Question
In: Finance
Rock company (a US firm) exports to Switzerland and expects to receive 500,000 Swiss francs in...
Rock company (a US firm) exports to Switzerland and expects to receive 500,000 Swiss francs in one year. The one-year U.S. interest rate is 5% when investing funds and 7% when borrowing funds. The one-year Swiss interest rate is 9% when investing funds, and 11% when borrowing funds. The spot rate of the Swiss franc is $.80. The firm expects that the spot rate of the Swiss franc will be $.75 in one year. There is a put option available on Swiss francs with an exercise price of $.79 and a premium of $.02.
a)Determine the amount of dollars that Rock Co. will receive at the end of one year if it implements a money market hedge.
b)Determine the amount of dollars that Rock Co. expects to receive at the end of one year (net of option premium) if it implements a put option hedge.
Solutions
Expert Solution
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
jeff jeffy answered 2 years agoRelated Solutions
Narto Co. (a U.S. firm) exports to Switzerland and expects to receive 500,000 Swiss francs in...
Narto Co. (a U.S. firm) exports to Switzerland and expects to
receive 500,000 Swiss francs in one year. The one-year U.S.
interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 4% when investing funds,
and 6% when borrowing funds. The spot rate of the Swiss franc is
$.80. Narto expects that the spot rate of the Swiss franc will be
$.72 in one year. There is a put option available on...
Narto Co. (a U.S. firm) exports to Switzerland and expects to receive 200,000 Swiss francs in...
Narto Co. (a U.S. firm) exports to Switzerland and expects to
receive 200,000 Swiss francs in one year. The one-year U.S.
interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 9% when investing funds,
and 10% when borrowing funds. The spot rate of the Swiss franc is
$.80. Narto expects that the spot rate of the Swiss franc will be
$.75 in one year. There is a put option available on...
Narto Co. (a U.S. firm) exports to Switzerland and expects to receive 200,000 Swiss francs in...
Narto Co. (a U.S. firm) exports to Switzerland and expects to
receive 200,000 Swiss francs in one year. The one-year U.S.
interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 9% when investing funds,
and 10% when borrowing funds. The spot rate of the Swiss franc is
$.80. Narto expects that the spot rate of the Swiss franc will be
$.75 in one year. There is a put option available on...
A US company has ordered watches from Switzerland that will require a payment of Swiss francs...
A US company has ordered watches from Switzerland that will
require a payment of Swiss francs (CHF) 500,000 in three months.
The expected spot prices to prevail in three months range from
$1.00 to $1.12. The following information is available:
Spot rate $1.06/CHF
3-month forward rate $1.07/CHF
Interest rate in US5.00%
Interest rate in Switzerland2.00%
Call option premium$0.040E=$1.06
Put Optionpremium$0.045E=$1.06
How can the firm hedge using forward rates? Show the payoffs
for the expected spot rates.
How can the firm...
1) You visited Switzerland over summer and brought back 3,722.25 swiss francs to the United States....
1) You visited Switzerland over summer and brought back 3,722.25
swiss francs to the United States. How many U.S. dollars will you
get if you exchange your swiss francs for U.S. dollars? The
exchange rate is 1 U.S dollar = 1.0147 swiss francs.
Enter your answer rounded off to two decimal points. Do not
enter $ or comma in the answer box. For example, if your answer is
$12.345 then enter as 12.35 in the answer box.
2) Suppose the...
Consider a U.S.-based company that exports goods to Germany. The U.S. company expects to receive a...
Consider a U.S.-based company that exports goods to
Germany. The U.S. company expects to receive a payment of
€1,000,000 for the exports in one year. The U.S. company wants
to hedge against a possible decline in the value of the euro that
would lead to a drop in the dollar value of the euro receipt in one
year. The current spot exchange rate is $1.20/€ and the one-year
forward rate is $1.25/€. The annual interest rate is 5% in the...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.
The chapter demonstrated that a firm borrowing in a foreign
currency could potentially end up paying a very different effective
rate of interest than what it expected. Using the same baseline
values of a debt principal of SF1.3 million, a one-year period,
an initial spot rate of SF1.4700/$, a 5.125% cost of debt, and a
30% tax rate, what is the effective after-tax cost of debt for
one year for...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.
The chapter demonstrated that a firm borrowing in a foreign
currency could potentially end up paying a very different effective
rate of interest than what it expected. Using the same baseline
values of a debt principal of SF1.4 million, a one-year period,
an initial spot rate of SF1.4900, a 5.498% cost of debt, and a
36% tax rate, what is the effective after-tax cost of debt for
one year for...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.
The chapter demonstrated that a firm borrowing in a foreign
currency could potentially end up paying a very different effective
rate of interest than what it expected. Using the same baseline
values of a debt principal of SF1.5 million, a one year period, an
initial spot rate of SF1.5000/$, a 5.000% cost of debt, and a 34%
tax rate, what is the effective cost of debt for one year for...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days. The current spot...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days.
The current spot rate is $.6698/SFr and the 90 day forward rate is
$.6776/SFr.
90 day call option on SFr:
strike=$.68, premium=$.0096
90 day put option on SFr:
strike=$.68, premium=$.0105
Interest
rates
US
Switz.
Possible spot rate in 90 days
90 day deposit
rate
3%
3%
Spot
Probability
90 day borrowing
rate
3.2%
3.2%
$.65
10%
$.67
20%
$.69
70%
______________________________________________________________________
Calculate the expected...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- identify one intrapersonal relationship and evaluate its component.
- Using Python in vs code: The distribution of letters in a document has a distinctive and...
- Why is De Beers exploring the diamond reselling market? How does the creation of IIDV affect...
- programming in Python The body mass index (BMI) is calculated as a person’s weight (in lb)...
- 1. Show the steps in merging A and B into C where A= 8, 12, 19,...
- 1. Given the following information, determine the beta coefficient for Stock L that is consistent with...
- Generate the first ten rows of Pascal triangle using MATLAB. Post code in the response
ADVERTISEMENT