ider a U.S.-based company that exports goods to Switzerland. The U.S. Company expects to receive payment on a shipment of goods in three months. Because the payment will be in Swiss francs, the U.S. Company wants to hedge against a decline in the value of the Swiss franc over the next three months. The U.S. risk-free rate is 2.9 percent, and the Swiss risk-free rate is 0.9 percent. Assume that interest rates are expected to remain fixed over the near future. The current USD/CHF rate is 1.1059. Calculate the price at which the U.S. Company could enter into a forward USD/CHF contract that expires in 90

Q: Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months.…

A: Importer is the person who purchase the goods from foreign country. When the goods are purchased by…

Q: Using published sources (for example, The Wall Street Journal, Barron’s, Federal Reserve Bulletin),…

A: U.S. Dollar - Japanese Yen (USDJPY) exchange rate historical chart Year Average Closing Price…

Q: If the U.S. economy experiences growth in the future, the property will be worth $50,000,000 and the…

A: Data given:: i)   Growth: Property will be worth $50,000,000 and the exchange course of 1 dollar…

Q: Suppose that you are a U.S.-based importer of goods from the United Kingdom. You expect the value of…

A: In this we have to calculate no arbitrage price according to interest rate parity principles.

Q: Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss…

A: Exchange rates are proportions that are utilized across all global business sectors, including…

Q: Suppose a U.S. firm must pay 200 million Swiss francs to a Swiss firm in 90 days.Briefly explain how…

A: The forward contract is fixing the spot rate of the exchange price of a currency to be returned in…

Q: Suppose you, a German importer, expect to pay $1 million in 90 days for taking delivery of import…

A:

Q: Assume that Stevens Point Co. has net receivables of 150,000 Singapore dollars in 90 days.  The spot…

A: Forward hedge is an agreement to buy or sell an asset at some future date at a stated price in…

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: Bank of Southern Vermont has determined that its inventory of 20 million euros (€) and 25 million…

A: DEAR  is the estimated loss of a portfolio with the change in market conditions such as change in…

Q: A US company needs to make a one-time payment of 50 million dollars in Mexican Pesos in about 6…

A: Option contract : An option contract is an agreement to purchase an asset at a defined price on a…

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

A: Forward is the contract made by two parties for deferring the transaction but the quantity and…

Q: A British company has a USD 1 million payable in two months.How can the British company hedge the…

A: Hedging means techniques or procedures used to eliminate or reduce the risk exposure to due to…

Q: Assume that Hampshire Co. has net payables of 200,000 Mexican pesos in 180 days. The Mexican…

A: Money market hedge is using money market to hedge the risk from foreign currency fluctuations

Q: Suppose a U.S. commercial bank has made a loan to a company in the Eurozone. The loan is for 200…

A: Given, Loan = 200 million euros

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: A Japanese exporter has a €1,000,000 receivable due in one year. To hedge the position, you will buy…

A: A put option is an instrument which provides its holder an option to sell an underlying asset on a…

Q: Assume that the rate of inflation in Turkey will run about 5 per cent higher than the UK inflation…

A: Purchasing power parity is an economic term for measuring prices at different locations.

Q: A U.S. company is considering a high-technology project in a foreign country. The estimated economic…

A: Given information is: The company requires an 18% rate of return in U.S. dollars (after taxes) on…

Q: If the interest rate in USD is 1%, and is 1.2% for Canadian Dollar deposits, find the forward price…

A: The forward contract is an instrument that determines a defined rate to be paid at a predetermined…

Q: The 6-month interest rate in the US is 12.25% p.a. The 6-month interest rate in Canada is 15.25%…

A: Solution :  Under Interest rate Arbitrage we should take the loan from Lower rate interest country…

Q: Suppose that the continuously compounded risk-free interest rates for 1-year, 2-year, and 3-year…

A: A currency swap is an agreement in which two parties exchange the principal and interest of a loan…

Q: Suppose that the invester of GMO has an extra cash reserve of $700,000 to invest in Mexico. The…

A: Arbitrage refers to the situation of sell and purchase of securities of the portfolio in a different…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six…

A: Exchange rate risk is the risk of unexpected changes in the two countries' exchange rates. The…

Q: A year ago, a Swiss investor bought a 1-year U.S. Treasury security at a price of $9,708.74, with a…

A: Here is the approach adopted:The computation of the Rate of return is done as:

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

A: Here, Spot Rate is $1.40/£ Three month forward rate is $1.36/£ Three month market interest rate of…

Q: U.S. deposit rate for 1 year = 11.5% U.S. borrowing rate for 1 year = 12% Swiss deposit rate…

A: Here, US exporter is receiving Swiss franc in one year. So, exporter has receivables from Swiss.…

Q: Assume Switzerland has a one-year interest rate of 3% and that of Ghana is 16%. If the International…

A: The theory of International Fisher's Effect suggests that the spot exchange rate should change to…

Q: Suppose the spot rate of the yen today is $0.0100 while the three-month forward rate is $0.0096. How…

A: The spot rate is lower than the forward rate, implying that the currency is trading at a premium.…

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: Raton Co. is a U.S. company that has net inflows of 100 million Swiss francs and net outflows of 100…

A: Computation of net cash inflows or cash outflows of Raton co. in US$: Raton Co. has a Net inflow:…

Q: Assume that Stevens Point Co. has net receivables of 100,000 Singapore dollars in 90 days. The spot…

A: Money market hedge is using money market to hedge the risk of change in foreign currency…

Q: The treasurer of a major U.S. firm has $30 million to invest for three months. The interest rate in…

A: Future  value should used

Q: The treasurer of a major U.S. firm has $30 million to invest for three months. The interest rate in…

A: Here for second  one we should  use future value  formula

Q: The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize…

A: Information Provided: Cash Reserve = $100,000,000 United States interest rate = 8% (six-month)…

Q: If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need C$200,000…

A: The foreign exchange risk alludes to damage incurred by currency fluctuations in a global financial…

Q: he U.S. interest rate is higher than the U.K. interest rate, will the U.K. investors place…

A: Exchange rates are governed by the inflation and the interest rate and change according to that.

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.