9-1 Option Hedge On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The ti value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates option premia follow. June 1 June 30 September 1 Date Spot Rate $0.066 0.065 0.064 Put Option Premium for September 1 (strike price $0.066) $0.0029 0.0024 N/A

9-1 Option Hedge On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The ti value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates option premia follow. June 1 June 30 September 1 Date Spot Rate $0.066 0.065 0.064 Put Option Premium for September 1 (strike price $0.066) $0.0029 0.0024 N/A

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter6: Government Influence On Exchange Rates

Section: Chapter Questions

Problem 21QA

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H On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will pay on September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates and option premia follow. Spot Rate June 1 $0.066 June 30 0.065 September 1 0.064 What is the net foreign exchange gain or loss Wellmax will recognize on its June 30 income statement? Use a-sign to indicate loss. Date Put Option Premium for September 1 (strike price $0.066) $0.0029 0.0024 N/A
On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will pay on September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates and option premia follow. Date June 1 June 30 September 1 What is the fair value of the option contract on June 1? Spot Rate $0.066 0.065 0.064 Put Option Premium for September 1 (strike price $0.066) $0.0029 0.0024 N/A
27-An trader agreed to buy equipment from a US trader for $200,000 on 1st January. The invoice is to be settled on 31st May. The spot exchange rate on 1 January is OMR 2.7500/$. On 31st May, the spot rate is OMR 3.0000/$. How much OMR the Omani trader has to pay on 31st May and which type of risk exposed by the Omani trader? O a. $ 80,000 and the Omani trader exposed to transaction risk O b. None of the options O c. $ 72,272.2727 and the Omani trader exposed to transaction risk O d. $ 80,000 and the Omani trader exposed to translation risk
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,170,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,170,000 pesos in three months at a strike price of $0.082. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Put Option Premium Spot Date for September 1 Rate (strike price $0.082) June 1 S 0.082 June 30 0.081 September 1 0.080 $ 0.0045 0.0032 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2. What is the impact on net income over…
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,080,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,080,000 pesos in three months at a strike price of $0.106. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date Spot Rate Put Option Premiumfor September 1(strike price $0.106) June 1 $ 0.106 $ 0.0069 June 30 0.105 0.0044 September 1 0.104 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars.…
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,110,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,110,000 pesos in three months at a strike price of $0.076. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date June 1 June 30 September 1 Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2. What is the impact on net income over the two accounting periods? b-1. Assuming that Maxwell designates the foreign currency option as a fair value…
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,100,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,100,000 pesos in three months at a strike price of $0.074. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date Spot Rate Put Option Premium for September 1 (strike price $0.074) June 1 $ 0.074 $ 0.0037 June 30 0.073 0.0028 September 1 0.072 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. Required: a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2. What is the…
On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,140,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,140,000 pesos in three months at a strike price of $0.080. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date Spot Rate Put Option Premiumfor September 1(strike price $0.080) June 1 $ 0.080 $ 0.0043 June 30 0.079 0.0031 September 1 0.078 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2.…
ts On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,420,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,420,000 pesos in three months at a strike price of $0.104. Relevant exchange rates and option premia for the peso are as follows: Spot Rate Put Option Premium for September 1 (strike price $0.104) eBook Date June 1 June 30 September 1 $ 0.104 0.103 0.102 $ 0.0067 0.0043 N/A Print 이 eferences Maxwell must close its books and prepare its second-quarter financial statements on June 30. b-1. Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. b-2. What is the impact on net income over the two accounting periods due to fluctuations in the value of the foreign currency? [Looking for net effect on the Foreign Exchange Gain/Loss…
Q4 An analyst holds a set of forward contracts on euro, against usd (=hc). Compute the fair value of the contracts.(a) Purchased: eur 1m 60 days (remaining). Historic rate: 1.350; current rate for same date: 1.500; risk-free rates (simple per annum): 3% in usd, 4% in euro. (b) Purchased: eur 2.5m 75 days (remaining). Historic rate: 1.300; current spot rate: 1.5025; risk-free rates (simple per annum): 3% in usd, 4% in euro. (c) Sold: eur 0.75m 180 days (remaining). Historic rate: 1.400; current rate for same date: 1.495; risk-free rates (simple per annum): 3% in usd, 4% in euro.
14 LMN. entereda forward contract to hedge a ¥100,000,000 which the company expect3 to pay in 90 days. The contract calls for LMN. to deliver yen (¥) at ¥111.25 per U.S. dollar. If on the delivery date, the spot rate is ¥109.75 per U.S. dollar. How much ia the gain (loss) on the hedge?* $12,205.33 ($12,.205.33) S66.666.67 (కరర,6ం6 67 Which of the following statementa is true? [S1]na strong form efficient market, there is no mispriced assets. [S2] In a strong form efficient market, all information is equally aveilable to allirvestors Both staterments 1 and 2. Staterment 2only Statement.1 only Neither of Staterment 1nor2. XYZ Inc io prepaning to iasue preferred atock The preferred stock wili nave a P100
Problem 9-19 (Algo) (LO 9-9) Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 132,000 pounds, with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.47 per pound, Shandra purchases a two-month call option on 132,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value is recognized in net income over the life of the option. The option has a strike price of $1.47 per pound and costs $1,320. The goods are received and paid for on June 15. Shandra sells the imported goods in the local market immediately. The spot rate for pounds is $1.520 on June 15. Required: a-1. Prepare all journal entries for Shandra Corporation related to this transaction and hedge. a-2. What amount should Shandra Corporation report in net income as cost of goods sold for the quarter…