American Airlines is trying to decide how to go about hedging CHF80 million in ticket sales rece 300 days. Suppose it faces the following exchange rates: • Spot Rate: USD 1.0335/CHF • Forward Rate (300 days): USD 1.0017/CHF Which of the following is closet to the hedged value of American Airlines' ticket sales using a fo market hedge?

American Airlines is trying to decide how to go about hedging CHF80 million in ticket sales rece 300 days. Suppose it faces the following exchange rates: • Spot Rate: USD 1.0335/CHF • Forward Rate (300 days): USD 1.0017/CHF Which of the following is closet to the hedged value of American Airlines' ticket sales using a fo market hedge?

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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Please help and show calculation. Consider two companies: Honda and IBM. Honda wants to borrow US$ for the following 5 years at a fixed rate, while IBM wants to borrow Yen also for the following 5 years at a fixed rate. The rates available to two companies in US$ and Yen markets are shown below. US$ Yen Honda 8.0% 7.6% IBM 5.4% 6.6% 1. What is the total gain from the currency swap? Which firm has the comparative advantage in US dollar market, IBM or Honda?
If the foreign interest rate is 4%, the risk premium on domestic assets, ρ, is 18%, and the expected rate of depreciation of the domestic currency against the foreign currency is 3%, what is the domestic interest rate in percentage terms, given covered interest parity holds? [All variables have a 1-year time frame.]
7
Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €11.00 million payable in six months. Currently, the six-month forward exchange rate is $1.15 per euro and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.10 per euro in six months. Required: a. What is the expected gain/loss from a forward hedge? Note: A Negative value should be indicated with a minus sign. Do not round intermediate calculations. Round your final answer in whole dollars not in millions. b. If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? d. Suppose now that the future spot exchange rate is forecast to be $1.22 per euro. Would you recommend hedging? a. b. Would you recommend hedging this euro…
Foreign exchange investment involves risks and at the same time returns. Considering you will invest your peso @ P50 = $1 foreign exchange with a fixed interest of 5%, when can you say that you are fully maximized the value of your investment upon maturity? a. Interest and proceeds received in full deposit to a bank account b. Interest received in full with current exchange rate @ P52 = $1 but retained the money in USD while waiting for another investment. c. Interest received in full with current exchange rate @ 52 = $1 and converted the full proceeds to peso d. Interest received in full with current exchange rate @ 52 = $1 but converted the interest only while waiting for another investment.
Suppose that the current EUR/GBP rate is 0.6668 and the one-year forward exchange rate is 0.6742. The one-year interest rate is 1.8% in euros and 3.6% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount. Suppose you are a pound-based investor. Determine the profit/loss (in GBP, no cents) if you borrow locally and invest in Euros.
company will receive €75 million in 1 year from an Italian customer. observe the following data. $:€ Spot Rate $1.25:€1.00 $:€ Forward Rate $1.30:€1.00 How many USD will you receive if you employ a forward hedge
Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate, is $1.16/€. Assume that al of these rates will be used and a speculator can borrow $1,000,000 or €1,000,000. This is an example whether Uncovered Interest Arbitrage is possible O This is an example of whether Purchasing Power Parity holds This is an example whether fisher effect holds O None of the above This is an example whether Covered Interest Arbitrage is possible
You Answered Today you observe the folowing quotes: Spot EURUSD $1.37 60 Day Forward EURUSD = $1.15 In 60 day you expec to receive 281,718 Euros. In 60 days you expect the EURUSD exchange rate to be $1.17. In 60 days the EURUSD actually is $1.21. You decided to hedge your receivables with a forward. How many USD will you receive? 232,824.79
Suppose that the current spot exchange rate is €0.830/S and the three-month forward exchange rate is €o.815/S. The three-month interest rate is 6.00 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €830,000. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit.
If the interest rate in Oman is 10% and in China is 15%. Current spot exchange rate is CNY16.59/OMR and one-year forward rate is CNY16.57/OMR. If you have the option to borrow OMR 1,000 from bank Muscat for one year then, on the basis of covered interest arbitrage how much arbitrage profit you can make? OMR 51.3880 None of these OMR 1,051.3880 OMR 1,000
Use the following information to calculate the dollar cost of using a money market hedge to hedge 200,000 Jordanian Dinar of payables due in 180 days. Assume the spot rate of the Jordanian Dinar is $2.02 and the 180 day forward rate is $2.00. The Jordanian interest rate is 5%, and the U.S. interest rate is 4% over the 180 day period. A)$391,210. B)$396, 190. C)$ 384,762. D)$400, 152 E)none of these.

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