$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: 28% 46% 26% US 7% NEW ZEALAND 2% 3% Deposit rate 8% Borrowing rate a. Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.

$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: 28% 46% 26% US 7% NEW ZEALAND 2% 3% Deposit rate 8% Borrowing rate a. Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.

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

See similar textbooks

Similar questions

[Question text] Syarikat Sinergi is considering a new credit policy. The current policy is cash only. The new policy would involve extending credit for one period or net 30. Based on the following information, determine if the switch is advisable. The interest rate is 2.5% per period. CURRENT POLICY NEW POLICY Price per unit RM175 RM175 Cost per unit RM130 RM130 Sales per period in units 1.000 1,100 Select one: A. Yes, the switch should be made because the NPV is RM8,000. B. No, the switch should not be made because the NPV is -RM4,500. C. Yes, the switch should be made because the NPV is RM4,500. D. No, the switch should not be made because the NPV is -RM8,000.
Covered Interest Rate Arbitrage Assume the following: Spot rate of Mexican Peso $0.100 180-day forward rate of Mexican peso $0.098 180-day Mexican interest rate 6% 180-day U.S. interest rate 5% Is covered interest arbitrage worthwhile for Mexican investors? Explain. (Be sure to show your work).
Problem 31-11 The International Fisher Effect You observe that the inflation rate in the United States is 2.0 percent per year and that T-bills currently yield 2.5 percent annually. Use the approximate international Fisher effect to answer the following questions. a. What do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 5 percent per year? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b. What do you estimate the inflation rate to be in Canada, if short-term Canadian government securities yield 8 percent per year? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) c. What do you estimate the inflation rate to be in Taiwan, if short-term Taiwanese government securities yield 10 percent per year? (Do not round intermediate calculations and enter your answer as a percent rounded…
A 4 The price of oil is $70 (spot), $75 (one-year forward), and $80 (two-year forward). Convenience yields and other costs and benefits of storing oil are zero. What is the price of a two-year annual-pay oil commodity swap? Hint: Extract continuous discount rates from the forward prices.
33-The expected inflation rate in Oman is 7%. The current spot rate between OMR and the US is USD 2.60/OMR and the one-year forward rate is USD 2.70/OMR. How much is the expected inflation rate in the US? O a. 11.21% O b. 11.16% O c. None of the options O d. 11.15 %
The price of an Australian Savings Bond (ASB) with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the ASB then falls by $100, what will be the interest rate yield to a new buyer of the ASB? Multiple Choice 16.7 percent 8.4 percent 13.6 percent О 15 percent 10 percent
None
17 The USDSGD (Singapore dollar) spot rate is 1.60, the USDCAD spot rate is 1.33 and CADSGD 1.15. Determine the triangular arbitrage profit that is possible if you have $1,000,000. a. $46,093 profit b. $46,093 lost c. $44,063 profit d. No profit is possible
Current spot rate of CAD = $0.800. Interest rate in the U.S. = 7.0%. Interest rate in the Canada = 5.00%. If the 1-year current forward rate for CD is $0.820, your covered rate of return will be: ○ 9.675% 2.439% ○ 7.625% ○ 4.390%
QUESTION 17 Given the folowing spot quotes: EURGBP 0.6850 GBPUSD 1.9920 EURUSD 1.2500 Notation "XYZABC n" means one needs n units of currency ABC to buy one unit of currency XYZ. Do a triangular arbitrage starting with EUR 100,000,000. What is your profit in USD? 11,452,000 USD There is no opportunity for arbitrage 14,597,000 USD 4,177,000 USD
Problem #4: What is the price P today of a $120,000 182-day Canadian T-Bill if its quoted yield is 10.43%? Problem #4: Just Cou Gubrit W Answer correct to 2 decimals.
Problem 9-19 (Algo) (LO 9-9) Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 132,000 pounds, with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.47 per pound, Shandra purchases a two-month call option on 132,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value is recognized in net income over the life of the option. The option has a strike price of $1.47 per pound and costs $1,320. The goods are received and paid for on June 15. Shandra sells the imported goods in the local market immediately. The spot rate for pounds is $1.520 on June 15. Required: a-1. Prepare all journal entries for Shandra Corporation related to this transaction and hedge. a-2. What amount should Shandra Corporation report in net income as cost of goods sold for the quarter…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS