Question

1--- Exxon Oil Corp. is negotiating the purchase of 1 million barrels of oil from a bankrupt competitor to be delivered and paid for in exactly 1 year. The oil exporter wants the contract expressed in Mexican Pesos, and the current "in USD" Peso exchange rate is $0.075. The contract is signed at a price of 1405 Pesos per barrel. How many US Dollars will Exxon be wrose off if at the time of oil delivery the "in USD" Peso exchange rate changes to $0.080?
$

Note: Round your answer rounded to the closest $USD.

2----Exxon Oil Corp. is negotiating the purchase of 1 million barrels of oil from a bankrupt competitor to be delivered and paid for in exactly 1 year. The oil exporter wants the contract expressed in Mexican Pesos, and the current "in USD" Peso exchange rate is $0.068. The contract is signed at a price of 1430 Pesos per barrel. Exxon can enter a futures contract that allows the company to purchase Pesos at the exact time of oil delivery at $0.069. If we consider the use of the futures contract to hedge Exxon's foreign exchange risk, how much is the cost of this insurance to Exxon?
$

Note: Round your answer to the closest $USD.

3---Charlie is a currency trader and has in inventory 115000 Euros that he purchased for $1.35 per Euro. The Euro is now trading at $1.35. What is Charlie's profit or loss on this currency trade?
$

Place your answer in numbers of dollars of profit or loss.

4--- Ford sells a particular car in Geneva for 50125 Swiss francs. The company sells the same car in the U.S. for $34800. The company has a position that it collects foreign currency and brings it over to its U.S. headquarters in dollars at the end of each quarter. What exchange rate, expressed as U.S. dollars per Swiss franc, at the end of this current quarter would make the revenues earned on the car the same whether it was sold in Detroit or Geneva?



Place your answer as a number with four decimal places

Answer 1

Answer 1: The loss to the company is the excess USD it pays due to change in echange rate from 0.075 $ per peso to 0.080 $ per peso. Total loss in USD is calculated as 1million barrels * 1405 pesos per barrel*(future fixed exch rate - today's echange rate)= 1million barrel*1405 pesos per barrel* (0.080-0.075) = $ 70,250,000 (loss)

Answer 2: The cost to the company is the excess USD it pays to lock the exchange rate today through a futures contract. It can be calculated in USD as 1million barrels * 1430 pesos per barrel*(future fixed exch rate - today's echange rate) = 1million barrel*1430 pesos per barrel*(0.069-0.068)$ per pesos = $ 1430,000 (Insurance Cost)

Answer 3: Charlie's inventory of 115000 Euros was purchased at $1.35 per Euro. Since the price is the same today, there is no profit or loss for charlie for this currency trade. USD 0

Answer 4: To make the revenues same in Detroit or Geneva, the price mentioned in both currencies has to be equivalent. So 50,125 swiss francs should be equal to 34,800 $ => Exchange Rate is 34800/50125 $ per Swiss Franc = 0.6943 $ per swiss franc