Question
In: Accounting
QUESTION 1. Your company will receive AUD2,000,000 in 90 days. To convert this amount into USD,...
QUESTION 1.
Your company will receive AUD2,000,000 in 90 days. To convert this
amount into USD, you contact a bank to sell AUD forward. Here is
the information you got:
90-day forward rate: AUD1 = USD0.85
Today spot rate: AUD1 = USD0.90
After 90 days, market spot rate is AUD1 = USD0.92
If you choose to sell forward, how much USD will you
receive?
QUESTION 2.
Your company will receive AUD2,000,000 in 90 days. To convert this
amount into USD, you contact a bank to sell AUD forward. Here is
the information you got:
90-day forward rate: AUD1 = USD0.85
Today spot rate: AUD1 = USD0.90
After 90 days, market spot rate is AUD1 = USD0.92
If you choose to sell forward then
| A. The amount of USD you received will be determined today and can't be changed | |
| B. The amount of USD you received will be determined today but you can still sell AUD to other bank with better rate | |
| C. The amount of USD you received can't be determined today since you sell AUD in the future | |
| D. The amount of USD you received can't be determined today since the exchange rate is not known yet | |
| E. The amount of USD you received will be determined today and you will adjust that amount periodically. |
QUESTION 3.
Your company will receive AUD2,000,000 in 90 days. To convert this
amount into USD, you contact a bank to sell AUD forward. Here is
the information you got:
90-day forward rate: AUD1 = USD0.85
Today spot rate: AUD1 = USD0.90
After 90 days, market spot rate is AUD1 = USD0.92
90-day Forward rate premium/discount is?
QUESTION 4. Your company will receive
AUD2,000,000 in 90 days. To convert this amount into USD, you
contact a bank to sell AUD forward. Here is the information you
got:
90-day forward rate: AUD1 = USD0.85
Today spot rate: AUD1 = USD0.90
After 90 days, market spot rate is AUD1 = USD0.92
During that 90-day period:
| A. AUD depreciates less than 3% | |
| B. AUD depreciates between 3% and 5% | |
| C. AUD depreciates between 5% and 7% | |
| D. AUD appreciates less than 3% | |
| E. AUD appreciates between 3% and 5% | |
| F. AUD appreciates between 5% and 7% |
Solutions
Expert Solution
| 1 | Company has AUD 2,000,000 receivable in 90 days. It has to convert it into USD after 90 days. So if it choose to sell AUD 2,000,000 forward @ 90 day forward rate AUD1= USD 0.85, then it will receive AUD 2,000,000 * USD 0.85 = USD 1,700,000 after 90 days | ||||
| Ans | |||||
| 2 | If you choose to sell forward then | ||||
| Ans | A. The amount of USD you received will be determined today and can't be changed. | ||||
| 3 | 90 days Forward rate discount:- | ||||
| Ans | Since forward rate is less than the spot rate. | ||||
| Forward rate - Spot rate | 0.85-0.90 | ×100 | = | 5.56% | |
| Spot rate | 0.90 | ||||
| Forward rate discount | |||||
| 4 | Actual Appreciation in AUD:- | ||||
| Since Spot rate After 90 days is higher than the spot rate today. | |||||
| Spot rate After 90 days - Spot rate today | 0.92-0.90 | ×100 | = | 2.22% | |
| Spot rate today | 0.90 | ||||
| Ans | D. AUD appreciates less than 3% | ||||
Feel free to ask any clarification, if required. Please provide feedback by thumbs up, if satisfied. It will be highly appreciated. Thank you.
ekkarill92 answered 8 months agoRelated Solutions
31. Problem 1 : Linden Company will receive 200,000 Canadian dollars (C$) in 90 days and...
31. Problem 1 : Linden Company will receive
200,000 Canadian dollars (C$) in 90 days and is trying to determine
whether or not to hedge this position. Linden has developed the
following probability distribution for the Canadian dollar:
Possible Value of
Canadian Dollar in 90 Days
Probability
$0.54
$0.55
15%
15%
$ 0.57
20%
$ 0.58
25%
$ 0.59
25%
The 90-day forward rate of the Canadian dollar is $0.575. Call
options on the Canadian dollar are available with a...
31. Problem 1 : Linden Company will receive 200,000 Canadian dollars (C$) in 90 days and...
31. Problem 1 : Linden Company will receive
200,000 Canadian dollars (C$) in 90 days and is trying to determine
whether or not to hedge this position. Linden has developed the
following probability distribution for the Canadian dollar:
Possible Value of
Canadian Dollar in 90 Days
Probability
$0.54
$0.55
15%
15%
$ 0.57
20%
$ 0.58
25%
$ 0.59
25%
The 90-day forward rate of the Canadian dollar is $0.575. Call
options on the Canadian dollar are available with a...
Alpaca corp. will pay 460,000 pounds (GBP) in 90 days. The current spot rate is USD...
Alpaca corp. will pay 460,000 pounds (GBP) in 90 days. The
current spot rate is USD 1.4883/GBP. The 90-day European call
options on the pound with an exercise price of USD 1.6688/GBP are
traded with a premium of USD 0.17 while the 90-day European put
options on the pound with an exercise price of USD 1.7483/GBP are
traded with a premium of USD 0.13. Suppose, Alpaca corp. wants to
hedge its position using options. If the spot rate in 90...
Question: The Bradford Company issued 10% bonds, dated January 1, with a face amount of $90...
Question:
The Bradford Company issued 10% bonds, dated January 1, with a
face amount of $90 million on January 1, 2018 to Saxton-Bose
Corporation. The bonds mature on December 31, 2037 (20 years). For
bonds of similar risk and maturity, the market yield is 12%.
Interest is paid semiannually on June 30 and December 31. (FV of
$1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
(Use appropriate factor(s) from the tables...
What amount will the seller receive at the closing? For this question, prorate using the actual...
What amount will the seller receive at the closing?
For this question, prorate using the actual number of days in
the month and year. Split the escrow fee 50-50. The seller will pay
the revenue stamps, and the buyer will pay title insurance and the
recording fee. The buyer assumes the existing mortgage balance of
$127,042.42, the buyer will pay in cash at closing the difference
between the purchase price and the loan balance, and the present
rnonthly payment on...
An Australian exporting company will receive 4m USD in 6 months’ time from sales. The current...
An Australian exporting company will receive 4m USD in 6 months’
time from sales. The current spot rate is: AUD / USD 0.7066 /
0.7073. Australian interest rates are currently at 1.5% p.a. and
U.S. interest rates are at 0.5% p.a. The net interest rate spread
in both countries is 3.5% (read this as the borrowing rates are
3.5% higher than the given investment rates above). Design a money
market hedge which will remove the FX risk faced by the...
The number of days (X) after mailout it takes a utility company to receive payment for...
The number of days (X) after mailout it takes a utility company
to receive payment for a customer’s bill is a normal random
variable with a mean of 31 days and a standard deviation of 6 days.
There is a probability of 0.50 that a bill will be received later
than days after mailout.
The treasurer of Company A expects to borrow $15,000,000 in 90 days from now. The treasurer...
The treasurer of Company A expects to borrow $15,000,000 in 90
days from now. The treasurer expects short-term interest rates to
rise during the next 90 days. In order to hedge against this risk,
the treasurer decides to use a FRA that expires in 90 days and is
based on 90-day LIBOR. The FRA is quoted at 4%. At expiration,
LIBOR is 4.5%. Assume that the notational principal on the contract
is $15,000,00.
Calculate the payoff of entering the FRA....
An English company that _____ automotive parts from France payable in euros in 90 days is...
An English company that _____ automotive parts from France
payable in euros in 90 days is most likely to ___ when the _______
is __________.
Select one:
a. imports, hedge, euros, appreciating
b. imports, hedge, pound, depreciating
c. importer, hedge, pound, appreciating
d. importer, hedge, euros, depreciating
a. A US corporation has an account payable to an unrelated Irish company in 90 days....
a. A US corporation has an account payable to an unrelated Irish
company in 90 days. The amount of the payable is €500,000. The spot
exchange rate for the euro is EUR/USD 1.2131. The company’s
combined federal and state income tax rate is 27.3%; the Irish
corporate income tax rate is 12.5%. The company expects the
exchange rate for the euro to decline to 1.2030 prior to the
account’s due date. When should the company make the payment?
Explain.
b....
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Luke and Amy are saving for the down payment on a house. The houses in the...
- PART A A student wants to purchase an investment property that can generate sufficient cash flow...
- Complete the MPS record below for a single item. (Enter your responses as integers. A response...
- We can utilize potentially high bandwidth in one of the two ways: broadband and baseband modes....
- The Pinewood Furniture Company produces chairs and tables from two resources, labor and wood. The company...
- Wasabi Pte Ltd makes separate journal entries for all cost accounting-related activities. It uses a standard...
- Nordic Industrial Park: bridging distance across international markets When a resource-constrained firm enters a high-distance market,...
ADVERTISEMENT