD 385 million payable in one year. ABC is concerned that the exchange rate might change adversely.

It enters into a risk sharing arrangement with its supplier.

The AUD/USD base rate is set at 0.77. There is a neutral zone of 0.693 to 0.847. Outside of the neutral zone, the parties split the exchange rate change equally.

Suppose the final exchange rate is 0.9625, how much must ABC pay? 

Select one:
a. 318.6837 million
b. 334.6179 million
c. 286.8154 million
d. 22.2337 million
e. 370.5625 million
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Exchange Rate Risk
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education