A British company has a USD 1 million payable in two months.How can the British company hedge the foreign currency payable? *       A. Buy pounds in the forward market       B. Sell pounds in the spot market       C. Sell US dollars in the spot market       D. Buy US dollars in the forward market

Q: A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds…

A: Here, Borrowing Amount is 10,000 pounds Amount paid back in year is 10,600 pounds Interest Rate of…

Q: Explain your understanding of currency hedging. Why is hedging necessary? If your company is…

A: Foreign exchange- Foreign exchange is the conversion of one currency into another at a specific rate…

Q: IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 1500 million…

A: a) Computation:

Q: Lee Junho who is a currency trader in Japan observers the following market conditions: • Annual…

A: Covered interest arbitrage is an arbitrage strategy where an investor hedges against exchange rate…

Q: Cecilia who is a currency trader in Japan observes the following market conditions: • Annual…

A: Theoretical Forward rate = Current Spot Exchange rate x (1+Interest rate in Home…

Q: The treasurer of a major U.S. firm has $43,129,609 to invest for three months. The annual interest…

A: Here, Investment amount is $43,129,609Investment Period is 3 Months U.S Interest Rate is 0.37% per…

Q: Suppose a U.S. firm buys $200,000 worth of stereo speaker wire from a Mexican manufacturer for…

A: The saving in dollar to eliminate foreign exchange currency risk is difference between payment made…

Q: sume that a bank has assets located in Germany worth €390 million earning an average of 6 percent.…

A: An exchange rate is the rate at which the value of one currency of home country can be exchange at…

Q: Suppose one-year US Treasury bill pays 2.28% and one-year Canadian Treasury bill pays 0.95%. The…

A: Arbitrage is a process to earn profit by purchasing one security from the market and selling another…

Q: IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed 1500 million…

A: Given; Spot = 110 yen/$ Forward rate = 100 yen/$ US Rate = 12% Japan Rate  = 9% Account payable =…

Q: Assume you are an importer in Turkey. You have bought a machine from Germany worth of €250,000. Your…

A: Hedging is risk reduction strategy used by investors or traders to minimise the risk on financial…

Q: Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. The…

A: Solution :  Money Market Hedge help a domestic company in reducing the exchange rate and currency…

Q: If Bank A quotes you an exchange rate of $1.05 per pound. The same bank also quotes exchange rates…

A: Quoted exchange rate = $1.05 per pound Other quoted exchange rates: 1 Yen = $0.97 1 Yen = 0.70 pound

Q: What are spot rates and forward rates? Suppose you open the newspaper today and observe the…

A: Answer 1:The correct answer is “discount” in the forward market.Justification: This is because of…

Q: bought a 1-year U.S. Treasury security at a price of $9,708.74, with a maturity value of $10,000.…

A:

Q: Which of the following is an example of economic exposure but not an example of transaction…

A: There are three types of exposures: 1. Translation exposure 2. Transaction exposure 3. Economic…

Q: 5.ABC Company, a British company, expects to receive $10,000,000 in 30 days. It wants to hedge its…

A: Forward contract is a an agreement between the two parties to sell and buy the underlying assets or…

Q: Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. The…

A: Solution : Money Market Hedge is that technique which provide the protection against loss which…

Q: The following Information should be used for Questions 1 and 2. The treasurer of X wants to hedge an…

A: Payment using forward hedge: Payment = Amount in euro* Forward rate   Stages to hedge using money…

Q: A foreign exchange trader with a U.S. bank took a short position of £5,000,000 when the $/£ exchange…

A: Information Provided: Short position = 5,000,000 Prior exchange rate = 1.48 (dollar/pound)…

Q: A Brazillian coffee exporter has found a market for his coffee to the tune of 1,800,000 Euros. At…

A: Interest rate parity With spot rate (S=in currency ksh per euro), interest rate in Kenya (ik),…

Q: Company A, a British manufacturer, wishes to borrow U.S. dollars at a fixed rate of interest.…

A: Complete expense //if //Company An acquires //USD ///and ///B gets ///Sterling //= //7%+10.6%   //=…

Q: You are a Canadian exporter expecting a payment of USD 1M in three months. You want to hedge your…

A: As the Canadian exporters have speculated that the exchange rate might go up in the future,

Q: Busco has a foreign-currency denominated payable, it can hedge by buying the foreign currency…

A: The put option: The currency put option gives the buyer a right but not the obligation to sell the…

Q: Suppose a U.S. firm purchases some Chinese handicrafts. The china costs 1,000 Chinese yuan. At the…

A: Handicrafts cost = 1,000 Chinese yuan  $1.00 = 6.2 yuan

Q: ABC’s payoff on the forward contract is closest to:

A: Forward Contract: It is an over-the-counter contract between two parties agreeing to purchase or…

Q: You buy USD 10 million against Canadian dollars at 1.3785 and sell USD 10 million at 1.3779. What is…

A: Information Provided: Bought USD 10 Million at = 1.3785 Sold USD 10 Million at = 1.3779

Q: Alice Inc. imports manufactured goods from Ireland to the U.S. Alice’s revenues are primarily in…

A: alice inc expose to currency risk with expenses in Euros considering engaging in option contract…

Q: What is the rate of return to the Swiss investor?

A: The Swiss francs paid at the time of purchase of the treasury bill is:

Q: he following Information should be used for Questions 1 and 2. The treasurer of X wants to hedge an…

A: Forward contract:  Payment = Amount in dollars / Forward rate   Stages to hedge foreign currency…

Q: American X wishes to borrow U.S. dollars at a fixed rate of interest. Corporation Y wishes to borrow…

A: A swap is an agreement between two parties in which the financial instruments or cashflows are…

Q: IBM purchased computer chips from Toshiba, a Japanese electronics concern, and was billed ¥250…

A: Given details: IBM has ¥250 million payable in 3 months from now Current spot rate is 1$ = ¥105 3…

Q: An Omani firm has to make payment of 3 million INR to Indian Company after 30 days. Since the…

A: Where Oman firm has entered into forward contract and the forward exchange rate is less than the…

Q: You are the trade advisor to a multinational company with an investment of US1,500,000.  The…

A: Cross rate is the exchange rate between two currencies which is derived by taking in to…

Q: Complete the following cross-rate table:   USD YEN EURO POUND MEXICAN PESO USD       1.5625   YEN…

A: Triangular Arbitrage opportunities exist in the Foreign exchange trading market. It is the…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $400,000 to invest for six months.…

A: Given information, Interest rate (I$)=4.3/2 =2.15% Interest rate (I€)= 3.2/2 =1.6% Spot exchange…

Q: ABC Co. expects a payment from an American customer in 30 days. To hedge its currency exposure, ABC…

A: Solution:- Forward means entering into an agreement to sell or buy something on a future date at…

Q: Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market…

A: Theoretical Forward rate = Current Spot rate x (1+Home Currency Interest rate)(1+Foreign Currency…

Q: Lagoon (a U.S. firm) will be receiving 4 million British pounds in one year. It will need to make a…

A: The question is based on the concept of business finance.

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.