exchange rate Put option Exercise? Inflow Outflow Put premium Exercise cost Profit 1,625 1,64 1,6513 1,6612 1,701

Q: What is the required annual rate of return on the cocoa contract ? You plan to hold the contract for…

A: Solution:- Given in Question- Risk Free Return = 4% Risk Premium = 6% Beta = -0.291 A. To Calculate…

Q: A speculator is considering the purchase of a 6-month Swiss franc call option on 50,000 francs with…

A: Currency = 50,000 FrancsStrike price = $1.0885/SFrPremium = $0.0075/SFrSpot price =…

Q: The current spot exchange rate equals DDD1 = $3.4567. The risk-free rate in DreamLand is 3%, and it…

A: To evaluate the investment project in DreamLand, we need to calculate the net present value (NPV)…

Q: An asset currently costs $432. The risk-free rate in the economy is 2.8% per year. What should be…

A: Current price = p = $432 Risk free rate = r = 2.8% Time = t = 8 / 12 year

Q: In the US futures contract for Arabica, the most widely produced coffee beans, is traded at…

A: Futures are traded on the margins and margins are to be maintained if money falls below margin than…

Q: . What is the value of the put option? (

A:

Q: An institutional investor, Gilbert Limited, is planning to purchase a straight Eurobond in order to…

A: Euro bond is a debt instrument denominated in a currency other than the home currency of the country…

Q: Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's…

A: Here,RequiredPlatinum is 10,000 ouncesFuture Contract Rate is $1,290 per ouncesTime Period of Future…

Q: The spot price for smoked salmon is $5,000 per ton and its six-month futures price is $4,800. The…

A:

Q: MNC needs 100,000 Canadian dollars (C$) in 90 days (i.e. has payable due) and is trying to determine…

A: Forward rate = $0.60 If Actual spot rate is less than forward rate i.e. $0.60, then the forward…

Q: Amazon would like to get a floating rate loan $10,000,000. It can borrow at 7.92% or Libor + 1%. A…

A: Two unrelated questions appear on the screen. One of them is from the topic of fixed versus floating…

Q: Today, the July 2022 coffee futures price is trading at 120 cents per pound. Fast forward to late…

A: Futures Contracts: An agreement between a party and the exchange to buy or sell a fixed…

Q: a. The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. Note: Round…

A: The relative worth of two currencies, or the amount of one currency that may be exchanged for one…

Q: The British pound (£) is currently worth 1.45 euros (€). This can either increase by u = 1.1 or…

A: The Binomial Tree option pricing model is used to find out the value of options on an underlying…

Q: equivalent amount of equities denominated in South African rands (ZAR). Omni will realize net…

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

Q: In a MNC has peso payables coming due in 90 days, and is certain the the peso will appreciate.…

A: Put option contracts are the contracts which gives the buyer the right to sell an underlying asset.…

Q: A rice importer is going to sell rice in one year. In order to lock in a fixed selling price, the…

A: Synthetic future contact is a combination of buying and selling a put and call option at same strike…

Q: A US based IT firm required GBP 100000 in 180 days. The company feels that exchange rates are…

A: 1. Forward contract =                                                                          =…

Q: Kansas Corporation, an American company, has a payment of €5.9 million due to Tuscany Corporation…

A: Scenario 1: Spot Rate = 0.85 €/SStrategy 1: Forward ContractCost of €5.9 million at forward rate:…

Q: The British pound (£) is currently worth 1.45 euros (€). This can either increase by u = 1.1 or…

A: The European options only allow the holder to exercise the option at the maturity date. On the other…

Q: To find the quoted price of a 180-day T-bill with a 5% yield and the contract price for a $1,000,000…

A: Treasury bills are short term debt securities issued by U.S. Department of the treasury serves as an…

Q: how much BP has to pay?

A: LIBOR: It is a benchmark for interest rates at which many international banks lend to one another…

Q: Suppose the risk free rate in pounds (£) is 5.71% and the risk free rate in US dollars ($) is 7.95%.…

A: The covered interest rate parity ensures the determination of future exchange rates without…

Q: A $2000 bill with a $25 coupon in the US is currently selling at $1800, and a 4000 Swedish Krona…

A: The uncovered interest rate parity refers to the relationship between the relative change in the…

Q: Suppose your company needs to make a payment of 50 million Swiss franc one year from now, how would…

A: Payment obligation = 50 million Swiss franc Futures contract = 125,000 Swiss franc.

Q: Suppose that after graduation, you take a job with an Oklahoma oil company. Yo boss indicates that…

A: For hedging, if we go long that means we have got the right to buy the underlying asset at…

Q: Assume the following information: You have $1,000,000 to invest Current spot rate of pound =…

A:

Q: A put option is written on €100 with a strike price of $1.00 = €1.00. In one period, there are two…

A: gain on call option if price is $1.15 = €1.00 is 0.15.gain on call option if price is $0.85 = €1.00…

Q: As a US exporter selling to Europe. You wish to hedge a 1,040,000 Euro to be received in 3 months…

A: Calculation of dollars received if U.S. exporter hedge the position with futures or if Exporter…

Q: Calculates the price of a 60-day PUT option, on the USD/MXN that presents a spot of 19.9246 MXN per…

A: Spot rate is 19.9246 MXN per USD Put Strike is 20.000 MXN per USD Risk free rate is 4% per year in…

Q: You want to invest in a riskless project in Sweden. The project has an initial cost of SKr2.1…

A: Step 1: to calculate the risk-free rate in Sweden using the international Fisher effect:  (1 + iUS)…

Q: A commercial bill with a face value of P50 000 has a current price of P49291. This bill is trading…

A: Time to maturity means the time in which the bill will be matured and the maturity amount will be…

Q: A Canadian firm is evaluating an investment in Indonesia. The project costs 580 billion Indonesian…

A: NPV means PV of net benefit arises from the project in coming years. It is equal to the difference…

Q: Your wage increased from $14 before COVID to $18 after COVID. This increase happened over 2 year.…

A: Present Value = pv = $14Future Value = fv = $18Time = t = 2 Years

Q: futures price is $820 per ounce. How many contracts do you need to purchase? How much will you pay…

A: Given that,To find the different entities using the given information.

Q: If you deposit $700 in a bank account that earns 5 percent per year, how much total interest will…

A: Interest Amount = Principal * ( 1 + r )n - Principal

Q: Consider a one-step binomial model over a 3-month period. The current asset price is $100. In 3…

A: Introduction Binomial Model To value American options, the binomial option pricing model uses an…

Q: Your company needs £500,000 per month. You choose to hedge half of the required amount by entering…

A: Futures are standardized contracts. They are used to buy or sell underlying asset at the…

Q: Suppose you borrow $10,000,000 in the interbank money market at a KLIBOR yield of 6% pa for a term…

A: First of all, we need to understand the meaning of forward rate agreement- It is an agreement…

Q: Consider a farmer who plans to sell 6,000 bushels of corns on date T. The date-T spot price of corn…

A: Plan to sell = 6,000 bushels  Mean = $500 per bushel Standard deviation = $50 per bushel  Future…

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.