2. Your firm is a Swiss importer of bicycles. You have placed an order with a British firm for £1,000,000 worth of bicycles. Payment (in pounds sterling) is due in 12 months. Use a money market hedge to redenominate this one-year pound denominated payable into a Swiss franc- denominated payable with a one-year maturity. Contract U.S. $ equiv. Currency per U.S. $ Country Britain (Pound) Size £10,000 $1.9600 £0.5102 interest APR 12 Months Forward $2.0000 £0.5000 rates € 0.6410 € 0.6250 is = 1% ie = 2% € 10,000 Euro $1.5600 12 Months Forward $1.6000 SFr. 10,000 Swiss Franc $0.9200 SFr. 1.0870 3% 12 Months Forward $1.0000 SFr. 1.0000 4% The following were computed without rounding. Select the answer closest to yours. A. SFr. 2,000,000 B. SFr. 2,151,118.62 C. SFr. 2,068,383.28 D. SFr. 1,921,941.75
2. Your firm is a Swiss importer of bicycles. You have placed an order with a British firm for £1,000,000 worth of bicycles. Payment (in pounds sterling) is due in 12 months. Use a money market hedge to redenominate this one-year pound denominated payable into a Swiss franc- denominated payable with a one-year maturity. Contract U.S. $ equiv. Currency per U.S. $ Country Britain (Pound) Size £10,000 $1.9600 £0.5102 interest APR 12 Months Forward $2.0000 £0.5000 rates € 0.6410 € 0.6250 is = 1% ie = 2% € 10,000 Euro $1.5600 12 Months Forward $1.6000 SFr. 10,000 Swiss Franc $0.9200 SFr. 1.0870 3% 12 Months Forward $1.0000 SFr. 1.0000 4% The following were computed without rounding. Select the answer closest to yours. A. SFr. 2,000,000 B. SFr. 2,151,118.62 C. SFr. 2,068,383.28 D. SFr. 1,921,941.75
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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Transcribed Image Text:2. Your firm is a Swiss importer of bicycles. You have placed an order with a British firm for
£1,000,000 worth of bicycles. Payment (in pounds sterling) is due in 12 months. Use a money
market hedge to redenominate this one-year pound denominated payable into a Swiss franc-
denominated payable with a one-year maturity.
Contract
U.S. $ equiv.
Currency per U.S. $
Country
Britain (Pound)
Size
£10,000
$1.9600
£0.5102
interest APR
12 Months Forward
$2.0000
£0.5000
rates
€ 0.6410
€ 0.6250
is = 1%
ie = 2%
€ 10,000
Euro
$1.5600
12 Months Forward
$1.6000
SFr. 10,000
Swiss Franc
$0.9200
SFr. 1.0870
3%
12 Months Forward
$1.0000
SFr. 1.0000
4%
The following were computed without rounding. Select the answer closest to yours.
A. SFr. 2,000,000
B. SFr. 2,151,118.62
C. SFr. 2,068,383.28
D. SFr. 1,921,941.75
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