Alfred Yeo is an importer of European Cars into Singapore. He has recently entered a contract with a German exporter to import Euro 25 million worth of vehicles for his clients based in Singapore. Alfred has to make the payment in 120 days when the cars will be supplied. There is speculation that the Euro will appreciate in 120 days by 1.25% The exchange rate today is Spoto EUR/SGD = 1.38 a) To hedge himself, Alfred enters into a Forward Contract. Work out how much Alfred saves, assuming that the spot rate at 120 days is 1.25% higher. b) What if the Euro actually depreciates by 1.75% at Day 120? What would Alfred's expense situation be, assuming he went ahead and hedged with F120 EUR/SGD = 1.38?
Alfred Yeo is an importer of European Cars into Singapore. He has recently entered a contract with a German exporter to import Euro 25 million worth of vehicles for his clients based in Singapore. Alfred has to make the payment in 120 days when the cars will be supplied. There is speculation that the Euro will appreciate in 120 days by 1.25% The exchange rate today is Spoto EUR/SGD = 1.38 a) To hedge himself, Alfred enters into a Forward Contract. Work out how much Alfred saves, assuming that the spot rate at 120 days is 1.25% higher. b) What if the Euro actually depreciates by 1.75% at Day 120? What would Alfred's expense situation be, assuming he went ahead and hedged with F120 EUR/SGD = 1.38?
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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Transcribed Image Text:Question 1
Alfred Yeo is an importer of European Cars into Singapore. He has recently entered
a contract with a German exporter to import Euro 25 million worth of vehicles for his
clients based in Singapore.
Alfred has to make the payment in 120 days when the cars will be supplied. There
is speculation that the Euro will appreciate in 120 days by 1.25%
The exchange rate today is Spoto EUR/SGD = 1.38
a) To hedge himself, Alfred enters into a Forward Contract. Work out how much
Alfred saves, assuming that the spot rate at 120 days is 1.25% higher.
b) What if the Euro actually depreciates by 1.75% at Day 120? What would
Alfred's expense situation be, assuming he went ahead and hedged with F120
EUR/SGD = 1.38?
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