(Transaction Exposure) Trident - A U.S-based company, has concluded a sale oftelecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in90 days. The following table shows relevant exchange rates and interest rates. To hedge.the company is considering using £2,000,000 put options with a strike of $1.55/E. Theminimum net receipt (accounting for the cost) from such options hedge is$in 90 days. (Keep two decimal places/)ValueAssumptions90-day A/R in poundsSpot rate, US$ per pound ($/E)90-day forward rate, US$ per pound ($/E)3-month U.S. dollar investment rate3-month U.S. dollar borrowing rate3-month UK investment interest rate3-month UK borrowing interest rate.Put options on the British pound: Strike rates,US$/pound ($/E)Strike rate ($/E)Put option premiumStrike rate (S/E)Put option premiumStrike rate ($/£)Call option premiumTrident's WACCMaria Gonzalez's expected spot rate in 90 days, US$per pound ($/£)£2,000,000.00$1.5610$1.54113.000%10.000%7.500%9.000%$1.551.2%$1.541.2%$1.552.1%13.000%$1.5431

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(Transaction Exposure) Trident-AUS-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. The following table shows relevant exchange rates and interest rates. To hedge. the company is considering using £2,000,000 put options with a strike of $1.55/E. The minimum net receipt (accounting for the cost) from such options hedge is in 90 days. (Keep two decimal places/)

(Transaction Exposure) Trident-AUS-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. The following table shows relevant exchange rates and interest rates. To hedge. the company is considering using £2,000,000 put options with a strike of $1.55/E. The minimum net receipt (accounting for the cost) from such options hedge is in 90 days. (Keep two decimal places/)

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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Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 107,000 pounds, with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.27 per pound, Shandra purchases a two-month call option on 107,000 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 $1.27 per pound and costs $1,070. 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 $1.320 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 ending June 30? b. What amount…
(a) Suppose a trader takes a position on June 5th 2021, in one September 2021 EURO (EUR) future contract at USD1.3094/EUR. The trader holds the position until the last day of trading when the spot price is USD1.2939/EUR. This will be the final settlement price because of price convergence. The trader has EUR125,000 for this investment. (i) If the trader had a long position and he was a speculator, calculate his profit or loss for the position above. (ii) If the trader had a short position and he was a speculator, calculate his profit or loss for the position above. (iii) If the trader had a long position and he was a hedger, calculate his profit or loss for the position above. (iv) If the trader had a short position and he was a hedger, calculate his profit or loss for the position above. (b) Discuss factors that you would consider in evaluating the political risk associated before making FDI in a foreign country.
Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 106,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 106,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.35 per pound and costs $1,060. The spot rate for pounds is $1.35 on June 20 and $1.40 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30? Multiple Choice $530. $5,300. $2,300. $1,060.
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Melbourne Capital Ltd considers selling European call options on ANZ Bank Ltd for $1.50 per option. The current market price is $17.70 on 28th September 2020, the exercise price is $20, and the maturity of each call option is 6 months. (i) Under what circumstances does the investor make a profit? (ii) Under what circumstances will the option be exercised? (iii) How many call options should the investor sell to raise a total capital of $1,260,000?
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.
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A U.S. investor purchases a 30-day Euro-commercial paper with a par value of 10,000,000 Brazilian reals for a price of 9,970,000 Brazilian reals. If the real is worth $0.28, the spot rate is anticipated to be $0.288900 per real at the end of maturity, and Investor holds the Euro- commercial paper until then, assuming a 360 day year, the effective yield is: Please show work
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,170,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,170,000 pesos in three months at a strike price of $0.082. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Put Option Premium Spot Date for September 1 Rate (strike price $0.082) June 1 S 0.082 June 30 0.081 September 1 0.080 $ 0.0045 0.0032 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2. What is the impact on net income over…

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