U.S.-based importer, Zarb Inc., makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with

Q: An investor has $10m to invest and has the following options: 1) depositing it in a US bank account…

A: Exchange rate: It is the value of a currency that is exchanged with another currency.

Q: Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,450,000 and is…

A: The NPV of a project refers to the measure of the project's profitability calculated by discounting…

Q: n investor is bullish on the euro and believes it will increase against the Japanese Yen. The…

A: a) Assume the euro's spot price at the expiration date (market price) is ¥136/€ The investor's…

Q: A British firm will receive $1 million from a U.S. customer in three months. The firm is considering…

A: The global market where currencies are traded is known as foreign exchange currency, or forex or FX.…

Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…

A: Spot rate = $1.05/€1-year Forward rate = $1.10/€Interest rate in US = 6%Interest rate in France =…

Q: A U.S. Company knows that it will have to pay 3 million Euros in three months. The current exchange…

A: Companies involved in international transactions often face the risk of fluctuating exchange rates.…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six…

A: To determine where the treasurer of IBM should invest the extra cash reserve to maximize the return…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six…

A: Cash reserve = $100,000,000Time for investment = 6 monthsInterest in US = 12% p.aInterest in Germany…

Q: A U.S. firm buys merchandise from a Portuguese company at a cost of EUR 250,000.  The merchandise…

A: The United State firm is exposed to foreign exchange fluctuation because it will pay in dollars in…

Q: Incantieri sold a cruise ship to Disney Cruise Line, a U.S. company, and billed $1 billion payable…

A: Hedging: It is  a risk management strategy  to remove  losses in investments by taking an opposite…

Q: 7.ABC Company, a British company, expects to receive $10,000,000 in 30 days. It wants to hedge its…

A: Forward contract is an agreement which is done between two parties to hedge foreign currency risk.…

Q: a. The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. Note: Round…

A: The relative worth of two currencies, or the amount of one currency that may be exchanged for one…

Q: Question 1: (a) A merchant in the UK has agreed to sell goods to an importer in the USA at an…

A: A currency future, also known as an FX future or a foreign exchange future, is a futures contract in…

Q: Global Distributors Inc. plans to make a payment of €1,500,000 to a supplier in Europe in 3 months.…

A: To calculate the savings from entering into the forward rate agreement, we need to compare the…

Q: equivalent amount of equities denominated in South African rands (ZAR). Omni will realize net…

A: ParticularsZAR/USDZAR/USDCHF/USDCHF/USDMaturityBidAskBidAskSpot6.26936.28011.52941.536130-days6.2550…

Q: A British importer who owes €100,000 wants to hedge the currency exposure using options. In order to…

A: The British Importer needs to pay EUR 100,000. The importer's home currency is GBP. To pay for this…

Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…

A: In the field of finance, hedging is a tactic employed to reduce or eliminate the possible adverse…

Q: 6. The U.S. manufacture sells the tools to a German company and has Euro receivable in 3 months. How…

A: Solution:- Futures means entering into an agreement to buy or sell something on a future date at the…

Q: A US company needs to make a one-time payment of 50 million dollars in Mexican Pesos in about 6…

A: Option contract : An option contract is an agreement to purchase an asset at a defined price on a…

Q: Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. The…

A: Solution : Money Market Hedge is that technique which provide the protection against loss which…

Q: Nicantieri sold a cruise ship to MCC Cruise Line, a U.S. company, and billed $1 billion payable in…

A: One currency can be exchanged for another currency using the currency exchange rates. To hedge the…

Q: You are a U.S. importer and just placed an order of antiques worth £100,000 from a U.K supplier. You…

A: A foreign exchange payment is hedged through an option contract. Total cost of purchase needs to be…

Q: An investor is bullish on the euro and believes it will increase against the Japanese Yen. The…

A: A call option gives the holder right to buy an asset under the option to buy at a fixed price at a…

Q: Lakonishok Equipment has an investment opportunity in Europe. The project costs €15 million and is…

A: The NPV of the project refers to the measure of the profitability of the project calculated by…

Q: Lambert Corporation, a U.S. based importer, makes a purchase of crystal glassware from a firm in…

A: Amount paid under forward hedge=Amount payable*forward exchange rate.=66,600/1.822.=$36,553.24

Q: Lakonishok Equipment has an investment opportunity in Europe. The project costs €14,750,000 and is…

A: Net present value is computed by deducting the initial investment from the current value of cash…

Q: Michelle Co. a US firm, plans to use a money market hedge to hedge its payment of $2,000,000…

A: The objective of this question is to calculate the amount of U.S dollars needed in 1 year if a money…

Q: Al-Huda Corporation is an Omani firm offering different services. However, its main activity focuses…

A: The transaction exposure is the level of uncertainties faced by entities due to volatile foreign…

Q: Busco has a foreign-currency denominated payable, it can hedge by buying the foreign currency…

A: The put option: The currency put option gives the buyer a right but not the obligation to sell the…

Q: Suppose a U.S. investor wishes to invest in a British firm currently selling for £60 per share. The…

A: As per the given information:Here,Current Selling Price of the British Firm is £60 per shareCurrent…

Q: The spot exchange rate is $0.19 per Brazilian real in American terms. Assume interest rates are…

A: Arbitrage profit In finance, arbitrage profit is a profit earned by taking advantage of a difference…

Q: Copper International is a U.S. based company that would like to invest in a project in Europe. The…

A: The NPV of a project is a measure of its profitability by discounting the future cash flows to the…

Q: ABC’s payoff on the forward contract is closest to:

A: Forward Contract: It is an over-the-counter contract between two parties agreeing to purchase or…

Q: An American firm has just sold merchandise to a British customer for £100,000, with payment in…

A: Merchandise value = 100,000Strike price = 1.6660Premium cost =$0.01Spot exchange rate = $1.7100

Q: Consider a US company, GateCorp, that exports products to the United Kingdom. GateCorp has just…

A: A forward contract: A forward contract is a contract in which two parties agree to exchange an asset…

Q: Lakonishok Equipment has an investment opportunity in Europe. The project costs €12 million and is…

A: The NPV of a project refers to the measure of the project's profitability calculated by discounting…

Q: Dune Ltd. is an Irish company which will pay CAN$609,000 to a supplier in Toronto in three months…

A: Spot Rate is that rate of exchange in which we can convert the one country currency to another…

Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…

A: Hedging: This is a risk management strategy employed to reduce or eliminate the possible adverse…

Q: An U.S. firm requires C$230,000 in 90 days to pay the imports from Canada. To avoid currency…

A: Whenever there is an involvement of foreign currency in the transaction, it results in foreign…

Q: A U.S. firm, sells merchandise today to a British company for £100,000. The current exchange rate is…

A: Money market hedge: A money market hedge is a method for controlling exchange rate or currency risk.…

Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…

A: Amount receivable = €19 millioncurrent EUR/USD rate = 1.0651   One-year forward rate = 1.0898Annual…

Q: Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced…

A: Since you have posted a question with multiple sub parts, we will provide the solution only to the…

Q: Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,200,000 and is…

A: Initial investment = €15,200,000Cash flow in year 1 = €3,800,000Cash flow in year 2 = €4,800,000Cash…

Q: ABC Inc. has 10,000,000 Yen worth of receivables it expects to collect in 3 months’ time. To hedge…

A: ABC Inc. decided to hedge its currency risk using a forward contract at a forward exchange rate of…

Q: Suppose that the U.S. firm Halliburton buys construction equipment from the Japanese firm Komatsu at…

A: Treasury bills (T-bills) are short-term government obligation securities with maturities ordinarily…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.