our firm is an Italian exporter of bicycles. You have sold an order to a British firm for £1,000,000 worth of bicycles. Payment from the customer (in pounds sterling) is due in 12 months. Detall a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity. Contract Size £10,000 €10,000 SFr.10,000 Country Britain (pound) 1 month forward. 3 months forwardi 6 months forwardi 12 months forward Euro 1 month forward. 3 months forward. 6 months forward 12 months forward Swiss franc 1 month forward 3 months forwardi 6 months forward. 12 months forwardi U.S. $ equiv. Tuesday $1.9600 Currency per U.S. $ Tuesday Monday £0.5155 £0.5128 10.5102 Monday $1.9400 $1.9700 $1.9500 $1.9800 $1.9600 $1.9900 $1.9700 $2.0000 $1.9800 $1.5600 $1.5400 $1.5700 $1.5500 $1.5800 $1.5600 $1.5900 $1.5700 $1.6000 $1.5800 $0.9200 $0.9000 $0.9400 $0.9200 SPr.1.0638 $0.9600 $0.9400 SPr.1.0417 $0.9800 $0.9600 SPr.1.0204 $1.0000 $0.9800 SPr.1.0000 SFr.1.0204 SFr.1.0870 EO.5102 £0.5076 £0.5051 EO.5025 £0.5000 co.64101 €0.6369 €0.6329 €0.6289 €0.6250 £0.5076 10.5051 CO.6494 €0.6452 €0.6410 €0.6369 Co.6329 SPr.1.1111 SFr.1.0870 SFE.1.0638 SPr.1.0417

our firm is an Italian exporter of bicycles. You have sold an order to a British firm for £1,000,000 worth of bicycles. Payment from the customer (in pounds sterling) is due in 12 months. Detall a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity. Contract Size £10,000 €10,000 SFr.10,000 Country Britain (pound) 1 month forward. 3 months forwardi 6 months forwardi 12 months forward Euro 1 month forward. 3 months forward. 6 months forward 12 months forward Swiss franc 1 month forward 3 months forwardi 6 months forward. 12 months forwardi U.S. $ equiv. Tuesday $1.9600 Currency per U.S. $ Tuesday Monday £0.5155 £0.5128 10.5102 Monday $1.9400 $1.9700 $1.9500 $1.9800 $1.9600 $1.9900 $1.9700 $2.0000 $1.9800 $1.5600 $1.5400 $1.5700 $1.5500 $1.5800 $1.5600 $1.5900 $1.5700 $1.6000 $1.5800 $0.9200 $0.9000 $0.9400 $0.9200 SPr.1.0638 $0.9600 $0.9400 SPr.1.0417 $0.9800 $0.9600 SPr.1.0204 $1.0000 $0.9800 SPr.1.0000 SFr.1.0204 SFr.1.0870 EO.5102 £0.5076 £0.5051 EO.5025 £0.5000 co.64101 €0.6369 €0.6329 €0.6289 €0.6250 £0.5076 10.5051 CO.6494 €0.6452 €0.6410 €0.6369 Co.6329 SPr.1.1111 SFr.1.0870 SFE.1.0638 SPr.1.0417

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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Similar questions

IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed ¥250 million payable in three months. Currently, the spot exchange rate is #105/$ and the three-month forward rate is ¥100/$. The three-month money market interest rate is 8 percent per annum in the United States and 7 percent per annum in Japan. The management of IBM decided to use a money market hedge to deal with this yen account payable. a. Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation. b. Conduct a cash flow analysis of the money market hedge.
The treasurer of a major U.S. firm has $38 million to invest for three months. The interest rate in the United States is .55 percent per month. The interest rate in Great Britain is .59 percent per month. The spot exchange rate is £.76, and the three-month forward rate is £77. Ignore transaction costs. a. If the treasurer invested the company's funds in the U.S., how much would the investment be worth after three months? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. b. If the treasurer invested the company's funds in Great Britain, how much would the investment be worth after three months in U.S. dollars? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. a. U.S. investment b. Great Britain investment
ABC Inc. has 10,000,000 Yen worth of receivables it expects to collect in 3 months’ time. To hedge its currency risk, it decided to hedge with a forward contract at a forward exchange rate of 100 Yen/US$. In 3 months’ time, the exchange rate is 105 Yen/US$. How much does ABC Inc. receive?
company will receive €75 million in 1 year from an Italian customer. observe the following data. $:€ Spot Rate $1.25:€1.00 $:€ Forward Rate $1.30:€1.00 How many USD will you receive if you employ a forward hedge
A bank customer will be going to London in June to purchase £100,000 in new inventory. The current spot and futures exchange rates are as follows: Exchange Rates dollars/pound Period Spot March June September December Rate 1.5342 1.6212 1.6901 1.7549 1.8416 The customer enters into a position in June futures to fully hedge her position. When June arrives, the actual exchange rate is $1.735 per pound. How much did she save? $ (Round your response to the nearest whole number.)
Manshukh
Assume that you are running an Australia based company which has an account payable of EUR 125,000 due in three months. You decide to hedge out the associated foreign exchange risk using futures contracts. A futures contract of EUR125,000 is selling at A$1.5410 per euro. Suppose the next three days’ settlement prices are A$1.5399, A$1.5480, and A$1.5410. The initial margin of your performance bond account is $2,000 and maintenance margin is $1,500. What is your margin account balance at the end of the first day and what is the balance of this account at the end of the third day?
A Malaysian company expects to have to pay 1 million Canadian dollars in six months. Explain how the exchange rate risk can be hedged using (a) a forward contract (b) an option.
An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward contract. The current spot rate is GBP0.833/EUR and the 90-day forward rate is GBP0.856/EUR. At the end of 3 months, the gilts have risen in value by -2.50% (in GBP terms), and the spot rate is now GBP0.82/EUR. What was the true cost of the forward contract? a. 11.044% annualised. b. 17287% annualised. c. 7287% annualised. d. 14.787% annualised.
Using info in the table below calculate how many USD you would have to pay 2 months from now to buy EUR 10,000 if you lock into a 2 month forward contract now. 98) Settings. 10,966 11,394 11,044 14,895 1) G10 11) All G10 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) titokb US Euro Japan UK Canada Australia ON TN Spot SN 1W 1M Switzerland 2M Denmark 3M Norway 6M Sweden N. Zealand 90) FX Markets Overview 91) FX Forwards 92) FX Options and Volatility 93) Economics 30) Forward Term Structures - Points | XDSH >> EURUSD 2) Asia 3) Europe/Africa 4) Latin America 5) Middle East 6) Metals .60 .63 1.1005 .69 -2.06 4.78 -14.26 20.22 -63.47 38.90 -128.04 56.04 -189.12 100.88 -370.08 168.84 -698.24 1Y 40) Term Structure Chart - Outrights | XCRV >> Chart 136.000000- 134.000000 132.000000- 130.000000- 128.000000 126.000000- 124.835098 124.000000 Graph terms from TOD USDJPY GBPUSD USDCAD AUDUSD NZDUSD USDCHF USDDKK USDNOK USDSEK -11.01 .31 -.22 .22 -.07 -.94 -3.83 -5.55 -5.84 -2.04 .26 -.21 .17 -.02…
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