The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers A-1,271 0 c 1,271 D 2,502 3,773

The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers A-1,271 0 c 1,271 D 2,502 3,773

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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On June 1, Parker-Mae Corporation (a U.S.-based company) received an order to sell goods to a foreign customer at a price of 100,000 francs. Parker-Mae will ship the goods and receive payment in three months, on September 1. On June 1, Parker-Mae purchased an option to sell 100,000 francs in three months at a strike price of $1.00. The company designated the option as a fair value hedge of a foreign currency firm commitment. The option's time value is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income. The fair value of the firm commitment is measured by referring to changes in the spot rate (discounting to present value is ignored). Relevant exchange rates and option premiums for the franc are as follows: Date Spot Rate Put Option Premiumfor September 1(strike price $1.00) June 1 1.00 0.020 $ June 30 0.94 0.072 September 1 0.90 N/A Parker-Mae Corporation must close its books…
A UK importer contracts to pay 18 million Yen for raw material from a supplier in Japan on one month's credit. The importer arranges with his bank to cover the transaction in sterling on the forward exchange market. The following rates are quoted to him (in Yen/£): Spot rate 247.45 - 247.75 1 month forward 248.00 – 248.80 What will be the cost of the shipment in sterling?
You sold goods for USD 2 million and expected to receive the proceeds in 2 months. You entered into a forward exchange contract (“FEC”) at AUD/USD 0.9600. You have been advised your customer cannot pay the USD 2m until 3 months after the FEC date. Your bank agrees that you can extend your FEC at the historical rate. Current spot rate is AUD/USD 0.8800 with USD and AUD interest rates 1% pa and 6% pa respectively. What is the approximate amount of AUD you will now receive at the revised future date: Select one: A. AUD 2,301,000 B. AUD 2,083,000 C. AUD 2,273,000 D. AUD 2,109,000
The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers : A. -1,271 B. 0 C. 1,271 D. 2,502 E. 3,773
The bid price for spot gold is $ 1820/oz, the asked price for spot gold is $1822/oz and the yearly interest rate is 6%. The forward contract calls for the delivery of 100 oz. of gold in three months. The lender of gold will allow only 50% of the proceeds from a short sale. Also assume that the total transaction cost of buying or selling 100 oz. of gold, and trading one forward contract, is $1/oz. There is no carry return. The range of possible forward prices per ounce of gold that precludes arbitrage is then: O $1832.65 - $1850.33 O $1821.21-$1823.21 O $1928.20 - $1932.32 O $1846.30 - $1848.30
On December 12, 2022, Tin Company entered into a forward exchange contract to purchase 500,000 euros in 90 days.The relevant exchange rates are as follows: Spot rate Forward rate (for 3/12/2023)November 30, 2022 P0.56 P0.57December 12, 2022 P0.57 P0.58December 31, 2022 P0.61 P0.60March 12, 2023 P0.62 P0.62 The purpose of this forward contract is to hedge a purchase of inventory in November 30, 2022, payable in March 2023. How much is the net forex gain/loss December 31, 2022? (just encode the absolute amount)
Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2018, it leased equipment with a cost of £480,000 to Silver Point Co. The 5-year lease calls for equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. If the selling price of the equipment is £702,000, and the rate implicit in the lease is 8%. Present value of an ordinary annuity at 8% for 5 periods equals 4.00. Present value of an annuity due at 8% for 5 periods equals 4.50. Calculate the amount of the annual rental payment required.
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On June 1, Parker-Mae Corporation (a U.S.-based company) received an order to sell goods to a foreign customer at a price of 100,000 francs. Parker-Mae will ship the goods and receive payment in three months, on September 1. On June 1, Parker-Mae purchased an option to sell 100,000 francs in three months at a strike price of $1.00. The company designated the option as a fair value hedge of a foreign currency firm commitment. The option's time value is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income. The fair value of the firm commitment is measured by referring to changes in the spot rate (discounting to present value is ignored). Relevant exchange rates and option premiums for the franc are as follows: Date June 1 June 30 September 1 Spot Rate $1.00 0.94 0.90 Put Option Premium for September 1 (strike price $1.00) $ 0.020 0.072 N/A Parker-Mae Corporation must close its books and prepare its second-quarter financial statements on June…
2 XYZ Company sells goods to a foreign customer on June 8. Payment of 3,000,000 foreign currency units (FC) is due in one month. June 30 is XYZ Company’s fiscal year-end. The following exchange rates were in effect during the period: June 8 Spot rate $1.10 June 8 30 day forward rate $1.15 June 30 Spot rate $1.14 July 8 Spot rate $1.20 A For what amount should XYZ Accounts Receivable be debited on June 8 B How much foreign exchange gain or loss should XYZ record on June 30
A mining company in Australia has entered into a contract to export iron ore into China with delivery in three months’ time. The contract is denominated in Chinese Yuan, CNY and is valued at CNY 500 million. The current spot exchange rate is AUD/CNY 5.18. Assume that the expected spot rate in three months’ time is AUD/CNY 5.13. The three-month futures contract for Australian dollar and Chinese Yuan is trading at AUD/CNY 5.09. Should the mining company use the futures market to hedge the exchange rate exposure? Explain why or why not?
On December 30, Year 1, ABC Corporation sold a machine to DEF Corporation in exchange for a non-interest bearing note requiring ten annual payments of P10,000. DEF made the first payment on December 30, Year 1. The market interest rate for similar notes at date of issuance was 8%. Information on present value factors is as follows: For 9 periods, the present value of P1 at 8% is 0.50 while the present value of ordinary annuity of P1 at 8% is 6.25. Meanwhile, for 10 periods, the present value of P1 at 8% is 0.46 and the present value of ordinary annuity of P1 at 8% is 6.71. In its December 31, Year 1 balance sheet, what amount should ABC Corporation report as note receivable? *

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