Question

In: Finance

4. Payless Shoes has a shoe contract with a Hong Kong customer. Payless Shoes will pay...

4. Payless Shoes has a shoe contract with a Hong Kong customer. Payless Shoes will pay 30 million Hong Kong dollars (HK$) and is due in three months. The current spot and 3-month forward exchange rates are $0.13/HK$. a. Draw Payless’ expected future cash flow in Hong Kong dollars on a time line. b. Form a forward market hedge. c. Indicate how the hedge eliminates foreign exchange exposure by identifying the forward contract’s cash inflows and outflows on a time line. d. Indicate how the hedge eliminates foreign exchange exposure using the payoff profile graph.

Solutions

Expert Solution

1. Expected future cash flow in HK$ = 30 million Hong Kong $.

2. Total cost if in forward market hedge = $3.9 million.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Payless Shoes has a shoe contract with a Hong Kong customer. Payless Shoes will pay 30...
Payless Shoes has a shoe contract with a Hong Kong customer. Payless Shoes will pay 30 million Hong Kong dollars (HK$) and is due in three months. The current spot and 3-month forward exchange rates are $0.13/HK$. a.    Form a forward market hedge. b.  Indicate how the hedge eliminates foreign exchange exposure by identifying the forward contract’s cash inflows and outflows on a timeline. Draw Payless’ expected future cash flow in Hong Kong dollars on a timeline. c.  Indicate how the hedge eliminates...
4. A project in Hong Kong costs Hong Kong dollar (HKD) 100,000 and produces cash flows...
4. A project in Hong Kong costs Hong Kong dollar (HKD) 100,000 and produces cash flows of HKD 40,000 per year for four years. Gruner, a Swiss firm using Swiss franc (CHF), is interested in adopting this project. If this had been a domestic project, the discount rate would have been 14 percent, Forecasts of inflation rates over the next four years indicate inflation of 2.5 percent in Switzerland and 5 percent in Hong Kong. Spot CHFHKD is 6.2 a....
Dollar Peg for Hong Kong. The Hong Kong dollar has long been pegged to the U.S....
Dollar Peg for Hong Kong. The Hong Kong dollar has long been pegged to the U.S. dollar at 7.75 . When the Chinese yuan was revalued in July 2005 against the U.S. dollar from 8.31 to 8.12​, how did the value of the Hong Kong dollar change against the​ yuan? The original​ HK$/Yuan cross rate was ​HK$ nothing​/Yuan. ​(Round to four decimal​ places.)
Given that Mary is the landlord of a Hong Kong property. The flat has been successfully...
Given that Mary is the landlord of a Hong Kong property. The flat has been successfully rented out to a tenant from 1st April 2018. Her husband provides below background information for Mary to compute her Hong Kong property tax computation. Mary fully trusts her husband and will use the below information for her Hong Kong property tax computation. The background information is as below: Yearly rent receivable HK$ 120,000 Premium received HK$ 9,600 Repairs borne by tenant HK$ 600...
Question 1 The household expenditure (HK$) of 12 sampled families with 4 members in Hong Kong...
Question 1 The household expenditure (HK$) of 12 sampled families with 4 members in Hong Kong in September 2019 were as follows: 8095 6745 4427 2192 4697 7549 4302 4209 3520 7621 2757 6441 (a) Find the sample mean and sample standard deviation of the data. (b) Find the inter-quartile range of the data. (c) Find the 15th percentile and 85th percentile of the data. (d) Use the sampled data as reference, what is the probability that the household expenditure...
Due to political turbulences in Hong-Kong and the extensive protests consumers’ confidence has deteriorated in the...
Due to political turbulences in Hong-Kong and the extensive protests consumers’ confidence has deteriorated in the island. The marginal propensity to consume has declined from 0.8 to 0.6. a. Use the consumption model to asses the effects of the decline in MPC on overall consumption. Use the model and the graphs. Explain. b. How it will affect overall aggregate demand? Use the AD model with positive slope (model, graph and explanation)
Compared to Singapore, South Korea, Hong Kong and Malaysia, what are the advantages Australia has in...
Compared to Singapore, South Korea, Hong Kong and Malaysia, what are the advantages Australia has in promoting as an International Financial Centre (IFC)? Provide examples.
Compared to Singapore, South Korea, Hong Kong and Malaysia, what are the advantages Australia has in...
Compared to Singapore, South Korea, Hong Kong and Malaysia, what are the advantages Australia has in promoting as an International Financial Centre (IFC)? Provide examples.
A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of...
A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of 1.15. The manager is concerned about the performance of the market over the next 2 months due to the recent coronavirus outbreak and plans to hedge the risk using Hang Seng Index futures. The 2- month futures price is 22,500. One contract is on $50 times the index. The initial margin is $150,000 per contract and the maintenance margin is $120,000 per contract. (a)...
A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of...
A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of 1.15. The manager is concerned about the performance of the market over the next 2 months due to the recent coronavirus outbreak and plans to hedge the risk using Hang Seng Index futures. The 2- month futures price is 22,500. One contract is on $50 times the index. The initial margin is $150,000 per contract and the maintenance margin is $120,000 per contract. (a)...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT