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Last year, your company sold electronic products to Brazil. You are expecting to receive Real 850,000 in 6 months. The following quotations are provided by a currency dealer: In $                              per $             Real                             0.4200                         2.3810             1 m. forward               0.4210                         2.3753             3 m. forward               0.4350                         2.2989             6 m. forward               0.4115                         2.4301   Draw the profit/loss graph for your unhedged position. If the spot rate in 6 months is $0.4000/ Real, what would be your profit/loss for your unhedged position (based on the related forward rate quotation) Describe how you can hedge your currency risk. Draw the profit/loss graph for your long or short forward position. If the spot rate in 6 months is $0.4000/Real, what would be your profit/loss for your long or short forward position. Draw your graph for your combined position (unhedged plus long or short forward contract). What is your profit/loss for the combined position? If you are completely confident that the spot rate in 6 months will be 0.4228, do you need to take a short or long position in Real forward contract?

Last year, your company sold electronic products to Brazil. You are expecting to receive Real 850,000 in 6 months. The following quotations are provided by a currency dealer: In $                              per $             Real                             0.4200                         2.3810             1 m. forward               0.4210                         2.3753             3 m. forward               0.4350                         2.2989             6 m. forward               0.4115                         2.4301   Draw the profit/loss graph for your unhedged position. If the spot rate in 6 months is $0.4000/ Real, what would be your profit/loss for your unhedged position (based on the related forward rate quotation) Describe how you can hedge your currency risk. Draw the profit/loss graph for your long or short forward position. If the spot rate in 6 months is $0.4000/Real, what would be your profit/loss for your long or short forward position. Draw your graph for your combined position (unhedged plus long or short forward contract). What is your profit/loss for the combined position? If you are completely confident that the spot rate in 6 months will be 0.4228, do you need to take a short or long position in Real forward contract?

Essentials Of Investments
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
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Last year, your company sold electronic products to Brazil. You are expecting to receive Real 850,000 in 6 months. The following quotations are provided by a currency dealer:

In $                              per $

            Real                             0.4200                         2.3810

            1 m. forward               0.4210                         2.3753

            3 m. forward               0.4350                         2.2989

            6 m. forward               0.4115                         2.4301

 

  1. Draw the profit/loss graph for your unhedged position. If the spot rate in 6 months is $0.4000/ Real, what would be your profit/loss for your unhedged position (based on the related forward rate quotation)
  2. Describe how you can hedge your currency risk. Draw the profit/loss graph for your long or short forward position. If the spot rate in 6 months is $0.4000/Real, what would be your profit/loss for your long or short forward position.
  3. Draw your graph for your combined position (unhedged plus long or short forward contract). What is your profit/loss for the combined position?
  4. If you are completely confident that the spot rate in 6 months will be 0.4228, do you need to take a short or long position in Real forward contract?
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