Notes: 4. Assume 117 days between the date of February 14th, 2012, and June 10th, 2012 when the Yen exposure of ¥2,400,000,000 payable occurs. 5. To assess alternative ways of hedging, I have made it easy for you by pulling out the more important and relevant data from the Tables given in the case at the end of chapter 8 so you can use them in answering the questions of this case: ADG has a Y2,400 million payable in 4 months based on an agreement to buy 300,000 RAM chips at Y8000 each by June 10th (4 months out, payable in Yen). The relevant market data include: The current spot exchange rate of $0.01274/Y, four-month forward exchange rate of $0.01274/Y, four- month call option on yen with the strike price set at 127 cents for 100 yen that is selling for 3.11 (Ask) cents per 100 yen. ADG's borrowing interest rate in dollars is 0.62%, while lending interest rate in yen is 0.18%. 6. Question: Compare three alternative hedging methods for this: Forward, money market, and option hedges. Hedging with futures is often inconvenient due to the standardized maturities and contract size and also possibly thin trading.
Notes: 4. Assume 117 days between the date of February 14th, 2012, and June 10th, 2012 when the Yen exposure of ¥2,400,000,000 payable occurs. 5. To assess alternative ways of hedging, I have made it easy for you by pulling out the more important and relevant data from the Tables given in the case at the end of chapter 8 so you can use them in answering the questions of this case: ADG has a Y2,400 million payable in 4 months based on an agreement to buy 300,000 RAM chips at Y8000 each by June 10th (4 months out, payable in Yen). The relevant market data include: The current spot exchange rate of $0.01274/Y, four-month forward exchange rate of $0.01274/Y, four- month call option on yen with the strike price set at 127 cents for 100 yen that is selling for 3.11 (Ask) cents per 100 yen. ADG's borrowing interest rate in dollars is 0.62%, while lending interest rate in yen is 0.18%. 6. Question: Compare three alternative hedging methods for this: Forward, money market, and option hedges. Hedging with futures is often inconvenient due to the standardized maturities and contract size and also possibly thin trading.
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
Related questions
Question
Transcribed Image Text:Notes:
4. Assume 117 days between the date of February 14th, 2012, and June
10th, 2012 when the Yen exposure of ¥2,400,000,000 payable occurs.
5. To assess alternative ways of hedging, I have made it easy for you by
pulling out the more important and relevant data from the Tables
given in the case at the end of chapter 8 so you can use them in
answering the questions of this case: ADG has a Y2,400 million
payable in 4 months based on an agreement to buy 300,000 RAM
chips at Y8000 each by June 10th (4 months out, payable in Yen). The
relevant market data include: The current spot exchange rate of
$0.01274/Y, four-month forward exchange rate of $0.01274/Y, four-
month call option on yen with the strike price set at 127 cents for 100
yen that is selling for 3.11 (Ask) cents per 100 yen. ADG's borrowing
interest rate in dollars is 0.62%, while lending interest rate in yen is
0.18%.
6. Question: Compare three alternative hedging methods for this: Forward, money
market, and option hedges. Hedging with futures is often inconvenient due to the
standardized maturities and contract size and also possibly thin trading.
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