A British importer who owes €100,000 wants to hedge the currency exposure using options. In order to accomplish this, the importer will need to OA Buy PUT option on the £ with strike in U.S.S and buy CALL option on the with strike in 5. O & Buy PUT option on the E with strike in OC. Buy CALL option on the E with strike in f OD. ALL of the above
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- An investor is bullish on the euro and believes it will increase against the Japanese Yen. The investor purchases a currency call option on the euro with a strike price (exchange rate) of ¥126/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥126/€. Assume the euro's spot price at the expiration date (market price) is ¥136/€. the premium is ¥4/€ a) Assume the euro's spot price at the expiration date (market price) is ¥136/€ The investor's profit = ¥/€ b) Assume the euro's spot price at the expiration date (market price) is ¥122/€ The investor's profit = ¥/€ c) What is the maximum loss Maximum loss = ¥/€Suppose you have developed a hairbrained scheme to purchase art, mint a NFT, and then sell it for a bubbly profit. For your scheme, you need to import USD 99570.85 worth of art into Australia. You are concerned that the exchange rate might move adversely during this time. Suppose the current exchange rate is 0.704 You see the following instruments available: • A Put option on AUD with a strike price (in USD/AUD) of 0.6 with a 1.3% premium • A Call option on AUD with a strike price (in USD/AUD) of 0.88 with a 1.7% premium • A forward rate agreement with a FRA rate of 3.5% • A customized forward forward arrangement of 4% Suppose you decide to hedge with the most relevant instrument. Assume that the USD/AUD exchange rate becomes 0.45. What is the overall cost of the art purchase in AUD, including any fees? O a. 163794.04825 O b. 113148.69318 O c. 165951.41667 O d. None of these options O e. 111225.16540 O f. Not enough information O g. 164656.99562Suppose you, a German importer, expect to pay $1 million in 90 days for taking delivery of import goods from a U.S. exporter. St = $1.14/€; Ft, k = $1.16/€, where k =90 days. If St+k = $1.15/€, what would be the gain or loss from the forward hedge relative to remaining unhedged?
- An investor is bearish on the euro and believes it will decrease against the Japanese Yen. The investor purchases a currency put option on the euro with a strike price (exchange rate) of ¥135/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥132/€. the premium is ¥2/€ a) Assume the euro's spot price at the expiration date (market price) is ¥125/€ The investor's profit = ¥/€ b) Assume the euro's spot price at the expiration date (market price) is ¥137/€ The investor's profit = ¥/€ c) What is the maximum loss Maximum loss = ¥/€ d) What the maximum profit Maximum profit = ¥/€For an investor who starts with dollars and wants to end up with dollars, which of the following choices is an example of speculating in the FX market? Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy the foreign currency. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy dollars. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and then buy dollars at the future spot rate. Buy a dollar-denominated financial asset.Assume you can exchange $1 for either £1.0 or €0.50 in the U.S. In the London market, you can exchange £1 for €0.52. This situation creates an opportunity to profit immediately from which one of the following? A. Futures arbitrage B. Currency hedge C. Interest rate swap D. Absolute purchasing power parity E. Triangle arbitrage
- An investor is expecting that the euro either will sharply increase or sharply decrease against the Japanese Yen. The investor purchases 2 options 1) a currency put option on the euro with a strike price (exchange rate) of ¥127/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥127/€. the premium is ¥2/€ 2) a currency call option on the euro with a strike price (exchange rate) of ¥127/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥127/€. the premium is ¥1/€ a) Assume the euro's spot price at the expiration date (market price) is ¥139/€ The investor's profit = ¥/€ b) Assume the euro's spot price at the expiration date (market price) is ¥118/€ The investor's profit = ¥/€ c) What is the maximum loss Maximum loss = ¥/€1. The following Information should be used for Questions 1 and 2. The treasurer of X wants to hedge an exposure to currency risk. X is a company whose domestic currency is the euro, and the company must make a payment of US $500 000 to a US supplier in 6 months' time. The following market rates are available: Exchange rates: $ per €1 Spot= 1.604 ± 0.002 6 months forward= 1.570 ± 0.004 6 month interest rates: Euro Borrowing= 4.8%. Euro Deposits= 4.4% US dollar Borrowing= 2.5%. US dollar Deposits= 2.0%. What would be the euro cost to X if he hedges through a forward contract? (a) Euro 326, 495 (b) Euro 319, 285 (c) Euro 313, 525 (d) Euro 333, 295 2. What would be the cost to X if he hedges through the money market? (a) USD 634, 631 (b) USD 631, 634 (c) Euro 316, 634 (d) Euro 316, 436A multinational corporation based in the United States expects to receive a large payment in euros from its European client in six months. The corporation wants to hedge against potential depreciation of the euro. Which specific forward contract(s) could the company use to mitigate the currency risk? Select all that apply: Buy U.S. dollars forward against euros Sell U.S. dollars forward against euros Buy euros forward against U.S. dollars Sell euros forward against U.S. dollars
- You are a proprietary trader under the FX Group of BDO Treasury Department. Due to the political and economic uncertainties that is happening in the Euro zone and the improving economic conditions in the US, you are bearish on the EUR and bullish on the USD. Given this view, you want to short the EUR and take a net FX position of EUR 100MM. At what rate can you establish your position, assuming the market rate prevails at EUR/USD: 1.3223-1.3227 1.3227 Do not enter the transaction because of the political and economic uncertainties in the Eurozone. 1.3223 Based on the above position/view, w/c of the following outcomes, 1 week from now, will yield you FX gains? Scenario A: at EUR/USD 1.3245 – 1.3249 Scenario B: at EUR/USD 1.3230 – 1.3234 Scenario C: at EUR/USD 1.3216 – 1.3220 How many pips will you make assuming you bought the EUR back and that the desired scenario happens? 11 pips 7 pips 3 pips What is your profit is USD? $110,000.00 $80,000.00 $30,000.00Busco has a foreign-currency denominated payable, itcan hedge by buying the foreign currency payableforward. The company can expect to eliminate theexposure without incurring costs as long as the forwardexchange rate is an unbiased predictor of the future spotrate. Busco exported an A380 to a UK company, and wasbilled the sum of £ 12,000,000 payable in three months.Currently the spot rate is $1.40/£ and the three-monthforward rate is $1.36/£.The three-month money marketinterest rate is 12% per annum in US and 8% per annumin UK.So the management of Busco decided to managethis transaction exposure and use the money markethedge to deal with this pound account payable. 1)Conduct a cash flow analysis of the money market hedge. Answer: Transaction Current cash flow (3-month) Cash flow at maturity 1 Borrow £ =£11,764,705.88 - £12,000,000 2 Buy $ spot with £ = $16, 470,588.24 - £11,764,705.88 0 3 Invest in US - $16, 470,588.24…Do the following problems. You must show your work. d) You observe the following exchange rates in the market. i) $1 = 0.85 euros and 1 krona = $ 0.13. Find the cross exchange rate between euro and krona, that is, how many euros do you receive for every krona exchanged? ii) 1 British pound (BP) = $1.12 and 1 euro = $1.04. Find the cross exchange rate between BP and euro, that is, how many euros do you receive for every BP exchanged?