You are holding $20 million in stocks in 20 large companies. You predict that the Dollar is likely to fall over the next 6 months because of the monetary policy statements of the Federal bank. You need a currency strategy that will be beneficial if your prediction is correct but will not lead to large losses if you are incorrect. Discuss the merits of using either an option or a futures contract to achieve your aims.
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You are holding $20 million in stocks in 20 large companies. You predict that the Dollar is likely to fall over the next 6 months because of the
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- Suppose you are the treasurer of a U.S. multinational firm that wants to hedge the foreign exchange risk associated with your firm's sale of equipment to a Swiss firm worth CHF1,000,000. The receivable is due in six months. You want to ensure that Swiss francs are worth at least $0.70 when the francs are received so you want a strike price of $0.70. How many options contracts do you need to hedge this risk? Do you want a call or put on Swiss francs? When will you exercise the options? When will you let the options expire?The standard bank risk executive is discussing a case in which he outline that the institution has a portfolio that consist of a single asset in the middle east stock exchange. The return of the asset is normally distributed with mean return 20% and standard deviation 30%.the value of the portfolio today is US$100 million. He needs to quantify the risk of a potential loss for this portfolio by year end at a 95%confidence level. Critically discuss the method that you will recommend to him and how it should be administered. response should make use of relevant examples.As a currency analyst, you must provide targets for the value of the Canadian dollar versus the U.S. dollar over both the next quarter and the next year. How do you proceed? What theories could you use in order to predict the value of the CAD? (Describe in some detail at least 3)
- c) The FX forecast indicates that the value of British Pound will fall vis-à-vis the US dollar over the nextthree months. You are considering investing for three months in a dually listed stock on the NYSE aswell as the LSE. Since it is the same stock, the risk-return profile is identical except for the fact that itis listed for trade in different jurisdictions with different currencies. Assuming you are a British citizen,where should you purchase the stock – Britain or the United States? Provide suitable arguments foryour decision. (50 – 100 words)Suppose you owned a portfolio consisting of $250,000 of long-term U.S. government bonds.a. Would your portfolio be riskless? Explain.b. Now suppose the portfolio consists of $250,000 of 30-day Treasury bills. Every 30 daysyour bills mature, and you will reinvest the principal ($250,000) in a new batch ofbills. You plan to live on the investment income from your portfolio, and you want tomaintain a constant standard of living. Is the T-bill portfolio truly riskless? Explain.c. What is the least risky security you can think of? Explain.Suppose an investor sells 100 stocks by short selling for 6 months, the stock price is 30 yuan, and the annual interest rate of 6 months is fixed at 3%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 35 yuan or falls to 25 yuan after 6 months of hedging, what are the losses of this investor?
- Suppose that you have revenues denominated in Japanese Yen expected in 6 months. How would you hedge this risk using money market instruments? How would a money market hedge compare to a forward hedge?(Expected rate of return and risk) B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 3.9 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security? Probability Return 0.20 −5 % 0.50 4 % 0.10 5 % 0.20 8 % (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. The investment's expected return is enter your response here%. (Round to two decimal places.) b. the investment's standard devation is? round 2 decimal places c. should gautney invest in this security?You are the financial manager of a construction company that wants to reduce the volatility of its cash flows by making its cash flows less sensitive to changes in the price of concrete. It will do so by buying a call option on the Invesco Materials ETF with a strike price of $65 and buying a put option on the ETF with a strike price of $55. Both options are European and expire in 3 months.This option strategy protects you from ___ .Suppose 3 months from now the materials ETF trades at $50. What is the payoff of this option strategy?Suppose we replace all the options with identical European options that expire in 1 year. We would expect that the cost of this new option portfolio to be ___
- 1. A fund manager expects a surge in the Turkish stock market in a month and wishes to invest $10 million. However, because he is uncertain about the direction of the USD/TRY exchange rate, he does not want to accept exchange rate risk. He plans to employ forward swap to eliminate the exchange risk. On the other hand, a Turkish bank anticipates a USD/TRY depreciation at the end of the month and has agreed to a swap contract with the fund. Spot Exchange Rate Today 28.10-28.50 USD/TRY Based on quotation information above, what is the swap exchange rate? a) 28.90 TRY b) 29.9 TRY c) 29.40 TRY d) 29.20 TRY Swap Points 70/90(30 days)An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free rate is 3% and inflation is expected to be 17% each of the next 4 years, what is the yield on a 4-year security with no maturity, default, or liquidity risk?(Expected rate of return and risk) B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 4.8 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security? Probability Return 0.10 −6 % 0.35 4 % 0.45 5 % 0.10 10 % (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. The investment's expected return is enter your response here%. (Round to two decimal places.)