ABC Inc. has 10,000,000 Yen worth of receivables it expects to collect in 3 months’ time. To hedge its currency risk, it decided to hedge with a forward contract at a forward exchange rate of 100 Yen/US$. In 3 months’ time, the exchange rate is 105 Yen/US$. How much does ABC Inc. receive?

Q: An investor has $10m to invest and has the following options: 1) depositing it in a US bank account…

A: Exchange rate: It is the value of a currency that is exchanged with another currency.

Q: The treasurer of a major U.S. firm has $31 million to invest for three months. The interest rate in…

A: Investment refers to the financial asset that is to be bought and sold at profit at some future…

Q: A British firm will receive $1 million from a U.S. customer in three months. The firm is considering…

A: The global market where currencies are traded is known as foreign exchange currency, or forex or FX.…

Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…

A: Spot rate = $1.05/€1-year Forward rate = $1.10/€Interest rate in US = 6%Interest rate in France =…

Q: A U.S. Company knows that it will have to pay 3 million Euros in three months. The current exchange…

A: Companies involved in international transactions often face the risk of fluctuating exchange rates.…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six…

A: Cash reserve = $100,000,000Time for investment = 6 monthsInterest in US = 12% p.aInterest in Germany…

Q: American Airlines is trying to decide how to go about hedging CHF80 million in ticket sales rece 300…

A: In forward contract rates of two currencies are fixed between two parties and contracts are settled…

Q: An American firm is owed ¥350,000,000.00 payable in one year. The current spot is $0.0120/¥. A…

A:

Q: Suppose that the treasurer of IBM has an extra cash reserve of $100, 000, 000 to invest for six…

A: Cash Reserve = $100,000,000United States interest rate = 9% (six-month)Germany interest rate = 8%…

Q: Explain your understanding of currency hedging. Why is hedging necessary? If your company is…

A: Foreign exchange- Foreign exchange is the conversion of one currency into another at a specific rate…

Q: Citigroup recently purchased $10,4 million worth of euro-denominated one-year CDs that pay 10…

A: Foreign exchange refers to the change of one currency into another currency on the basis of demand…

Q: er annum in the U.S. and 5.7% per annum in the U.K. Assume that you can borrow £1,000,000 or its…

A: In monetary terms, the exchange rate (also known as the foreign exchange rate, forex rate, or rate)…

Q: 7.ABC Company, a British company, expects to receive $10,000,000 in 30 days. It wants to hedge its…

A: Forward contract is an agreement which is done between two parties to hedge foreign currency risk.…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six…

A: To determine where the treasurer of IBM should invest the extra cash reserve to maximize the return…

Q: Currently, the USD/MXN rate is 19.7800 and the six-month forward exchange rate is 20.1700. The…

A:

Q: Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at…

A: When the bills are settled in foreign exchange currency, the company always has a risk of conversion…

Q: Global Distributors Inc. plans to make a payment of €1,500,000 to a supplier in Europe in 3 months.…

A: To calculate the savings from entering into the forward rate agreement, we need to compare the…

Q: Suppose, Company ABC is U.S. based company and has a British subsidiary. It is expected that the…

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…

Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…

A: In the field of finance, hedging is a tactic employed to reduce or eliminate the possible adverse…

Q: Consider a U.S.-based company that exports goods to Switzerland. The U.S. Company expects to receive…

A: Interest rate parity refers to a theory that is used for showing the difference in interest rates…

Q: Suppose that a US-based company is buying Chinese goods. Current exchange rate for Chinese Yuan is…

A: Given that the company is purchasing 800 units. Price of one unit = 13000¥ Current exchange rate =…

Q: Use the following information for Problems 11 and 12.MNC Corp. (a U.S.-based company) sold parts to…

A:

Q: 5.ABC Company, a British company, expects to receive $10,000,000 in 30 days. It wants to hedge its…

A: Forward contract is a an agreement between the two parties to sell and buy the underlying assets or…

Q: A US company needs to make a one-time payment of 50 million dollars in Mexican Pesos in about 6…

A: Option contract : An option contract is an agreement to purchase an asset at a defined price on a…

Q: XYZ Corporation, located in the United States, has an accounts payable obligation of ¥2250 million…

A: First, we need to calculate the present value of the obligation in yen. The present value (PV) is…

Q: ABC Company, a British company, expects to receive $10,000,000 in 30 days. It wants to hedge its…

A: Forward is the contract made by two parties for deferring the transaction but the quantity and…

Q: Pfizer, an American corporation, just signed a contract to sell laboratory equipment for COVID -19…

A: concept. In order to avoid risk arising due to change in exchange rates , hedging is done. various…

Q: An investor in England purchased a 91 day US Treasury bill for 987.65. (Treasury bills are discount…

A: Purchase price (Pounds)= Purchase price (Dollar) / Exchange rate per pound= 987.65 / 1.75= 564.37

Q: Lambert Corporation, a U.S. based importer, makes a purchase of crystal glassware from a firm in…

A: Amount paid under forward hedge=Amount payable*forward exchange rate.=66,600/1.822.=$36,553.24

Q: 7 A company operating in Japan has today effected sales to an Indian company, the payment being due…

A: Foreign exchange risk refers to the potential loss that a company may face due to the fluctuations…

Q: am. 117.

A:

Q: ABC Corporation agreed that it will buy 1,000 USD at an exchange rate of P52 one month from now. The…

A: Transaction amount = $ 1000 Agreed exchange rate = P 52 Actual exchange rate = P 54

Q: Busco has a foreign-currency denominated payable, it can hedge by buying the foreign currency…

A: The put option: The currency put option gives the buyer a right but not the obligation to sell the…

Q: The treasurer of a major U.S. firm has $31276878 to invest for three months. The annual interest…

A: Investment amount is $31,276,878 Investment Period is 3 Months U.S Interest Rate is 0.35% per month…

Q: Consider a US company, GateCorp, that exports products to the United Kingdom. GateCorp has just…

A: A forward contract: A forward contract is a contract in which two parties agree to exchange an asset…

Q: (b) Jackton Company limited is a UK firm that has bought goods from a US Supplier and must pay US $4…

A: Conclusion:Forward Contract: GBP 2,222,222.22Money Market Hedge: GBP 2,184,002.18Lead Payment: GBP…

Q: Suppose that the U.S. firm Halliburton buys construction equipment from the Japanese firm Komatsu at…

A: Here,ExchangeRate of Yen/$ is ¥100/$Interest Rate of Yen is 6%Interest Rate of Japan is 4%Amount…

Q: Dune Ltd. is an Irish company which will pay CAN$609,000 to a supplier in Toronto in three months…

A: Spot Rate is that rate of exchange in which we can convert the one country currency to another…

Q: Some time ago, a multinational company entered into a currency swap in which it pays 5.1% on $14…

A: Swap contracts are the derivative contract where one party exchange type of asset or cash flow for…

Q: The firm you work for is Multinational Widget Inc. You are involved in a fixed-for-fixed currency…

A: We have to value the swap position for the remaining terms to maturity. A swap can also be seen as a…

Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…

A: Hedging: This is a risk management strategy employed to reduce or eliminate the possible adverse…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.