10. Using foreign exchange derivativesMobile Insurance Company (a U.S.-based company) plans to invest about $30 million in Korean won 6 months from now. If Mobile Insurance Companyis concerned that the Korean won will depreciate against the dollar by the time of the purchase,a won forward contract wouldbenefit the company.

A forward contract is a private agreement between two parties to buy or sell an asset at a specified…

10. Using foreign exchange derivatives Mobile Insurance Company (a U.S-based company) plans to invest about $30 million in Korean won 6 months from now. If Mobile Insurance Company a won forward contract would is concerned that the Korean won will depreciate against the dollar by the time of the purchase, benefit the company.

10. Using foreign exchange derivatives Mobile Insurance Company (a U.S-based company) plans to invest about $30 million in Korean won 6 months from now. If Mobile Insurance Company a won forward contract would is concerned that the Korean won will depreciate against the dollar by the time of the purchase, benefit the company.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 1ST

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Similar questions

(d) Your firm, a Singapore company, imports electronic products from America. Your firm has purchased USD 1 million worth of products and is to pay in one month's time. The current spot rate is SGD1.40/USD. (i) (ii) (iii) Will your company be concerned about an appreciation or depreciation in the USD? Explain your answer. Your firm is considering purchasing an option to hedge the risk of the USD movements against the SGD. Should your firm purchase a USD call or put option? Justify your answer. The option your firm purchased has a strike price of SGD1.41/USD. Given that the spot rate in one month's time is SGD1.42/USD, should your firm exercise the option? Explain your reason(s).
An Omani importer will receive commodities from USA and he has to pay an amount of USD 250,000 next month. Which of the below markets is well suited to offer hedging protection against this transactions risk exposure? a. Inflation rate market O b. Transactions market C. Spot market O d. Forward market
12. Your firm is a British importer of Italian shoes. You have placed an order with an Italian firm for €1,000,000 worth of shoes. Payment (in EUR) is due in 3 months. What is the company's CCY position? With the rates provide below, what is the amount of GBP you will pay if you implement a money market hedge? Current FX rate is €1.2000/£ and money market rates are 0.25% and 1.00% for the EUR and the GBP respectively. Company's Position: A. £ 833,854.17 B. £ 834,894.86 C. £ 831,774.73 D. £1,197,755.61
A Japanese firm has a contract to buy equipment from a US manufacturer for $2.20m in 30 days. The current spot rate is 110 JPY/USD. A. The Japanese firm has an asset/liability position in dollars. B. The Japanese firm faces the risk that the yen will appreciate/depreciate. C. How can the firm hedge this risk (be specific and detailed)?
Consider a US company, GateCorp, that exports products to the United Kingdom. GateCorp has just closed a sale worth £200,000,000. The amount will be received in two months. Because it will be paid in pounds, the US company bears the exchange risk. In order to hedge this risk, GateCorp intends to use a forward contract that is priced at $1.4272 per pound. Indicate how the company would go about constructing the hedge. Explain what happens when the forward contract expires in two months.
Cheng has a 80,000 foreign currency receivable due in 60 days. What is the appropriate action for Cheng to take today if it wishes to hedge its foreign exchange exposure. a. Enter into a FX spot contract today, purchasing foreign currency and selling US dollars b. Sell an FX option today to a Bank, giving the Bank the right but not the obligation to sell to Roberts 50,000 foreign currency and buy US dollars in 60 days. c. Enter into an FX forward today buying foreign currency and selling US dollars for settlement in 60 days d. Enter into an FX forward today buying US dollars and selling foreign currency for settlement in 60 days. e. Buy an FX option today giving Roberts the right but not the obligation to buy 50,000 foreign currency and sell US dollars in 60 days
A Japanese firm has a contract to buy equipment from a US manufacturer for $2.20m in 30 days. The current spot rate is 110 JPY/USD. The Japanese firm has an asset/liability position in dollars. The Japanese firm faces the risk that the yen will appreciate/depreciate. How can the firm hedge this risk (be specific and detailed)?
Q3. Cold Storage Malaysia Sdn Bhd needs to pay AUD 575,000 in 2 months time for the purchase of fresh fruits and vegetables from an Australian supplier. Knowing that it is exposed to fluctuations in AUDIMYR exchange rate, Cold Storage is considering the following alternatives: Alternative 1: Do nothing, i.e. to wait until the AUD is due to be paid in 2 months' time and to buy the amount required at whatever spot rate at that time. Alternative 2: Hedge by entering into an FX forward contract. i. Explain what Cold Storage need to do if Alternative 1 were selected. ii. Again if Altermative 1 were to be used, calculate the amount in MYR that Cold Storage would pay in| 2 months from now under the different AUD/MYR exchange rate scenarios at maturity by filling up the blank spaces in the following Table 1. Also compute potential gain or loss to Cold Storage in MÝR in each scenario. Table 1 Amount To Be If Spot Rate Gain / (Loss) Allocated at Maturity is... MYR per AUD in MYR 3.1000 0.0085…
(5)Assume the following information: 90-day U.S. interest rate 90-day Malaysian interest rate 90-day forward rate of the Ringgit Spot rate for the Ringgit 4% 3% $0.400 $0.404 Assume ABC based in NYC needs 600,000 ringgits in 90 days to pay for its imports and wishes to hedge its payable position. Would it be beneficial to engage in forward hedge or a money market hedge? Hint: Find the cost for each type of Hedge and compare the results.
Assume the following information: 90-day U.S. interest rate 4% 90-day Malaysian interest rate 3% 90-day forward rate of Malaysian ringgit $.400 Spot rate of Malaysian ringgit $.404 Assume that the Santa Barbara Co. in the United States will need 300,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge.
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Kansas Corp., an American company, has a payment of €5.3 million due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90 €/$, this would cost Kansas $5,888,889, but Kansas faces the risk that the €/$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy €5.3 million forward today at a one-year forward rate of 0.89 €/$. Strategy 2 is to pay a premium of $103,000 for a one-year call option on €5.3 million at an exchange rate of 0.88 €/$. a. Suppose that in one year the spot exchange rate is 0.85 €/$. What would be Kansas's net dollar cost for the payable under each strategy? (Round your answer to the nearest whole dollar amount.) Strategy 1 Strategy 2 Net Dollar Cost b. Suppose that in one year the spot exchange rate is 0.95 €/$. What would be Kansas's net dollar cost for the payable under each strategy? (Round your answer to the nearest whole…