On December 15, 2009, Chippy , Inc. purchased an option for P50,000 to buy 100,000 kilos of Jumbo potatoes at a strike price of P30 per kilo. The intrinsic value of the option was designated as a cash flow hedge. The following fair values were relevant. 12/15/09 12/31/09 Fair value of Jumbo potatoes in the commodity market Fair value of option in the derivative market P 30 P 32 P50,000 P 230,000 6) What is the total amount that should be taken into profit or loss? a. РО b. P 180,000 gain c. P 20,000 loss d. P 200,000 gain

On December 15, 2009, Chippy , Inc. purchased an option for P50,000 to buy 100,000 kilos of Jumbo potatoes at a strike price of P30 per kilo. The intrinsic value of the option was designated as a cash flow hedge. The following fair values were relevant. 12/15/09 12/31/09 Fair value of Jumbo potatoes in the commodity market Fair value of option in the derivative market P 30 P 32 P50,000 P 230,000 6) What is the total amount that should be taken into profit or loss? a. РО b. P 180,000 gain c. P 20,000 loss d. P 200,000 gain

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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C. L. Hooper purchased a call on 900 Troy oz. of Palladium with a strike price of $1,839.03. On the expiration date, the Palladium is selling at $1,850.25 per Troy oz. Option contracts on Palladium are based on 100 Troy oz. What is the payoff on the call contract ignoring all transaction costs? Question 47 options: $11, 220 - $11, 220 $10,098 - $10, 098 $0
Star Alien (US company) sold equipment to Heavy Metal Industry (Italian company) for 1-million-euro receivable in one year. The current spot rate is $1.15/€ and the one-year forward rate is $1.20/€. The annual interest rate is 5 percent in Italy and 8 percent in the United States. Star Alien can also purchase a one-year put option on the euro at the strike price of $1.18 per euro for a premium of 9 cents per Euro. What is the future dollar proceeds of this sale using the money market hedge? Question 1 options: $1,180,000. $1,102,800. $1,150,000. $1,118,056. $1,200,000. $1,182,857.
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Problem 9-19 (Algo) (LO 9-9) Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 132,000 pounds, with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.47 per pound, Shandra purchases a two-month call option on 132,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value is recognized in net income over the life of the option. The option has a strike price of $1.47 per pound and costs $1,320. The goods are received and paid for on June 15. Shandra sells the imported goods in the local market immediately. The spot rate for pounds is $1.520 on June 15. Required: a-1. Prepare all journal entries for Shandra Corporation related to this transaction and hedge. a-2. What amount should Shandra Corporation report in net income as cost of goods sold for the quarter…
9
2) XYZ has cash of FC 100,000 on both April 30 and May 31, 2010. The applicable spot rates for April 30 and May 31 are as follows: April 30: 1US = 5FC May 31: 1 US= 4FC How much is the FX transaction gain or loss on May 31, 2010.
Star Alien (US company) sold equipment to Heavy Metal Industry (Italian company) for 1-million-euro receivable in one year. The current spot rate is $1.15/€ and the one-year forward rate is $1.20/€. The annual interest rate is 5 percent in Italy and 8 percent in the United States. Star Alien can also purchase a one-year put option on the euro at the strike price of $1.18 per euro for a premium of 9 cents per Euro. Assuming that the forward exchange rate is the best predictor of the future spot rate, what is the expected future dollar revenue when the option hedge is used? $1,200,000. $1,150,000. $1,297,200. $1,180,000. $1,180,000. $1,082,800. $1,102,800.
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EBOOK Mike Suerth sold a call option on Canadian dollars for $0.01 per unit. The strike price was $0.76, and the spot rate at the time the option was exercised was $0.85. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 54,900 units in a Canadian dollar option. What was Mike's net profit on the call option? Use a minus sign to enter loss values, if any. Round your answer to the nearest dollar. -41175
Fair Value Hedge of a Foreign Currency Firm Commitment: Call Options On May 1, 2020, Greenwave Foods, a U.S. company, issued a purchase order to an Italian company for €10,000,000 in food products, to be delivered in 3 months. On that date, the spot rate was $1.20/€ and the 3‑month forward rate was $1.203/€. Greenwave guarantees the maximum U.S. dollar cost of this purchase by investing in call options on €10,000,000 at a strike price of $1.20/€, costing $0.008/€. Management designates the intrinsic value of the calls as a fair value hedge of a firm commitment. On June 30, Greenwave’s fiscal year-end, the spot rate is $1.235/€, the 1‑month forward rate is $1.238/€ and the options sell for $0.041/€. On August 1, 2020, the spot rate is $1.242/€. Greenwave takes delivery of the food products, sells the options at their intrinsic value of $0.042/€, and pays the Italian supplier by buying €10,000,000 in the spot market. Required a. Prepare entries to record the above events, including the…

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