Question
In: Finance
A U.S. company has a ¥750 million payable due in one year to a bank in...
A U.S. company has a ¥750 million payable due in one year to a bank in Japan. The current spot rate S($/¥) = $0.0086/¥ and the one-year forward rate F360($/¥) = $0.0092/¥. The annual interest rate is 3 percent in Japan and 6 percent in the United States.
a. How to implement a hedge using a forward contract? Compute the guaranteed dollar payment in one year using the forward hedge.
b. How to implement a money market hedge? Compute the guaranteed dollar payment in one year using money market hedge.
c. If the U.S company decides to hedge using call option on yen, what would be the dollar payment in one year? Assume that the spot exchange rate S($/¥) = $0.0092/¥ in one year. Also suppose that a one-year call option on yen has an exercise price of $0.0086/¥ and a premium of $0.00012/¥.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A U.S. MNC expects to receive ¥750 million from its customer one year from now. The...
A U.S. MNC expects to receive ¥750 million from its customer one
year from now. The current spot rate is ¥116/$ and the one-year
forward rate is ¥109/$. The annual interest rate is 3% on ¥ and 6%
on USD. The put option on ¥ at the strike price of $0.0086/¥ with
1-year expiration costs 0.012 cent/¥, while the call option on ¥ at
the strike price of $0.0080/¥ with 1-year expiration costs 0.009
cent/¥.
Construct forward hedging for the...
A U.S. MNC expects to receive ¥750 million from its customer one year from now. The...
A U.S. MNC expects to receive ¥750 million from its customer one
year from now. The current spot rate is ¥116/$ and the one-year
forward rate is ¥109/$. The annual interest rate is 3% on ¥ and 6%
on USD. The put option on ¥ at the strike price of $0.0086/¥ with
1-year expiration costs 0.012 cent/¥, while the call option on ¥ at
the strike price of $0.0080/¥ with 1-year expiration costs 0.009
cent/¥.
Construct forward hedging for the...
A. A Japanese importer has a $1,250,000 payable due in one year. Spot exchange rates are...
A.
A Japanese importer has a $1,250,000 payable due in one year.
Spot exchange rates are $1 per ¥100, 1-year forward rates are $1
per ¥120. The contract size is ¥12,500,000. Which strategy can
hedge his exchange rate risk?
Group of answer choices
Go long in dollar forward contracts.
Go short in dollar forward contracts.
Go long in yen forward contracts.
none of the options
B.
A counterparty may use a currency swap
Group of answer choices
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A bank has issued a one- year certificate of deposit for $50
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A U.S. exporter has a €1,000,000 receivable due in one year. Suppose the current spot exchange...
A U.S. exporter has a €1,000,000 receivable due in one year.
Suppose the current spot exchange rate S($/€) = $1.2/€, the
one-year forward exchange rate F360($/€) = $1.25/€, the annual U.S.
interest rate i$ = 5%, and the annual euro zone interest rate i€ =
4%.
a. How to implement a hedge using a forward contract? Compute
the guaranteed dollar proceeds in one year using the forward
hedge.
b. How to implement a money market hedge? Compute the guaranteed
dollar...
A bank has issued a one-year loan commitment of $2 million for an upfront fee of...
A bank has issued a one-year loan commitment of $2 million for
an upfront fee of 25 basis points. The back-end fee on the unused
portion of the commitment is 10 basis points. The bank’s cost of
funds is 7%, and interest on the loan is 9%. The client is expected
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What is the expected return on this loan? Discuss the take-down
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A bank has issued a one-year loan commitment of $2 million for an upfront fee of...
A bank has issued a one-year loan commitment of $2 million for
an upfront fee of 25 basis points. The back-end fee on the unused
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funds is 7%, and interest on the loan is 9%. The client is expected
to withdraw 60% of the commitment at the beginning of the year.
What is the expected return on this loan? Discuss the take-down
risk on the value of this...
A bank has issued a one-year loan commitment of $2 million for an upfront fee of...
A bank has issued a one-year loan
commitment of $2 million for an upfront fee of 25 basis points. The
back-end fee on the unused portion of the commitment is 10 basis
points. The bank’s cost of funds is 7%, and interest on the loan is
9%. The client is expected to withdraw 60% of the commitment at the
beginning of the year. What is the expected return on this loan?
Discuss the take-down risk on the value of this...
Boeing has a future payable £5 million in one year. They can use either forward contract...
Boeing has a future payable £5 million in one year. They can use
either forward contract for options to eliminate their risk
exposure. According to the following information, which rate is the
break-even point between option hedge and forward hedge?
The U.S. interest rate: 6.00% per annum.
The U.K. interest rate: 6.50% per annum.
The spot exchange rate: $1.80/£.
The forward exchange rate and the strike price: $1.75/£ (1-year
maturity).
The option premium: $0.0018/£
A. $1.7481/£
B. 1.312/£
C. 1.123/£...
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