Currency content analysis technique indicates Risky cashflow = X SFR + Y USD, with currency risk in the SFR/USD exchange rate. If the spot exchange rate is 9.26 SFR /USD, the corresponding cashflow is USD 15.3 milion. If the spot exchange rate is 7.58 SFR / USD, the corresponding cashflow is USD 16.5 million. Solving the system of two equations in two unknowns, the values of X and Y will be 9.88 million SFR and 50.2 million SFR 50 million SFR and 10 million USD 10 million SFR and 50 million USD 50.2 million SFR and 9.88 million USD

Currency content analysis technique indicates Risky cashflow = X SFR + Y USD, with currency risk in the SFR/USD exchange rate. If the spot exchange rate is 9.26 SFR /USD, the corresponding cashflow is USD 15.3 milion. If the spot exchange rate is 7.58 SFR / USD, the corresponding cashflow is USD 16.5 million. Solving the system of two equations in two unknowns, the values of X and Y will be 9.88 million SFR and 50.2 million SFR 50 million SFR and 10 million USD 10 million SFR and 50 million USD 50.2 million SFR and 9.88 million USD

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 32QA

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