$0.68 $0.73 $0.78 Assume that 6-month put options on New Zealand dollars are available with an exercise price of $0.73 and a premium of $0.04 per unit. 6-month call options on New Zealand dollars are available with an exercise price of $0.70 and a premium of $0.03 per unit. Assume the following money market rates per annum: 28% 46% 26% US 7% NEW ZEALAND 2% 3% Deposit rate 8% Borrowing rate a. Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.

$0.68 $0.73 $0.78 Assume that 6-month put options on New Zealand dollars are available with an exercise price of $0.73 and a premium of $0.04 per unit. 6-month call options on New Zealand dollars are available with an exercise price of $0.70 and a premium of $0.03 per unit. Assume the following money market rates per annum: 28% 46% 26% US 7% NEW ZEALAND 2% 3% Deposit rate 8% Borrowing rate a. Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 32QA

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Similar questions

Suppose the nominal interest rate in the U.S. is 8% per year, the nominal interest rate in Brazil is 15% per year, and today’s spot rate is S ($/BRL) =0.49. Assuming that the International Fisher Effect holds, what is the expected spot rate S90 ($/BRL) in three months?
Assume that Epping Co. expects to receive S$500,000 in one year. Epping created a probability distribution for the future spot rate in one year as follows: Future Spot Rate $.68 Probability 20% 62 50 30 61 Assume that one-year put options on Singapore dollars premium of $.04 per unit. One-year call options on Singapore dollars are available with an exercise price of S.60 and a premium of $.03 per unit. a are available, with an exercise price of $0.63 and Use the appropriate options hedge to determine whether the firm would exercise the option using each of the three different spot rates i.e. what would the firm do if each spot rate existed at the time it is considering exercising the option (assume the option is about to expire). Then, show the total amount of receivables (in US dollars) based on the appropriate strategy that would be implemented for each of the three spot rates. Indicate whether the amount would be a maximum or a minimum or neither.
Suppose the nominal interest rate in the U.S. is 5% per year, the nominal interest rate in Brazil is 10% per year, and today's spot rate is S ($/BRL) = 0.24. If the International Fisher Effect holds, what are the expected spot rates S ($/BRL) in three months, 6 months, and 1 year?
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