The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months
2) Minimize the cost associated with the foreign exchange risk management strategy, i.e. the management and hedging costs
We can calculate the optimal hedge by multiplying the correlation between futures and spot with standard deviation of spot divided by the standard deviation of the future.
26. A financial manager has detrermined that the appropriate rate discount for a foreign project is 17 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 3 percent and 8 percent, respectively.
• Jaguar Treasury could create Money Market Hedges by borrowing USD, converting the proceeds into GBP using spot rate, and using the revenues generated in US market to pay back the USD principle and interests in the future. This would provide a "natural" hedge against Jaguar’s dollar revenue stream.
Second City Options (SCO) is a small firm that specializes in option trading. Employing 35 people, SCO is located on LaSalle Street in the Chicago financial district. It is a member firm of the Chicago Board Options Exchange (CBOE), where it trades options on stocks and stock indices. It is also a member firm of the Chicago Mercantile Exchange Group (CME Group), where it trades options on futures and the underlying futures contracts.
When currency rate is $1.01, the actual cost incurred is less than the forecasted total cost. Hence, there is a gain for AIFS. When currency rate is $1.22, the actual cost incurred is same as the forecasted total cost. Hence, there is no gain or loss for AIFS. But for currency rate $1.44, it’s a loss & there is risk.
• Borrow CAD 96 Million @ 2.70% p.a.• Buy USD @ CAD 1.5995 / USD• CAD 96 Million → USD 60,018,756• Deposit USD 60,018,756 @ 1.65% p.a.• Arranging six-month Forward Contracts @ USD 0.6271 / CAD
303). Subsequently issued bonds after the drop in yen bonds, in the short-term, will probably be set with lower coupon rates making the fixed terms of the already issued dual-currency bond valuable.
Based on your answer to question 2, how would Mesa’s cash flows be affected by the expected exchange rate movements? Explain.