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A Japanese exporter has a €1,000,000 receivable due in one year. To hedge the position, you will buy put options on euro
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- Suppose a European call option to buy 1 euro for 1.40 CAD costs 0.08 CAD. The option maturity is in two months and the forward exchange rate for the same maturity is 1.50 CAD per euro. What arbitrage opportunity exists? Explain how you can exploit this opportunity and how much the profit is. (Ignore the time value of money)Suppose that your company will be receiving 30 million euros six months from now and the euro is currently selling for 1 euro per dollar. If you want to hedge the foreign exchange risk in this payment, what kind of forward contract would you want to enter into?Suppose you, a German importer, expect to pay $1 million in 90 days for taking delivery of import goods from a U.S. exporter. St = $1.14/€; Ft, k = $1.16/€, where k =90 days. If St+k = $1.15/€, what would be the gain or loss from the forward hedge relative to remaining unhedged?
- The following is the spot and forward rates of dollar against Euro. Spot 30-day forward Euro/$ 0.85 0.90 You sign a contract for selling John Deere with the amount of 1 billion euros that will be delivered in 30days. You expect the 30day later the spot rates of dollar to be 0.75 with 50% chance and 0.95 with 50%. What is the expected dollar amount if no forward has been used? As a risk-neutral person, is it a good idea to use the forward?Suppose that you are the CFO of Google with an extra U.S. $20 Million to invest for one year. You are considering the purchase of U.S. T-bills that yield 4% per year. The spot exchange rate is $1.00 = €0.90, and the one-year forward rate is $1.00 = €0.95 . What must the interest rate in the Eurozone (on an investment of comparable risk) be before you are willing to consider investing there instead of the US? a. 9.78% b. 1.56% c. 4.00% d. 5.56%If the spot price of the euro is $1.10 per euro and the 30-day forward rate is believe that the spot rate in 30 days will be $1.05 per $1.00 per euro, and euro, then you can try to maximize speculative gains by buying euros in the current spot market and selling euros in 30 days at the future spot rate. you signing a forward foreign exchange contract to sell euros in 30 days. signing a forward foreign exchange contract to sell dollars in 30 days. buying dollars in the spot market and selling the dollars in 30 days at the future spot rate.
- An Omani importer will receive commodities from USA and he has to pay an amount of USD 250,000 next month. Which of the below markets is well suited to offer hedging protection against this transactions risk exposure? a. Inflation rate market O b. Transactions market C. Spot market O d. Forward marketAssume you are a US exporter with an account receivable denominated in Singapore dollars to be paid to you in one year, in the amount of SGD 780,691. The current spot rate is 0.71 USD per SGD. You have decided to hedge using a put option, with an exercise price of 0.71 and a premium of 0.02. What would be the hedged US dollar amount of the receivable if in one year the spot rate is 0.71 USD per SGD? Enter your answer with no decimals.You expect to incur a cost and make a payment of €35,000 in one year. The currentEUR/GBP exchange rate is £0.92 per euro. The current 1-year interest rates are:GBP 4%, EUR 5%. Explain what kind of risk you might be facing in the situationdescribed above. Provide an example of a forward contract that you would use inorder to hedge against the relevant exchange rate risk. Analyse the possibleoutcomes of your strategy if the EUR/GBP exchange rate in one year is (1) £0.89per euro, and (2) £0.98 per euro.
- The current spot exchange rate is $1.60/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? A. Sell €1,000,000 forward for $1.60/€, and you expect to gain $20,000. B. Buy €1,000,000 forward for $1.55/€, and you expect to gain $70,000. C. Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€. D. Buy €1,000,000 forward for $1.60/€, and you expect to gain $20,000.3. You are to receive €400,000 in 90 days. a) Demonstrate how you would set up an options hedge. b) If the spot rate in 90 days is $1.10/€1.00. You receive the €400,000 and you exchange the euros into dollars. What is the net amount of dollars you receive and what is the dollar/euro exchange rate for the €400,000?You have bid for a possible export order that would provide a cash inflow of €1 million in 6 months. The spot exchange rate is USD1.31 = EUR1, and the 1-year forward rate is USD1.29 = EUR1. There are two sources of uncertainty: (i) The euro could appreciate or depreciate, and (i) you may or may not receive the export order. Fill in the following table to illustrate in each case the profits or losses that you would make if you sell €1 million forward by filling in the following table. Assume that the exchange rate in 1 year will be either USD1.21 = EUR1 or USD1.41 = EUR1. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Total Profit/Loss (in millions) Spot Rate Receive Order Lose Order USD1.21 = EUR1 USD1.41 = EUR1