You have account paybles: ₤5 m in one year. InterestUS: 6.10% per annum & InterestUK: 9% per annum Spot exchange rate: $1.50/£ & Forward exchange rate: $1.46/£ (1-year maturity) Call option strike price: $1.46/£ & Put option premium: $0.02/£ How much will you receive in $ if you use the forward contract hedge? You must show all work to earn credit. No credit will be given without supporting work. 5,000,000 GBP x $1.46 = $7,300,000 $7,300,000 x 6.10% x 1 year = $445,300 $7,300,000 + $445,300 = $7.7453 million 2. Draw a graph for the forward contract hedge. (X axis is the spot rate in the future. Y axis is “$ cash paid.”)
You have account paybles: ₤5 m in one year. InterestUS: 6.10% per annum & InterestUK: 9% per annum Spot exchange rate: $1.50/£ & Forward exchange rate: $1.46/£ (1-year maturity) Call option strike price: $1.46/£ & Put option premium: $0.02/£ How much will you receive in $ if you use the forward contract hedge? You must show all work to earn credit. No credit will be given without supporting work. 5,000,000 GBP x $1.46 = $7,300,000 $7,300,000 x 6.10% x 1 year = $445,300 $7,300,000 + $445,300 = $7.7453 million 2. Draw a graph for the forward contract hedge. (X axis is the spot rate in the future. Y axis is “$ cash paid.”)
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 have account paybles: ₤5 m in one year.
InterestUS: 6.10% per annum & InterestUK: 9% per annum
Spot exchange rate: $1.50/£ & Forward exchange rate: $1.46/£ (1-year maturity)
Call option strike price: $1.46/£ & Put option premium: $0.02/£
How much will you receive in $ if you use the forward contract hedge? You must show all work to earn credit. No credit will be given without supporting work.
5,000,000 GBP x $1.46 = $7,300,000
$7,300,000 x 6.10% x 1 year = $445,300
$7,300,000 + $445,300 = $7.7453 million
2. Draw a graph for the forward contract hedge. (X axis is the spot rate in the future. Y axis is “$ cash paid.”)
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