Suppose you are working as a portfolio manager for Goldman Sacks and advising Johnson & Johnson,...

Suppose you are working as a portfolio manager for Goldman Sacks and advising Johnson & Johnson, a U.S. Pharmaceutical company, that expects to receive a payment of 500 million Japanese yen in 180 days for goods exported to Japan. The current spot exchange rate is 100 yen per U.S. dollar (e _yen/$=100, or e _$/yen =0.01). You are concerned that due to recent events in Japan, the U.S. dollar is expected to appreciate against the yen over the next 6 months.
1. Assuming the spot exchange rate remains unchanged, how much does the U.S. company, Johnson & Johnson, expects to receive in U.S. dollar?
2. How much would Johnson & Johnson receive (in U.S. dollars) if the dollar appreciated to 110 yen per U.S. dollar (e _yen/$=110, or e _$/yen =0.009091)? Compute.
3. Describe how you could use the forward market to hedge against the risk of losses associated with the potential appreciation in the U.S. dollar. Explain the steps.

Solutions

Expert Solution

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

You are working at Bank of America Merrill Lynch as a Portfolio Manager. You are thinking...

You are working at Bank of America Merrill Lynch as a Portfolio Manager. You are thinking about rebalancing clients portfolio position and researching on various industries, i.e., housing construction, health care, energy, technology, financials, coal mining, and steel production. Choose one or two industry that you would expect to perform best in future. Write a brief summary and explain why you client would be convinced by your decision.

You are advising a company that is working to raise $100,000,000. You believe that it is...

You are advising a company that is working to raise $100,000,000. You believe that it is best for the company to issue stocks and bonds to raise these funds. The key market conditions during the planning period are as follows: the required interest rates on bonds with a AAA rating is 3.35%; the company's stock is currently priced to deliver an 11% return. The company stock will pay an annual dividend of $1.60 per share after one year and dividends...

You are an analyst working for Goldman Sachs, and you are trying to value the growth...

You are an analyst working for Goldman Sachs, and you are trying to value the growth potential of a large, established company, Big Industries. Big Industries has a thriving R&D division that has consistently turned out successful products. You estimate that, on average, the division launches two projects every three years, so you estimate that there is a 60 % chance that a project will be produced every year. Typically, the investment opportunities the R&D division produces require an initial...

Suppose you are an investment analyst, your supervisor, a portfolio manager asked you to write a...

Suppose you are an investment analyst, your supervisor, a portfolio manager asked you to write a brief report on how will the COVID-19 outbreak affect the stock market and economy in the world and Malaysia, and the report must include detailed analysis from part (1) to part (3) below. Perform a fundamental analysis of the overall market and economy in Malaysia. How will COVID-19 outbreaks across the world affect the Malaysian economy in terms of economic growth rate in 2021?...

Assume you are working at UN, at a department advising countries on policies to reduce gender...

Assume you are working at UN, at a department advising countries on policies to reduce gender inequality. Write a policy states around the world may use in order to prevent or reduce gender discrimination in the labor market and explain it

Suppose you are the manager of a mutual fund and hold a RM10 million stock portfolio....

Suppose you are the manager of a mutual fund and hold a RM10 million stock portfolio. The required market risk premium is 6.5% and the risk fee rate is 3%. Stock A & B are 20% each of its total portfolio, Stock C and D are 25% and 18% and the remainder goes to Stock E. Beta for Stock A, B, C, D and E are 0.75, 1.30, 1.6, 0.5 and 1.2. The return for stock A and B are...

If you are working on a career portfolio how do you feel this portfolio will assist...

If you are working on a career portfolio how do you feel this portfolio will assist you in finding the best career fit after completion of your degree? What are some things you can add or you feel would be beneficial to your job search besides what is already listed for you? Please explain your answer.

Suppose you are a fund manager managing a portfolio worth $10million with Beta equal 1.2. The...

Suppose you are a fund manager managing a portfolio worth $10million with Beta equal 1.2. The index futures price is 1000 and each future contracts is on $50 times the index. If you want to keep the value of the portfolio stable without selling the portfolio in the next two months, what is your hedging strategy? In the maturity date, the index is 1050, please show the success of your strategy. The risk-free interest rate is 5% per annum (continuously...

PORTFOLIO REQUIRED RETURN Suppose you are the money manager of a $5.15 million investment fund. The...

PORTFOLIO REQUIRED RETURN Suppose you are the money manager of a $5.15 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 500,000 1.50 B 400,000 (0.50) C 1,500,000 1.25 D 2,750,000 0.75 If the market's required rate of return is 11% and the risk-free rate is 6%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %

Suppose you are a fund manager, currently managing a diversified risky portfolio that consists of equity...

Suppose you are a fund manager, currently managing a diversified risky portfolio that consists of equity index fund A (40%), bond index fund B (30%), and international equity fund C (30%). The portfolio has an expected rate of return of 12% and a standard deviation of 25%. Lisa, a project manager in IBM, is one of your clients. After some discussion with her, you suggest Lisa to invest her total $800,000 personal wealth in your fund and a T-bill money...

Subjects