Question

In: Finance

Assume that Houston Co. expects to receive $1,000,000 in one year. The existing spot rate of...

Assume that Houston Co. expects to receive $1,000,000 in one year. The existing spot rate of the Singapore dollar is $.60. The one year forward rate of the Singapore dollar is $.62. Houston created a probability distribution for the future spot rate in one year as follows:

Future Spot Rate Probability

$.60 20%

.63 50

.67 30

Assume the following money market rates:

Deposit Rate US Singapore

2% 4%

4% 7%

Given this information, determine whether a forward hedge or a money market hedge would be most appropriate. Then, compare the most appropriate hedge to an unhedged strategy, and decide whether Houston should hedge its receivable positions or not

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE


Related Solutions

Assume that Carbondale Company expects to receive S$500,000 in one year. The existing spot rate of...
Assume that Carbondale Company expects to receive S$500,000 in one year. The existing spot rate of the Singapore dollar is US$0.70. The one-year forward rate of the Singapore dollar is US$0.72. Carbondale created a probability distribution for the future spot rate in one year as follows: Future Spot Rate Probability US$0.68 20% 0.73 50% 0.77 30% Assume that i) one-year put options on Singapore dollars are available, with an exercise price of US$0.73 and a premium of US$0.04 per unit...
Assume that Carbondale Co. expects to pay SGD500,000 in one year. The existing spot rate of...
Assume that Carbondale Co. expects to pay SGD500,000 in one year. The existing spot rate of the Singapore dollar is USD/SGD .60. The one year forward rate of the Singapore dollar is USD/SGD .62. Assume that one year put options on Singapore dollars are available, with an exercise price of USD/SGD .63 and a premium of USD/SGD .04. One year call options on Singapore dollars are available with an exercise price of USD/SGD .60 and a premium of USD/SGD .03....
Disney is expecting to receive 250,000 Euro in one year. Disney expects the spot rate of...
Disney is expecting to receive 250,000 Euro in one year. Disney expects the spot rate of euro to be $1.29 in a year, so it decides to avoid exchange rate risk by hedging its receivables. The spot rate of the euro is quoted at $1.31. The strike price of put and call options are $1.34 and $1.33 respectively. The premium on both options is $.03. The one-year forward rate exhibits a 3.5% premium. Assume there are no transaction costs. What...
The existing spot rate of the Singapore dollar is $.62. The one‑year forward rate of the...
The existing spot rate of the Singapore dollar is $.62. The one‑year forward rate of the Singapore dollar is $.61. The probability distribution of the future spot rate in one year is forecasted as follows:                   Future Spot Rate                                     Probability                           $.60                                                         25%                             .63                                                         45                             .65                                                         30 Assume that one‑year put options on Singapore dollars are available, with an exercise price of $.64 and a premium of $.04 per unit. One‑year call options on Singapore dollars are available with an exercise price of $.61 and a...
The existing spot rate of the Singapore dollar is $.62. The one‑year forward rate of the...
The existing spot rate of the Singapore dollar is $.62. The one‑year forward rate of the Singapore dollar is $.61. The probability distribution of the future spot rate in one year is forecasted as follows:                   Future Spot Rate                                     Probability                           $.60                                                         25%                             .63                                                         45                             .65                                                         30 Assume that one‑year put options on Singapore dollars are available, with an exercise price of $.64 and a premium of $.04 per unit. One‑year call options on Singapore dollars are available with an exercise price of $.61 and a...
The existing spot rate of the Singapore dollar is $.62. The one‑year forward rate of the...
The existing spot rate of the Singapore dollar is $.62. The one‑year forward rate of the Singapore dollar is $.61. The probability distribution of the future spot rate in one year is forecasted as follows:                   Future Spot Rate                                     Probability                           $.60                                                         25%                             .63                                                         45                             .65                                                         30 Assume that one‑year put options on Singapore dollars are available, with an exercise price of $.64 and a premium of $.04 per unit. One‑year call options on Singapore dollars are available with an exercise price of $.61 and a...
Assume that the 1-year spot rate on a government bill is 5.25%, and the spot rate...
Assume that the 1-year spot rate on a government bill is 5.25%, and the spot rate for a 2-year bill is 5.75%. What is the par rate of a two-year bill? Round your answer to the nearest one-tenth basis point.
The one-year spot rate is currently 4 percent; the one-year spot rate one year from now...
The one-year spot rate is currently 4 percent; the one-year spot rate one year from now will be 3 percent; and the one-year spot rate two years from now will be 6 percent. Under the unbiased expectations theory, what must today's three-year spot rate be? please show in excel
Assume that Pomo Limited, a US based firm, expects to receive S$800,000 in one year. The...
Assume that Pomo Limited, a US based firm, expects to receive S$800,000 in one year. The existing spot rate of the Singapore dollar is US$0.74. The one-year forward rate of the Singapore dollar is US$0.76. Pomo created a probability distribution for the future spot rate in one year as follows: Future Spot | Rate Probability US$0.75 | 20% US$0.77 | 50% US$0.81 | 30% Assume that one-year put options on Singapore dollars are available, with an exercise price of US$0.77...
Belinda’s Biorhythms Inc. expects to need C$1,000,000 in one year to pay various suppliers. Assume the...
Belinda’s Biorhythms Inc. expects to need C$1,000,000 in one year to pay various suppliers. Assume the existing spot rate of the Canadian dollar is US$0.70 and one-year forward rate of the Canadian dollar is US$0.72. Furthermore, the probability distribution for the future spot rate of the Canadian dollar in one year that you have gathered is as follows: Future Spot Rate: Probability: USD$0.67 10% $ 0.71 20% $ 0.73 40% $ 0.77 30% You have researched options and found one-year...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT