Sololo Slopes has sold a home for an influential American business man priced in American dollars at $12,000,000 on a three month credit window. Given: Interest rates USA Kenya Exchange rates 12% p.a. 10% p.a. $1: Kes. 76.22 - 92 $1: Kes. 64.23-93 A three month dollar call option is available at a premium of Usd.25,000 at an exercise rate of Kes, 66.53. Spot: Three month forward: A three month dollar put option is available at a discount of Usd.10,000 at an exercise rate of Kes. 65.60.. Required: Using suitable computations, illustrate three strategies available to Sololo slopes in managing this exposure and advice on the suitable technique,

Sololo Slopes has sold a home for an influential American business man priced in American dollars at $12,000,000 on a three month credit window. Given: Interest rates USA Kenya Exchange rates 12% p.a. 10% p.a. $1: Kes. 76.22 - 92 $1: Kes. 64.23-93 A three month dollar call option is available at a premium of Usd.25,000 at an exercise rate of Kes, 66.53. Spot: Three month forward: A three month dollar put option is available at a discount of Usd.10,000 at an exercise rate of Kes. 65.60.. Required: Using suitable computations, illustrate three strategies available to Sololo slopes in managing this exposure and advice on the suitable technique,

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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Mark an American has $6 million that he intends to invest in Kenya. The macroeciomic variables of the two countries were: Interest rates: Kenyan Interest Rates -7% / USA Interest Rates- 5% Inflation rates: Kenyan Inflation rates - 6% / USA Inlfation Rates- 3% Gross Domestic Product - Kenya - 9% / USA - 5% The spot rate was ksh 114/$. The estimated period for the investment by Mark was one year. Mark entered into a forward contract to insulate the dollar.at ksh 115/$. Required: (a) Compute the covered interest arbitrage (b) State and explain the factors that influence covered interest arbitrage
Toll Brothers Inc. builds and finances luxury homes in the U.S.. Toll Bros. offers a 29 year mortgage where the borrower makes no payments during the first year. The promotion is offered on its entry level design, The Refuge, which sells for $1000000. What are the monthly payments after the first year? Toll Bros. offers an annual interest rate of 3.5%. Assume that this offer is in the U.S. where banks charge a periodic interest rate of i/m. Round your answer to the nearest dollar. Your Answer: Answer
EUROCREDIT LOAN:A Swiss sporting goods company borrows in yen in the Eurocredit market at a rate of 4.94 percent from Bank of America using a three-month rollover loan. Bank of America assigns a default risk premium of 1.93 percent on the loan, and the country risk is an additional 0.76 percent. The bank can borrow funds in the Euromarket at the three-month LIBOR rate of 0.30 percent. What is Bank of America’s gross profit margin on this loan?
Given: ICAD/0.8USD Spot rate 3 month forward rate ICAD/0.79USD 90 Days interest rates Canada 4% USA2 2.5% With USD 2,000,000 borrowed in USA, can CIA (covered interest arbitrage) take place? If so, clearly show the steps.
Please help with the last one in RED X
Le Tablier Bleu Gourmet Store is a French food importer. It owns Auzzie Food Export Pty Ltd an Australia Company. Le Tablier has a payment of EUR 300,000 due to Auzzie Food Export in three months time. The following information available: Spot exchange rate (AUD/EUR) Three months forward rate (AUD/EUR) 1.6049-1.6099 1.5849-1.5899 8% p.a. 10% p.a. Australia three months interest rate French three months interest rate Calculate the cost of hedging for Auzzie Food Export Pty Ltd using a forward hedging and under money market hedging.
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.
A foreign exchange dealer in Kigali Rwanda provides quotes for the spot and 3 month forward rates for the RFr against the dollar. Bid (RFr/U$$) ask (RFr/U$$) Spot 4.0040 4.0200 3-month forward 3.9690 3.9888 Required: a. What would you receive in dollars if you sell RFr 5 million at the spot rate? b. What would it cost in dollars to purchase RFr 20 million forward 3 month? When would you make payment?
ABC is asked to quote a price in Jamaican dollars for computer sales to a Jamaican company. The computers will be paid for in four equal, quarterly installments, beginning 90 days from now. ABC requires a minimum price of $2.5 million to accept this contract. Suppose the spot and forward rates for the J$ are as follows: Spot 90-Day 180-Day 270-Day 360-Day $0.0307 $0.0302 $0.0298 $0.0293 $0.0287 What is the minimum J$ price that ABC should quote for this order? a. J$ 87,108,014 b. J$ 82,781,457 c. J$ 84,745,763 d. J$ 81,433,225
You are the managing Director of Sunkwa limited a food processing company based in Atlanta in the United States of America. You are planning to visit Geneva, Switzerland in three months’ time to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. REQUIRED;(i) Calculate your expected dollar cost of buying SF5, 000 if you choose to hedge via call option on SF.
Accounting A chinese company offers an American buyer rice at US $2500 per M/T CFR New York, the buyer asks for unit price under CIFC5% New York. After checking with the insurer, the seller finds thst the All risks and the war risk rate are 0.5% and 0.04% respectively and the insured amount is 110% of the CFR price. What unit price should the seller quote in order to maintain the same margin?
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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