Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss francs (CHF) and purchase anequivalent amount of equities denominated in South African rands (ZAR).Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciaterelative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the U.S.dollar (USD).Currency Exchange RatesMaturityBid6.2693Spot6.255030-day90-day6.2116ZAR/USDAsk6.28016.26536.2212CHF/USDBid1.52941.52381.5070Cross-currency rateCurrent value of Omni's Swiss equity portfolio in ZARAnnualized forward discountAsk1.53611.52971.5127Calculate the following:• The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. (Round your answer to 9 decimal places.)• The current value of Omni's Swiss equity portfolio in ZAR. (Round your answer to 2 decimal places.)• The annualized forward premium or discount at which the ZAR is trading versus the CHF. (Negative amount should be indicated bya minus sign. Round your answer to 2 decimal places.)> Answer is complete but not entirely correct.0.244556355✔12.27 x-9.07%

ParticularsZAR/USDZAR/USDCHF/USDCHF/USDMaturityBidAskBidAskSpot6.26936.28011.52941.536130-days6.2550…

equivalent amount of equities denominated in South African rands (ZAR). Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the dollar (USD). Currency Exchange Rates Maturity Spot 30-day 90-day ZAR/USD Bid 6.2693 6.2550 6.2116 Ask 6.2801 6.2653 6.2212 CHF/USD Bid 1.5294 1.5238 1.5070 Ask 1.5361 1.5297 1.5127 Calculate the following: • The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. (Round your answer to 9 decimal place • The current value of Omni's Swiss equity portfolio in ZAR. (Round your answer to 2 decimal places.) • The annualized forward premium or discount at which the ZAR is trading versus the CHF. (Negative amount should be indicate a minus sign. Round your answer to 2 decimal places.)

equivalent amount of equities denominated in South African rands (ZAR). Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the dollar (USD). Currency Exchange Rates Maturity Spot 30-day 90-day ZAR/USD Bid 6.2693 6.2550 6.2116 Ask 6.2801 6.2653 6.2212 CHF/USD Bid 1.5294 1.5238 1.5070 Ask 1.5361 1.5297 1.5127 Calculate the following: • The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. (Round your answer to 9 decimal place • The current value of Omni's Swiss equity portfolio in ZAR. (Round your answer to 2 decimal places.) • The annualized forward premium or discount at which the ZAR is trading versus the CHF. (Negative amount should be indicate a minus sign. Round your answer to 2 decimal places.)

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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Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss francs (CHF) and purchase an equivalent amount of equities denominated in South African rands (ZAR). Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the U.S. dollar (USD). Maturity Spot 30-day 90-day Currency Exchange Rates ZAR/USD Bid 6.2699 6.2556 6.2122 Required: Calculate the following: Ask 6.2807 6.2659 6.2218 CHF/USD Bid 1.5300 1.5244 1.5076 b. The current value of Omni's Swiss equity portfolio in ZAR. Note: Round your answer to 2 decimal places. a. The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. Note: Round your answer to 9 decimal places. Cross-currency rate Current value of Omni's Swiss equity portfolio in ZAR Annualized forward discount…
Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss francs (CHF) and purchase an equivalent amount of equities denominated in South African rands (ZAR). Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the U.S. dollar (USD). Currency Exchange Rates ZAR/USD CHF/USD Maturity Bid Ask Bid Ask Spot 6.2681 6.2789 1.5282 1.5343 30-day 6.2538 6.2641 1.5226 1.5285 90-day 6.2104 6.2200 1.5058 1.5115 Calculate the following: The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. (Round your answer to 9 decimal places.) The current value of Omni’s Swiss equity portfolio in ZAR. (Round your answer to 9 decimal places.) The annualized forward premium or discount at which the ZAR…
Allium Advisors, an international fund manager, plans to sell equities denominated in British pound (GBP) and purchase an equivalent amount of equities denominated in Egyptian Pound (EGP). The following are the current exchange rates between the EGP, GBP and USD. Maturity Spot 30-day 90-day EGP/USD 13.2913/68 35/65 52/48 GBP/USD 0.7936/79 53/33 22/40 Calculate: V. The 90-day annualized premium or discount GBP in EGP
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…
An investor has $10m to invest and has the following options: 1) depositing it in a US bank account paying 3% annually, or 2) depositing it in a German bank, where the annual rate of interest is only 2%. Assume that today the current spot exchange rate for the Euro is given as $1.2750, while the 1-year Dollar-Euro forward rate is posted as 1.2995. a. Based on your knowledge of the relationship between interest rate differentials and the current dollar-euro forward premium or discount, in which country should the investor deposit her money? why? b. If you had the power to adjust the German interest rate, with all else constant, what rate would you establish, such that the investor is totally indifferent between depositing in either countries? Show your work and the logic behind it.
Lakonishok Equipment has an investment opportunity in Europe. The project costs €18,406,730 and is expected to produce cash flows of €3,681,369 in Year 1, €4,992,682 in Year 2, and €6,337,782 in Year 3. The current spot exchange rate is $1.23/€ and the current risk-free rate in the United States is 3.71%, compared to that in Europe of 3.03%. The appropriate discount rate for the project is estimated to be 10.55%, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €12,529,609. What is the NPV of the project?
Lakonishok Equipment has an investment opportunity in Europe. The project costs €9.5 million and is expected to produce cash flows of €1.6 million in Year 1, €2.1 million in Year 2, and €3.2 million in Year 3. The current spot exchange rate is €.94/$ and the current risk-free rate in the United States is 2.3 percent, compared to that in Europe of 1.8 percent. The appropriate discount rate for the project is estimated to be 13 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €7.8 million. What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.) NPV
Lakonishok Equipment has an investment opportunity in Europe. The project costs €9.5 million and is expected to produce cash flows of €1.6 million in Year 1, €2.1 million in Year 2, and €3.2 million in Year 3. The current spot exchange rate is €.94/$ and the current risk-free rate in the United States is 2.3 percent, compared to that in Europe of 1.8 percent. The appropriate discount rate for the project is estimated to be 13 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €7.8 million. What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.) Answer is complete but not entirely correct. $ 1,404,385.52 X NPV
Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,450,000 and is expected to produce cash flows of €4,050,000 in Year 1, €5,050,000 in Year 2, and €5,450,000 in Year 3. The current spot exchange rate is $.74/€ and the current risk-free rate in the United States is 2.9 percent, compared to that in euroland of 2.1 percent. The appropriate discount rate for the project is estimated to be 9 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9,950,000. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) X Answer is complete but not entirely correct. NPV $ 3,570,391.95 x
Credible Research sold a microchip to the Vausten Institute in Germany on credit and invoiced €10 million payable within half a year. Currently, the 6-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Credible Research predicts that the spot rate is likely to be $1.05/€ in 6 months. (i) What would be the expected gain or loss from the forward hedging? (ii) As a decision-maker for Credible Research, would you suggest hedging this euro receivable? Please explain why or why not? (iii) what if the foreign exchange advisor anticipates that the future spot rate will be similar to the forward exchange rate quoted today. As the decision-maker would you propose hedging in this case? If yes or no why?
A New Zealand company will receive a payment in USD in one year. It wants to hedge its exchange rate risk exposure. It will do this by entering into a currency forward contract to buy NZD in exchange for USD in one year. Use this information to help answer the questions that follow. (a) The current spot exchange rate for the New Zealand dollar per US dollar (NZD/USD) is 1.5836. The one-year risk-free rates are 2.0% for the New Zealand dollar and 3.5% for the US dollar. According to CIP, the no-arbitrage one-year NZD/USD forward exchange rate is closet to: Select alternative ✓ (b) Suppose that the company decides to wait a few more weeks before hedging. It then enters into a currency forward contract to buy NZD in exchange for USD at a rate of 1.5502 NZD per USD. A year later, when the company receives the USD payment, the spot NZD/USD exchange rate is 1.6123. In this case, the company would have been Select alternative if it had not hedged.
Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected to produce cash flows of €2.4 million in Year 1, €3 million in Year 2, and €3.9 million in Year 3. The current spot exchange rate is $1.39/€; and the current risk-free rate in the United States is 2.0 percent, compared to that in Europe of 2.5 percent. The appropriate discount rate for the project is estimated to be 12 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9.4 million. Use the exact form of interest rate parity in calculating the expected spot rates. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g., 1,234,567.89)

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