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You are UK company, 200,000 US$ payable to US in one year. Answer in terms of BP (British Pound). Round at four decimal places Examples: 1.23487 1.2349; 1.23533 --> 1.2353 <--- Information for Forward Contract: Forward exchange rate (one yr): 0.7124 BP/$ Information for Money Market Instruments (MMI): Current exchange rate: 0.7173 BP/$ Investment return at JP Morgan (in US): 5% annual Interest rate of borrowing from HSBC (UK): 3% annual Information you need for Currency Options Contract: Exercise options premium at 0.15 BP/$ Interest rate of borrowing from HSBC (UK): 3% annual Allowed to exercise options at 0.7215 BP/$ Thus, the costs if the forward hedge is chosen is BP 142,480. The costs if the MMI is chosen is BP 140,727.429. What is the break-even exchange rate in BP/$? 0.467 O.549 .602 0.637

You are UK company, 200,000 US$ payable to US in one year. Answer in terms of BP (British Pound). Round at four decimal places Examples: 1.23487 1.2349; 1.23533 --> 1.2353 <--- Information for Forward Contract: Forward exchange rate (one yr): 0.7124 BP/$ Information for Money Market Instruments (MMI): Current exchange rate: 0.7173 BP/$ Investment return at JP Morgan (in US): 5% annual Interest rate of borrowing from HSBC (UK): 3% annual Information you need for Currency Options Contract: Exercise options premium at 0.15 BP/$ Interest rate of borrowing from HSBC (UK): 3% annual Allowed to exercise options at 0.7215 BP/$ Thus, the costs if the forward hedge is chosen is BP 142,480. The costs if the MMI is chosen is BP 140,727.429. What is the break-even exchange rate in BP/$? 0.467 O.549 .602 0.637

Essentials Of Investments
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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You are UK company, 200,000 US$ payable to US in one year. Answer in terms of BP (British Pound). Round at four decimal places Examples: 1.23487 1.2349; 1.23533 --> 1.2353 <--- Information for Forward Contract: Forward exchange rate (one yr): 0.7124 BP/$ Information for Money Market Instruments (MMI): Current exchange rate: 0.7173 BP/$ Investment return at JP Morgan (in US): 5% annual Interest rate of borrowing from HSBC (UK): 3% annual Information you need for Currency Options Contract: Exercise options premium at 0.15 BP/$ Interest rate of borrowing from HSBC (UK): 3% annual Allowed to exercise options at 0.7215 BP/$ Thus, the costs if the forward hedge is chosen is BP 142,480. The costs if the MMI is chosen is BP 140,727.429. What is the break-even exchange rate in BP/$? 0.467 O.549 .602 0.637
Transcribed Image Text:You are UK company, 200,000 US$ payable to US in one year. Answer in terms of BP (British Pound). Round at four decimal places Examples: 1.23487 1.2349; 1.23533 --> 1.2353 <--- Information for Forward Contract: Forward exchange rate (one yr): 0.7124 BP/$ Information for Money Market Instruments (MMI): Current exchange rate: 0.7173 BP/$ Investment return at JP Morgan (in US): 5% annual Interest rate of borrowing from HSBC (UK): 3% annual Information you need for Currency Options Contract: Exercise options premium at 0.15 BP/$ Interest rate of borrowing from HSBC (UK): 3% annual Allowed to exercise options at 0.7215 BP/$ Thus, the costs if the forward hedge is chosen is BP 142,480. The costs if the MMI is chosen is BP 140,727.429. What is the break-even exchange rate in BP/$? 0.467 O.549 .602 0.637
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