You are the vice-president of finance for Exploratory Resources, headquartered in Calgary. In January 2012, your firm's American subsidiary obtained a six-month loan of $2.0 million (U.S.) from a bank in Calgary to finance the acquisition of an oil-producing property in Oklahoma. The loan will also be repaid in U.S. dollars. At the time of the loan, the spot exchange rate was US$1.0135/C$ and the U.S. currency was selling at a premium in the forward market. The June 2012 futures contract (face value = $200,000 per contract) was quoted at US$1.0117. a. This part of the question is not part of your Connect assignment. b. How much is the bank expected to lose/gain due to foreign exchange risk? (Round the intermediate calculation to 4 decimal places.)

You are the vice-president of finance for Exploratory Resources, headquartered in Calgary. In January 2012, your firm's American subsidiary obtained a six-month loan of $2.0 million (U.S.) from a bank in Calgary to finance the acquisition of an oil-producing property in Oklahoma. The loan will also be repaid in U.S. dollars. At the time of the loan, the spot exchange rate was US$1.0135/C$ and the U.S. currency was selling at a premium in the forward market. The June 2012 futures contract (face value = $200,000 per contract) was quoted at US$1.0117. a. This part of the question is not part of your Connect assignment. b. How much is the bank expected to lose/gain due to foreign exchange risk? (Round the intermediate calculation to 4 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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Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$1.10 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.53 per F$. If Retrojo were to exchange U.S. dollars for the required F$1,100,000.00 Fijian dollars, it would need $ (U.S. dollars). If Retrojo waits 90 days to make this exchange (perhaps due to insufficient funds on hand), and the Fijian dollar appreciates to $0.64 during those 90- days, then Retrojo would need $ (U.S. dollars). Thus, if Retrojo believes that the Fijian dollar will appreciate, it can its exposure to such exchange rate risk by locking in the original exchange rate through the use of a forward contract.
have been recruited by Sustainable Lambs LLC, which is based in Dubai, as the international finance analyst. The company is importing mostly from Canada, and you are interested in using foreign currency (FX) options to manage the foreign currency exposure Given a contract with a transaction value of Canadian dollars (CADS) 150,000 which is expected to be paid in 3 months: (c) The strike price for a March expiring contract is currently AED 2.65/ CADS with a premium of AED 0.05/CADS. Assuming 1 contract on CADS option is worth CADS 150,000, estimate the profit and loss under each of the following possible future exchange rates between the UAE dirham and Canadian dollar for a long call FX option: FX rate (AED/€) 1 2.5 2.65 2.7 3.5 4 Profit/Loss (AED)
Vikram
Tex Hardware sells many of its products overseas. The following are some selected transactions. Tex sold electronic subassemblies to a firm in Denmark for 160,000 Danish kroner (Dkr) on June 6, when the exchange rate was Dkr 1 = $0.1710. Collection was made on July 3 when the rate was Dkr 1 = $0.1713. On July 22, Tex sold copper fittings to a company in London for £36,000 with payment due on September 20. Also, on July 22, Tex entered into a 60-day forward contract to sell £36,000 at a forward rate of £1 = $1.630. The forward contract is not designated as a hedge. The spot rates follow: July 22 £1 = $1.580 September 20 £1 = $1.612 Tex sold storage devices to a Canadian firm for C$75,000 (Canadian dollars) on October 11, with payment due on November 10. On October 11, Tex entered into a 30-day forward contract to sell Canadian dollars at a forward rate of C$1 = $0.730. The forward contract is not designated as a hedge. The spot rates were as follows: October 11 C$1 =…
Southerland Corporation, a U.S. video games manufacturer, had several foreign exchange transactions during 2023 and 2024. 2023 10/01/23 11/01/23 12/31/23 2024 01/31/24 Required: Southlerland sold office equipment to a firm in Oman for 100,000 rial. Payment is to be received in Omani rial in six months on April 1, 2024. The spot rate for the Omani rial dinar is $2.65. Contracted to deliver inventory to a firm in Poland on January 31, 2024. The contract was for 725,000 Polish zloty due on May 1, 2024. To hedge against the future commit- ment, Southerland acquired a forward exchange contract. The six-month contract is to sell 725,000 Polish zloty to the broker on June 4, 2024 at a forward rate of $0.20. The spot rate on for the Polish zloty on November 1, 2023 is $0.25. Adjusted the accounts when the spot/current rate and forward rate for the Polish zloty is $0.18 and $0.21, respectively, and the current rate for the Omani rial is $2.66. Delivered inventory to the firm in Poland.…
Leader Inc. has the following foreign financing: The company borrowed US$350,000, for five years, when US$1.00 = Cdn$1.02. The exchange rate at the end of the first year is US$1.00 = Cdn$1.03, and at the end of the second year is US$1.00 = Cdn$0.99. Assume the debt was raised at par. Ignore interest. Required: How much exchange gain or loss would be shown in earnings in the second year? (Do not round intermediate calculations.) Exchange Earnings in second year Gain Loss
On October 1, 2024, Richmond Company sold inventory to a customer in a foreign country, denominated in 100,000 local currency units. Collection is expected in four months. On October 1, 2024, a forward exchange contract was acquired whereby Richmond was to pay 100,000 local currency units in four months (on February 1, 2025) and receive $86,000 in U.S. dollars. The spot and forward rates for the local currency units were as follows: Date Rate Description Exchange Rate October 1, 2024 Spot Rate $ 0.91 1 local currency unit December 31, 2024 Spot Rate $ 0.93 1 local currency unit February 1, 2025 1-Month Forward Rate Spot Rate $ 0.88 1 local currency unit $ 0.94 1 local currency unit Any discount or premium on the forward contract is amortized using the straight-line method. Required: Assuming this is a cash flow hedge, prepare journal entries for this sales transaction and forward contract.
You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$. Information for Forward Contract: Forward exchange rate (one yr): 1.54 $/BP Information for Money Market Instruments (MMI): Current exchange rate: 1.50 $/BP Investment return at Aerion Fund Management (in UK): 4% annual Interest rate of borrowing from Bank of America (in USA): 2% annual Information you need for Currency Options Contract: Options premium: 0.015 $/BP Interest rate of borrowing from Bank of America (USA): 2% annual Allowed to exercise options at 1.54 $/BP What are the costs of MMI? (Answer in US$ of course. You are US company!) Group of answer choices None of the above $789,343 $735,504 $770,082 $783,452
Suppose that you are a finance manager at a U.S. based MNC. On January 1st, you anticipate you will need to purchase C$170,000.00 (Canadian dollars) worth of supplies from a Canadian supplier in March using Canadian dollars (C$). The current spot rate for the Canadian dollar is $0.73. In order to lock in spot rate for this exchange, you purchase a futures contract specifying C$170,000.00 at $0.73 per Canadian dollar with a March 10th settlement date. On the settlement date, your MNC will need to pay (U.S. dollars) for the C$170,000.00.
IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed ¥250 million payable in three months. Currently, the spot exchange rate is #105/$ and the three-month forward rate is ¥100/$. The three-month money market interest rate is 8 percent per annum in the United States and 7 percent per annum in Japan. The management of IBM decided to use a money market hedge to deal with this yen account payable. a. Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation. b. Conduct a cash flow analysis of the money market hedge.
The treasurer of a major U.S. firm has $38 million to invest for three months. The interest rate in the United States is .55 percent per month. The interest rate in Great Britain is .59 percent per month. The spot exchange rate is £.76, and the three-month forward rate is £77. Ignore transaction costs. a. If the treasurer invested the company's funds in the U.S., how much would the investment be worth after three months? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. b. If the treasurer invested the company's funds in Great Britain, how much would the investment be worth after three months in U.S. dollars? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. a. U.S. investment b. Great Britain investment
You are working for an imports-exports company. In the current financial year, your company has a net income of $851,000 and plans to use a part of it as retained earnings for a new project which will cost $500,000 next year. The company’s stock is currently listed and actively traded on ASX. Required: Your company has an extra cash of A$216 000. The AUD/USA exchange rate in New York is 0.77923. The USD/AUD rate in Sydney is 1.29135. Is there any arbitrage profit possible? Set up an arbitrage scheme with the extra cash, disregarding bid-ask spread. What is the potential gain in AUD dollar?

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