Question
In: Accounting
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 dollar cost of the payable for each of the following:
(1) FORWARD HEDGE
(2) MONEY MARKET HEDGE
(3) OPTION HEDGE(S)
(4) REMAINING UNHEDGED
Should the firm hedge? If so, how? Consider both cost and risk in your decision.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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...
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...
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...
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...
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...
An importer of Swiss watches has an account payable of CHF750,000 due in 90 days. The...
An importer of Swiss watches has an account payable of
CHF750,000 due in 90 days. The following data is available:
Rates and prices in US-cents/CHF.
Spot rate: 71.42 cents/CHF
90-day forward rate: 71.14
cents/CHF
US –dollar 90-day interest rate: 3.75%
per year
Swiss franc 90-day interest rate:
5.33% per year
Option Data in cents/CHF
_______________________________
Strike
Call
Put
70
2.55
1.42
72
1.55
2.40
_______________________________
Assess the USD cost to the importer in 90 days if it uses a...
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
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Raton is a U.S. Company that has net inflows of 80 million Swiss francs and net...
Raton is a U.S. Company that has net inflows of 80
million Swiss francs and net outflows of 60 million British pounds.
The present direct exchange rate of the Swiss franc is $1.05/1Swiss
franc while the present direct exchange rate of the pound is $1.31.
Raton has not hedged these positions. The Swiss franc and British
pound are highly correlated in their movements against the dollar.
Explain whether Raton will be favorably or adversely affected if
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