An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward contract. The current spot rate is GBPO.833/EUR and the 90-day forward rate is GBP0.856/EUR. At the end of 3 months, the gilts have risen in value by -2.50% (in GBP terms), and the spot rate is now GBPO.82/EUR. What was the true cost of the forward contract? O a. 11.044% annualised. O b. 17.287% annualised. O c. 7.287% annualised. O d. 14.787% annualised.

An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward contract. The current spot rate is GBPO.833/EUR and the 90-day forward rate is GBP0.856/EUR. At the end of 3 months, the gilts have risen in value by -2.50% (in GBP terms), and the spot rate is now GBPO.82/EUR. What was the true cost of the forward contract? O a. 11.044% annualised. O b. 17.287% annualised. O c. 7.287% annualised. O d. 14.787% annualised.

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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Suppose the price of wheat over the next year is expected rise to $3.50 in the United States and to £1.60 in England. What should the one-year $:£ forward rate be
Three months ago you short a forward contract on soya bean that expires today has a forward delivery price of$400 per Metric Ton. The current forward price is$420 . The three-month risk-free interest rate (with continuous compounding) is8% p.a. What is the value of the short forward contract? A) +$27.92 B) −$27.92 C) +$20.00 D) −$35.68
Suppose that the current price of oil is $ 90 per bbl. Suppose it costs $ 0.5 per bbl per month to store oil (payable monthly in advance). Suppose also that the term structure is flat with a continuously compounded rate of interest of 3 % for all maturities. Calculate the forward price of oil for delivery in 3 months.
The US based company is investing in a 2-year project in Europe. The initial investment is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is €8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the required rate of return of the project is 14%, calculate the NPV of the project in dollars. (A) The NPV of the project in dollars is $1,773.62. (B) The NPV of the project in dollars is $1,704.32. (C) The NPV of the project in dollars is $1,418.90. (D) The NPV of the project in dollars is $1,989.74.
A project costs Can$700,000 and has expected annual cash inflows of Can$300,000 for Years 1 through 3. The Canadian discount rate is 10 percent. The current spot rate is: $1 = Can$1.07. What is the NPV of this project in U.S. dollars using the foreign currency approach?
12. Let the current spot rate be 1.21 Sf/$. 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?
An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward contract. The current spot rate is GBP0.833/EUR and the 90-day forward rate is GBP0.856/EUR. At the end of 3 months, the gilts have risen in value by -2.50% (in GBP terms), and the spot rate is now GBP0.82/EUR. What was the true cost of the forward contract? a. 11.044% annualised. b. 17287% annualised. c. 7287% annualised. d. 14.787% annualised.
A UK oil trader, Teresa, is considering purchasing oil on the spot market for speculative purposes. The current spot price is $18 a barrel. However, she expects the price to decline to $16 a barrel in one month's time. If she bought on the spot market today, she would hold the oil for one month at a cost of £0.002 a barrel for the month, after which she could sell the oil on the spot market. The current US dollar exchange rate is $1.50/£. If she expects the exchange rate to be $1.30/£1 in one month's time, what is her expected gain/loss on the oil deal? A. £0.306 gain per barrel B. £0.027 gain per barrel C. £1.540 loss per barrel D. £6.202 loss per barrel
A U.S. investor purchases a 30-day Euro-commercial paper with a par value of 10,000,000 Brazilian reals for a price of 9,970,000 Brazilian reals. If the real is worth $0.28, the spot rate is anticipated to be $0.288900 per real at the end of maturity, and Investor holds the Euro- commercial paper until then, assuming a 360 day year, the effective yield is: Please show work
ss. Suppose you take a short position in 15-Russian ruble contracts at a price of $0.010125/RUB on the CME (Ruble contract consists of 2,500,000 rubles). Prices over the next two days are $0.010055/RUB and $0.009920/RUB. If your initial performance margin was $110,000, what is its value after two days of marking-to-market?
To find the quoted price of a 180-day T - bill with a 5% yield and the contract price for a $ 1,000,000 90 - day notional Eurodollar contract, we need to do a couple of calculations.
Assume that Promina Group expects to need NZ$943,000 in 6 months. The existing spot rate of the New Zealand dollar is $0.70. The 6-month forward rate of the New Zealand dollar is $0.72. Promina Group created a probability distribution for the future spot rate in 6 months as follows: FUTURE SPOT RATE PROBABILITY 28% 46% 26% $0.68 $0.73 $0.78 Assume that 6-month put options on New Zealand dollars are available with an exercise price of $0.73 and a premium of $0.04 per unit. 6-month call options on New Zealand dollars are available with an exercise price of $0.70 and a premium of $0.03 per unit. Assume the following money market rates per annum: US Deposit rate 7% Borrowing rate 8% Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. NEW ZEALAND 2% 3% a. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.

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