(d) Your firm, a Singapore company, imports electronic products from America. Your firm has purchased USD 1 million worth of products and is to pay in one month's time. The current spot rate is SGD1.40/USD. (i) (ii) (iii) Will your company be concerned about an appreciation or depreciation in the USD? Explain your answer. Your firm is considering purchasing an option to hedge the risk of the USD movements against the SGD. Should your firm purchase a USD call or put option? Justify your answer. The option your firm purchased has a strike price of SGD1.41/USD. Given that the spot rate in one month's time is SGD1.42/USD, should your firm exercise the option? Explain your reason(s).

(d) Your firm, a Singapore company, imports electronic products from America. Your firm has purchased USD 1 million worth of products and is to pay in one month's time. The current spot rate is SGD1.40/USD. (i) (ii) (iii) Will your company be concerned about an appreciation or depreciation in the USD? Explain your answer. Your firm is considering purchasing an option to hedge the risk of the USD movements against the SGD. Should your firm purchase a USD call or put option? Justify your answer. The option your firm purchased has a strike price of SGD1.41/USD. Given that the spot rate in one month's time is SGD1.42/USD, should your firm exercise the option? Explain your reason(s).

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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Similar questions

Consider a US company, GateCorp, that exports products to the United Kingdom. GateCorp has just closed a sale worth £200,000,000. The amount will be received in two months. Because it will be paid in pounds, the US company bears the exchange risk. In order to hedge this risk, GateCorp intends to use a forward contract that is priced at $1.4272 per pound. Indicate how the company would go about constructing the hedge. Explain what happens when the forward contract expires in two months.
PLEASE ANSWER FULLY AND CORRECTLY: DO NOT GIVE ME THE WRONG ANSWER Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2 per £. Consider three possible prices per share at £35, £40, and £45 after 1 year. Also, consider three possible exchange rates at $1.80 per £, $2 per £, and $2.20 per £ after 1 year. Calculate the standard deviation of both the pound- and dollar-denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely. Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places.
Suppose that you are a currency speculator, based in the U.S., att January 1st, the spot rate for the Canadian dollar is $0.68. This is have C$160,000.00 to use on these positions. Suppose that on February 10th, the Canadian dollar depreciates (a In order to purchase C$160,000.00 in spot market, you will need $107,200.00 alize on a possible depreciation of the Canadian dollar (C$). On t which futures contracts for Canadian dollars are being sold. You $139,360.00 $128,640.00 $150,080.00 d) to $0.67 in the spot market. (U.S. dollars) for the exchange.
2) A Canadian company sold 1000 computers for the price of $1000 CND to an Indian company when exchange rate was 1 CND= 65 R. invoice is due after 90 days and when Indian company is about to pay the invoice, exchange rate s 1 CND= 75 R. How much is the loss for Indian company? What are the methods to avoid this risk?
Identify what transaction risk management is done in the following cases: (A) ABC Corporation will only accept P200,000 or its equivalent on the payment date despite having a USD4,000 sale. (B) ABC Corporation pays a foreign-currency denominated purchase early when it sees that the Philippine peso will decrease in value.a. Invoicing in home currency; Leadingb. Forward contract; Leadingc. Invoicing in home currency; Laggingd. Forward contract; Lagging
Please Answer the the following image questions....
Mr. Karl is a British importer. He expected to receive commodities from USA worth USD 150,000 after 52 days. Therefore, he hedges his risk with a forward contract. Which of the below statements is the best to characterize this forward contract to minimize the risk of Mr. Karl? O a Selling dollars forward; buying pounds forward O b. Buying dollars forward; buying pounds forward O c Selling pounds forward; selling dollars forward O d. Selling pounds forward; buying dollars forward
An Omani firm has to make payment of 3 million INR to Indian Company after 30 days. Since the company exposing the risk of currency fluctuation so purchased the forward contract at OMR0.006279 = 1 INR. the spot rate after 30 days was OMR 0.006542/INR Which of the following will be the profit or loss to the firm, if they execute the forward contract? a. Loss of OMR 789 b. All the options are wrong c. Profit of OMR789 d. Profit of OMR 526 e. Loss of OMR 526
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…
10. Suppose that Baltimore Machinery sold a drilling machine to a Swiss firm and gave the Swiss client a choice of paying either $10,000 or SF 15,000 in three months. (a) In the above example, Baltimore Machinery effectively gave the Swiss client a free option to buy up to $10,000 dollars using Swiss franc. What is the 'implied' exercise exchange rate? (b) If the spot exchange rate turns out to be $0.62/SF, which currency do you think the Swiss client will choose to use for payment? What is the value of this free option for the Swiss client? (c) What is the best way for Baltimore Machinery to deal with the exchange exposure?
(Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, the break-even investment rate (for money market hedge) is _________% when comparing the forward hedge and the money market hedge. Assumptions Value 90-day A/R in pounds £2,000,000.00 Spot rate, US$ per pound ($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.544 3-month U.S. dollar investment rate 14.000% 3-month U.S. dollar borrowing rate 12.000% 3-month UK investment interest rate 7.500% 3-month UK borrowing interest rate 10.000% Put options on the British pound: Strike rates, US$/pound ($/£) Strike rate ($/£) $1.55 Put option premium 1.2% Strike rate ($/£) $1.54 Put option premium 1.1% Strike rate ($/£) $1.55 Call option premium 2.1%…
(C) US Bank is considering investing in a three years' project in Europe country. The project would require an initial investment of $750,000 and it is expected to generate €80,000, €100,000 and €150,000 in year one until three, respectively. The business risk will be identical to the firm's existing line of business in the euro-zone, the required rate of return in the euro-zone is 18 percent. The exchange rate is $1.20/€ where the dollar also shows appreciating by one percent for every year. Determine the Net Present Value (NPV) in dollar currency for this project and justify.

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