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- Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.3356 S$/US$. You have just placed an order for 30,000 motherboards at a cost to you of 218.50 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $175 each. a. Calculate your profit if the exchange rate stays the same over the next 90 days. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. Calculate your profit if the exchange rate rises by 10 percent over the next 90 days. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. Calculate your profit if the exchange rate falls by 10 percent over the next 90 days. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d. What is the break-even exchange rate? Note: Do not round…Suppose that you are the treasurer of IBM with an extra U.S. $1,000,000 to invest for six months. You are considering the purchase of U.S. T-bills that yield 1.810% (that’s a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = ¥100, and the six month forward rate is $1.00 = ¥110. The interest rate in Japan (on an investment of comparable risk) is 13 percent. What is your strategy?A large corporate customer approaches your bank for a US$10 million loan at a fixed rate of 6% p.a. over five years to acquire equipment. Interest to be paid annually, principal at maturity. Your bank has adequate USD funding priced at 3 months libor (3ML). Based on the economic recovery and reopening of major economies after the covid-19 vaccines, the bank is concerned about rising interest rate and the USD exchange rate. The proposal is attractive at current rates and the bank is willing to underwrite the loan providing it can hedge the interest rate risk. The bank has a swap party that is interested in receiving 6% and paying 3 months libor plus 2%. A. With the aid of a diagram, show how this USD loan can be hedged using a swap. B. What is the net interest income/year to the bank from the hedge facility in (A) above? What will be the net interest income to the bank on the hedged facility if interest rates(3ML) increase by 200 basis points?
- IF 2c Your Canadian company processes raw sugar for sale in the United States, and thefirm has just received a container of raw material from the UK. You have an invoicethat asks you to pay £20,000 in 30 days. The current exchange rate is $1.75/£. c. If you could lock into a forward rate today of $1.85/£ for delivery in 30 days, whatshould you do?Last year, your company sold electronic products to Brazil. You are expecting to receive Real 850,000 in 6 months. The following quotations are provided by a currency dealer: In $ Real 1 m. forward 3 m. forward per $ 2.3810 2.3753 0.4200 0.4210 0.4350 2.2989 6 m. forward 0.4115 2.4301 If you are completely confident that the spot rate in 6 months will be 0.4228, do you need to take a short or long position in Real forward contract?A US consulting firm sent an invoice of £200,000 to a UK client firm.The spot rate of pound when the invoice was sent was $1.30. The invoice should only be paid by the UK firm six months from now. Forecasted spot rates six months from now are given as below: Forecasted rate Probability $1.25 0.30 $1.27 0.50 $1.30 0.20 The six-month forward rate is $1.25. Required: If the invoice is to be paid six months from now, illustrate by showing your calculations, whether the US firm will be better off by using forward contract to hedge their forex transaction risk in this scenario.
- Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.4923 per Singapore dollar. You have just placed an order for 38251 motherboards at a cost to you of S159 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $118 each. Calculate your profit if the exchange rates goes up by 14.73% over the next 90 days. NOTE: Enter the number rounding to four DECIMALS.Hedging using forward rates: Assume the hypothetical spot rate between the JPY and USD was 101.25 JPY per USD. Suppose you are purchasing 2000000 JPY worth of microprocessors deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 101.18 JPY per USD. What does that imply for your payment to the bank in 3 months?Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.3595 per Singapore dollar. You have just placed an order for 39328 motherboards at a cost to you of S146 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $118 each. Calculate your profit if the exchange rates goes down by 12.23% over the next 90 days. NOTE: Enter the number rounding to four DECIMALS. If your decimal answer is 0.034576
- have been recruited by Sustainable Lambs LLC, which is based in Dubai, as the international finance analyst. The company is importing mostly from Canada, and you are interested in using foreign currency (FX) options to manage the foreign currency exposure Given a contract with a transaction value of Canadian dollars (CADS) 150,000 which is expected to be paid in 3 months: (c) The strike price for a March expiring contract is currently AED 2.65/ CADS with a premium of AED 0.05/CADS. Assuming 1 contract on CADS option is worth CADS 150,000, estimate the profit and loss under each of the following possible future exchange rates between the UAE dirham and Canadian dollar for a long call FX option: FX rate (AED/€) 1 2.5 2.65 2.7 3.5 4 Profit/Loss (AED)Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.4073 per Singapore dollar. You have just placed an order for 35,062 motherboards at a cost to you of S158 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $113 each. Calculate your profit if the exchange rates goes down by 14.51% over the next 90 days.Hedging using forward rates: Assume the hypothetical spot rate between the USD and GBP was 1.6187 USD per GBP. Suppose you are purchasing 200000 GBP worth of Scotch Whisky deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 1.6175 USD per GBP. What does that imply for your payment to the bank in 3 months to get the 200000 GBP?